<PAGE> 1
Pursuant to
Rule 424(b)(1)
File No.: 333-50727
SOUTHLAND BANK CORPORATION OF GEORGIA
P. O. BOX 431
DOUGLAS, GEORGIA 31534
May 12, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Southland Bank Corporation of Georgia ("SBC") to be
held at the main office of Coffee County Bank, 102 North Peterson Avenue,
Douglas, Georgia, at 2:00 p.m., local time, on Tuesday, June 16, 1998.
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 February 18, 1998,
as amended on May 8, 1998 (the "Merger Agreement"), by and among First Liberty
Financial Corp. ("FLFC"), First Liberty Bank, a wholly owned subsidiary of FLFC
("FLB"), SBC and its two wholly owned subsidiaries, Southland Bank and Coffee
County Bank ("Coffee Bank"). The Merger Agreement, among other things, provides
for the merger of SBC with and into FLFC (the "Company Merger"), which shall be
the surviving corporation in the Company Merger, and of Southland Bank and
Coffee Bank with and into FLB (the "Bank Merger"). FLB will be the surviving
savings bank in the Bank Merger and will remain a wholly owned subsidiary of
FLFC. If the proposed Company Merger is consummated, each outstanding share of
Common Stock, $50.00 par value per share, of SBC ("SBC 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 5.265 shares (the
"Merger Consideration") of Common Stock, $1.00 par value per share, of FLFC (the
"FLFC Stock"). As a result, FLFC will issue an aggregate of approximately
1,739,266 shares of FLFC Stock in the Company Merger. The affirmative vote of
the holders of a majority of the shares of SBC Stock entitled to vote at the
Special Meeting is required for approval of the Merger Agreement and the
transactions contemplated thereby. The directors of SBC, as a group, own or
control voting power of approximately 80.5% of the shares of SBC Stock entitled
to vote. Each of these individuals has agreed to vote his shares of SBC 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 Company Merger and Bank Merger, including a
description of the conditions to consummation of the Company Merger and the
effects of the Company Merger on the rights of SBC stockholders.
As soon as practicable after the Company Merger, FLFC will send to you
a letter of transmittal providing instructions for exchanging your SBC 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
SBC'S STOCKHOLDERS AND THAT THE COMPANY MERGER IS FAIR TO SBC'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/ Ken B. Lanier
-------------------------
Ken B. Lanier
President and
Chief Executive Officer
SBC STOCKHOLDERS SHOULD NOT SURRENDER OR OTHERWISE ATTEMPT TO EXCHANGE
THEIR SBC STOCK CERTIFICATES FOR FLFC STOCK CERTIFICATES UNLESS AND UNTIL THEY
HAVE RECEIVED APPROPRIATE NOTICE AND INSTRUCTIONS FOR EXCHANGE.
<PAGE> 2
SOUTHLAND BANK CORPORATION OF GEORGIA
P.O. BOX 431
DOUGLAS, GEORGIA 31534
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held at 2:00 p.m. on Tuesday, June 16, 1998
To the Stockholders of Southland Bank Corporation of Georgia:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Southland Bank Corporation of Georgia ("SBC") will be held
at the main office of Coffee County Bank, 102 North Peterson Avenue, Douglas,
Georgia, at 2:00 p.m., local time, on Tuesday, June 16, 1998, for the following
purposes:
1. The Company Merger. To consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger dated as of February 18, 1998, as
amended on May 8, 1998 (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"), SBC and its two wholly owned
subsidiaries, Southland Bank ("Southland Bank") and Coffee County Bank ("Coffee
Bank"), and the consummation of the transactions contemplated thereby. The
Merger Agreement provides, among other things, for the merger of SBC with and
into FLFC (the "Company Merger") and of Southland Bank and Coffee Bank with and
into FLB (the "Bank Merger"). FLFC will be the surviving corporation in the
Company Merger, and FLB will be the surviving savings bank in the Bank Merger.
As a result of the Company Merger, each share of Common Stock of SBC, $50.00 par
value per share ("SBC Stock"), outstanding immediately prior to the Company
Merger will cease to be outstanding and will be converted into and exchanged for
the right to receive 5.265 shares (the "Merger Consideration") of Common Stock
of FLFC, $1.00 par value per share ("FLFC Stock"). As a result, FLFC will issue
an aggregate of approximately 1,739,266 shares of FLFC Stock in the Company
Merger. The Merger Agreement, the Company Merger and the Bank 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 May 6, 1998,
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 SBC Stock entitled to vote at
the Special Meeting. The directors of SBC, as a group, own or control voting
power of approximately 80.5% of the shares of SBC Stock entitled to vote. Each
of these individuals has agreed to vote all shares of SBC Stock owned or
controlled by him or her 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 SBC RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
EACH STOCKHOLDER OF SBC HAS THE RIGHT TO DISSENT FROM THE MERGER
AGREEMENT AND DEMAND PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES OF SBC STOCK
IF THE COMPANY 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 MERGERS - 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/ Ken B. Lanier
------------------------
Ken B. Lanier
President and
Douglas, Georgia Chief Executive Officer
May 12, 1998
<PAGE> 3
PROXY STATEMENT
OF
SOUTHLAND BANK CORPORATION OF GEORGIA
------------
PROSPECTUS
OF
FIRST LIBERTY FINANCIAL CORP.
------------
This Proxy Statement/Prospectus is being furnished to holders of Common
Stock, $50.00 par value per share ("SBC Stock"), of Southland Bank Corporation
of Georgia, a Georgia corporation ("SBC"), in connection with the solicitation
of proxies by the Board of Directors of SBC for use at a Special Meeting of
Stockholders to be held at 2:00 p.m., local time, on Tuesday, June 16, 1998, at
the main office of Coffee County Bank, 102 North Peterson Avenue, Douglas,
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
February 18, 1998, as amended on May 8, 1998 (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"), SBC and its two wholly owned subsidiaries, Southland Bank
("Southland Bank") and Coffee County Bank ("Coffee Bank"), and approve the
consummation of the transactions contemplated thereby. A copy of the Merger
Agreement is attached as Appendix A to this Proxy Statement/Prospectus and is
incorporated herein by reference.
The Merger Agreement provides for, among other things, the merger of
SBC with and into FLFC (the "Company Merger"), with FLFC as the surviving
corporation in the Company Merger, and of Southland Bank and Coffee Bank with
and into FLB (the "Bank Merger") (the Company Merger and the Bank Merger, as
referred to herein, collectively the "Mergers"), which will be the surviving
savings bank in the Bank Merger and will remain a wholly owned subsidiary of
FLFC. Upon consummation of the Company Merger, each outstanding share of SBC
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
5.265 shares (the "Merger Consideration") of Common Stock, $1.00 par value per
share, of FLFC (the "FLFC Stock"). As a result, FLFC will issue approximately
1,739,266 shares of FLFC Stock in the Company Merger. No fractional shares of
FLFC Stock will be issued in the Company Merger. Instead, each holder of shares
of SBC 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 average of the closing per share trading prices of FLFC Stock
on the twenty trading days immediately preceding the tenth business day prior to
the effective date of the Company Merger. The shares of FLFC Stock are listed on
The Nasdaq Stock Market under the symbol "FLFC."
As soon as practicable after the Company Merger, FLFC will send to
holders of SBC Stock a letter of transmittal providing instructions for
exchanging their certificates representing any shares of SBC Stock (a "SBC
Certificate") for FLFC Stock. SBC stockholders should not surrender or otherwise
attempt to exchange their SBC Certificates for FLFC Stock certificates unless
and until they have received appropriate notice and instructions for exchange.
This Proxy Statement/Prospectus also constitutes a prospectus of FLFC
relating to the shares of FLFC Stock issuable to SBC stockholders in the Company
Merger.
All shares of SBC Stock outstanding immediately before the effective
time of the Company Merger (the "Effective Time") will, as a result of the
Company Merger, no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and each holder of a SBC 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 SBC
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 SBC on or about May 12, 1998.
THE FLFC STOCK ISSUABLE IN THE COMPANY 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 COMPANY 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 May 12, 1998.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 5
SUMMARY............................................................................... 6
Parties to the Merger........................................................... 6
The Special Meeting............................................................. 7
The Mergers..................................................................... 7
Market Prices and Dividends on FLFC and SBC 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 SBC's Board of Directors...................................... 19
THE MERGERS
General......................................................................... 20
The Mergers..................................................................... 20
Merger Consideration............................................................ 20
Effective Time.................................................................. 21
Exchange of SBC Stock Certificates.............................................. 21
No Fractional Shares............................................................ 22
Management and Operations After the Mergers..................................... 22
Interests of Certain Persons in the Mergers..................................... 22
Background of the Mergers....................................................... 24
Reasons for the Mergers......................................................... 25
Opinion of Financial Advisor.................................................... 26
Certain Federal Income Tax Consequences......................................... 29
Regulatory Approvals............................................................ 31
Summary of Certain Provisions of the Merger Agreement........................... 31
Expenses and Fees............................................................... 34
Accounting Treatment............................................................ 34
Restrictions on Resales of FLFC Stock........................................... 34
Dissenters' Rights.............................................................. 35
PRO FORMA COMBINED CONDENSED FINANCIAL DATA........................................... 37
SOUTHLAND BANK CORPORATION OF GEORGIA MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Summary......................................................................... 44
Loans........................................................................... 45
Investment Securities........................................................... 46
Other Assets.................................................................... 48
Deposits........................................................................ 49
Other Liabilities............................................................... 50
Liquidity....................................................................... 50
Capital Resources and Dividends................................................ 51
Results of Operations for the Years Ended December 31, 1997, 1996 and 1995...... 52
Net Interest Income............................................................. 52
Interest Rate Risk Management................................................... 54
Provisions For Loan Losses...................................................... 55
Asset Quality................................................................... 57
</TABLE>
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<PAGE> 5
<TABLE>
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Noninterest Income.............................................................. 58
Noninterest Expenses............................................................ 58
Income Taxes.................................................................... 59
Inflation....................................................................... 59
Recent Accounting Pronouncements................................................ 59
Year 2000 Computer Issue........................................................ 59
OWNERSHIP OF SBC STOCK
Security Ownership of Management and Principal Stockholders..................... 60
BUSINESS INFORMATION CONCERNING FLFC AND FLB.......................................... 62
Recent Developments............................................................. 63
DESCRIPTION OF FLFC CAPITAL STOCK
General......................................................................... 63
FLFC Stock...................................................................... 63
Preferred Stock................................................................. 63
Limitation of Personal Liability of Directors and Officers...................... 64
COMPARISON OF STOCKHOLDER RIGHTS
Authorized Capital Stock........................................................ 64
Preemptive Rights............................................................... 65
Dividend Restrictions........................................................... 65
Directors....................................................................... 66
Stockholder Meetings............................................................ 66
Anti-Takeover Provisions........................................................ 67
Shareholder Rights Plan......................................................... 68
CERTAIN REGULATORY CONSIDERATIONS
General......................................................................... 69
Federal Savings and Loan Holding Company Regulation............................. 70
Recent Legislation.............................................................. 71
Regulation of FLB............................................................... 71
Taxation........................................................................ 77
EXPERTS............................................................................... 78
LEGAL MATTERS......................................................................... 78
OTHER MATTERS......................................................................... 78
SOUTHLAND BANK CORPORATION FINANCIAL STATEMENTS....................................... F-1
</TABLE>
APPENDICES:
Appendix A - Agreement and Plan of Merger dated as of February 18, 1998,
as amended on May 8, 1998, by and between FLFC, FLB, SBC,
Southland Bank, and Coffee Bank.
Appendix B - Article 13 of the Georgia Business Corporation Code Relating
to Rights of Dissenting Stockholders
Appendix C - Opinion letter of Coopers & Lybrand L.L.P. with respect to
certain federal income tax consequences of the Mergers.
Appendix D - Opinion of The Robinson-Humphrey Company, LLC as to the
fairness of the Mergers.
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<PAGE> 6
AVAILABLE INFORMATION
FLFC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") 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, which is a part of the Registration Statement, does
not contain all of the information set forth in, or annexed as exhibits to, the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission. For further information with
respect to FLFC and the shares of FLFC Stock to be issued pursuant to the Merger
Agreement, reference is hereby made to the Registration Statement and the
related exhibits thereto. 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. In each instance, each statement is
qualified in all respects by reference to the copy of such contract or other
document filed as an exhibit to or incorporated by reference in the Registration
Statement. 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 prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Such material also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov. Quotations
relating to the FLFC Stock appear on The Nasdaq Stock Market's National Market.
Such reports, proxy and information statements and other information concerning
FLFC also can be inspected at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
All information contained herein with respect to FLFC and its
subsidiaries has been supplied by FLFC, and all information with respect to SBC
has been supplied by SBC.
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
SBC. 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, SBC 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.
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<PAGE> 7
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 and made a part of this Proxy Statement/Prospectus:
(i) FLFC's Annual Report on Form 10-K for the year ended September 30,
1997;
(ii) FLFC's Quarterly Report on Form 10-Q for the three months ended
December 31, 1997; and
(iii) The description of the FLFC Stock contained in FLFC's
Registration Statement on Form 8-A dated April 15, 1986 (Commission File No.
000-14417).
All documents filed by FLFC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date on
which the Special Meeting is held shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. 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> 8
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 the FLFC Stock
effected in the form of a 50% stock dividend paid on April 27, 1998.
PARTIES TO THE MERGERS
FIRST LIBERTY FINANCIAL CORP. FLFC is a Georgia corporation and a unitary
FIRST LIBERTY BANK savings and loan holding company
201 SECOND STREET headquartered in Macon, Georgia which owns
MACON, GEORGIA 31297 and operates FLB and FLB's principal wholly
(912) 743-0911 owned subsidiaries, Liberty Mortgage
Corporation ("Liberty Mortgage") and
NewSouth Financial Services, Inc.
("NewSouth"). FLFC reported net income
before extraordinary item of $11.7 million
and $3.6 million for the year ended
September 30, 1997 and the three months
ended December 31, 1997, respectively. At
December 31, 1997, FLFC had total assets of
approximately $1.3 billion, total deposits
of approximately $938.6 million and
stockholders' equity of approximately $96.8
million.
FLB is a federally chartered stock savings
bank based in Macon, Georgia which serves
Macon, Savannah and several other Georgia
cities through its home office and 30
full-service offices. Through Liberty
Mortgage, FLB operates a mortgage banking
business through correspondent relationships
in a number of states. Through NewSouth, FLB
operates a consumer finance business with
seven offices. Based on total assets as of
December 31, 1997, 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."
SOUTHLAND BANK CORPORATION OF SBC is a Georgia corporation and bank
GEORGIA holding company headquartered in Douglas,
102 NORTH PETERSON AVENUE Georgia. SBC owns and operates two banks,
DOUGLAS, GEORGIA 31533 Southland Bank and Coffee Bank. Southland
(912) 384-3279 Bank operates two offices in Butler and
Roberta, Georgia, and Coffee Bank operates
three offices in Douglas, Georgia, from
which they each provide a wide range of
commercial and retail banking services.
For the year ended December 31, 1997, SBC
reported net income of approximately $1.4
million. As of December 31, 1997, SBC had
total assets of approximately $149.0
million, total deposits of approximately
$123.2 million and stockholders' equity of
approximately $16.0 million. See "The
Mergers - Background of the Mergers" and
"Southland Bank Corporation of Georgia -
Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
Based on December 31, 1997 financial
information, SBC would have comprised
approximately 10.46% of FLFC's total assets,
14.12% of its stockholder's equity, 10.85%
of its total revenue and 8.14% of its net
income.
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<PAGE> 9
THE SPECIAL MEETING
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TIME, DATE AND PLACE.................... The Special Meeting will be held at 2:00 p.m., local time, on Tuesday, June 16, 1998,
at the main office of Coffee County Bank, 102 North Peterson Avenue, Douglas
Georgia, and at any adjournments or postponements thereof.
RECORD DATE AND SHARES ENTITLED
TO VOTE................................. Holders of record of the SBC Stock at the close of business on May 6, 1998 (the
"Record Date"), are entitled to notice of and to vote at the Special Meeting. At such
date and time there were 330,345 shares of SBC 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 Mergers."
VOTE REQUIRED........................... The approval and adoption by the SBC 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 SBC Stock. As of April 20, 1998, all
directors as a group beneficially owned 265,862 shares (80.5%) of the outstanding
SBC Stock. Each of the directors of SBC has agreed to vote all shares owned or
controlled by him or her in favor of the Merger Agreement and the transactions
contemplated thereby. Because such individuals own a majority of the outstanding
shares of SBC Stock, the approval of the Merger Agreement and the transactions
contemplated thereby by the stockholders of SBC 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 SBC Stock - Principal Stockholders."
</TABLE>
THE MERGERS
General. The Merger Agreement provides, among other things, that SBC
will merge with and into FLFC, with FLFC as the surviving corporation in the
Company Merger, and Southland Bank and Coffee Bank will merge with and into FLB.
FLB will be the surviving savings bank in the Bank Merger and will remain a
wholly owned savings bank subsidiary of FLFC. Upon consummation of the Company
Merger, each outstanding share of SBC 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 Company Merger are either
satisfied or waived, the Company Merger will be consummated. See "The Mergers."
Merger Consideration. The Merger Agreement provides that, at the
Effective Time, each outstanding share of SBC Stock (excluding shares held by
Dissenting Stockholders) will cease to be outstanding and will be converted into
and exchanged for the right to receive 5.265 shares of FLFC Stock. As a result,
FLFC will issue an aggregate of approximately 1,739,266 shares of FLFC Stock in
the Company Merger.
Description of FLFC Stock. The holders of FLFC Stock are entitled to
dividends as and when declared by the Board of Directors of FLFC 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. As of April 20, 1998, FLFC had
11,627,455 shares of FLFC Stock outstanding held by approximately 1,000
stockholders of record. See "Description of FLFC Capital Stock" and "Comparison
of Stockholder Rights."
-7-
<PAGE> 10
Reasons for the Mergers and Recommendation of the SBC Board of
Directors. The Board of Directors of SBC believes that the Mergers are fair to,
and in the best interests of, SBC and its stockholders. Accordingly, after
consideration of relevant business, financial, legal and market factors, the
Board of Directors approved the Merger Agreement and the transactions
contemplated thereby by unanimous vote and voted to recommend that SBC
stockholders vote FOR the approval of the Merger Agreement and the transactions
contemplated thereby.
In deciding to approve the Merger Agreement and to recommend its
approval by SBC's stockholders, the Board of Directors of SBC considered, among
other things, the following material factors:
1. The Financial Terms of the Mergers. The Board of Directors of
SBC believes that the Merger Consideration is fair to SBC stockholders based
upon SBC's current financial condition and future prospects and upon its
perception of the future prospects of FLFC. In coming to this conclusion, the
Board of Directors evaluated the strategic options available to SBC, including
continuing its current business on a stand-alone basis, pursuing strategic
alliances with or acquisitions of other banking institutions and the sale of
SBC, together with the terms of the Company Merger, which presented many
benefits to SBC and its stockholders, including an opportunity to exchange
shares of SBC Stock which are not publically traded for shares of FLFC Stock
traded in The Nasdaq Stock Market.
2. Comparing SBC's Value as a Continuing Independent Entity with
its Value in Combination with FLFC. The Board of Directors considered the
benefits that could be expected to accrue to SBC stockholders from the Mergers,
including the increased liquidity of the FLFC Stock and the possibility of a
higher stock price for the FLFC Stock, compared to the Board's view of what
would be achieved by SBC operating as an independent entity.
3. Tax-free Nature of the Company Merger. The Board of Directors
of SBC considered the nonfinancial terms and structure of the Company Merger, in
particular the fact that the Company Merger will qualify as a tax-free
reorganization for SBC stockholders for federal income tax purposes to the
extent such stockholders receive FLFC Stock in the Company Merger. See "The
Mergers -- Certain Federal Income Tax Consequences."
4. Consolidation in the Banking Industry in Georgia. The Board of
Directors of SBC considered the current environment of the banking industry and
the trend toward consolidation and increasing size for banking institutions, as
well as recent regulatory changes concerning state-wide banking. These various
factors indicate the possibility of changes in the banking system for the State
of Georgia, including the nature and type of entities with which SBC will
increasingly compete, which could have a negative impact on stockholder value of
an independent bank operating in a non-metropolitan market. These factors were
weighed with the probability of SBC being able on a stand-alone basis to
increase its size through acquisitions and the related effect on stockholder
value and dilution of stockholder interest.
5. Effectiveness of Auction Process. The Board considered the
process utilized by SBC in exploring and dealing with acquisition proposals and
in negotiating with FLFC and concluded that the process utilized provided a
reasonable basis to conclude that the Merger Consideration represents fair value
to SBC stockholders.
6. Opinion of The Robinson-Humphrey Company, LLC The Board of
Directors of SBC considered the fact that The Robinson-Humphrey Company, LLC
("R-H") has rendered its opinion that the Merger Consideration is fair from a
financial point of view to SBC stockholders. The opinion of R-H is set forth in
Appendix D and is incorporated herein by reference. See "The Mergers -- Opinion
of Financial Advisor."
In light of the variety and number of factors considered by the Board
in conjunction with its evaluation of the Mergers, it was not practicable to
assign relative weights to the foregoing factors, and the Board did not do so.
THE BOARD OF DIRECTORS OF SBC UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY. See "The Mergers - Reasons for the Mergers."
-8-
<PAGE> 11
Opinion of Financial Advisor. SBC's financial advisor, R-H, has
rendered an opinion to the Board of Directors of SBC that the Company Merger is
fair to the stockholders of SBC 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 Mergers - Opinion of Financial Advisor."
Effective Time of the Company Merger. If the Merger Agreement and the
transactions contemplated thereby are approved by the requisite vote of the SBC
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 Company Merger are either satisfied or waived (as
permitted), the Company Merger will be consummated and will become effective on
the date and at the time that a Certificate of Merger, reflecting the Company
Merger, is filed with the Secretary of State of the State of Georgia.
Applications for all required regulatory approvals with respect to the Merger
Agreement and the transactions contemplated thereby have been filed, and FLFC
expects to receive all of such required approvals. Assuming satisfaction of all
conditions to consummation, the Company Merger is expected to become effective
in June 1998. Both SBC and FLFC have the right to terminate the Merger Agreement
if all conditions to closing required by the Merger Agreement have not been met,
or waived by FLFC or SBC, by July 31, 1998, or the Company Merger has not been
consummated by August 31, 1998. See "The Mergers - Effective Time," "The Mergers
- - Summary of Certain Provisions of the Merger Agreement - Amendment, Waiver and
Termination" and "The Mergers Conditions to the Mergers."
Exchange of SBC Stock. As soon as practicable after the Company Merger,
FLFC will send to the holders of SBC Stock a letter of transmittal providing
instructions for exchanging their SBC Certificates for the Merger Consideration.
FLFC will not be obligated to deliver the FLFC Stock to which any former holder
of SBC Stock is entitled until such holder surrenders his or her SBC Certificate
or Certificates for exchange. The SBC Certificate or Certificates so surrendered
must be duly endorsed as FLFC may require. SBC STOCKHOLDERS SHOULD NOT SEND
THEIR SBC CERTIFICATES WITH THEIR PROXY CARDS. See "The Mergers - Exchange of
SBC Stock Certificates."
Certain Federal Income Tax Consequences. FLFC has received an opinion
from Coopers & Lybrand L.L.P., independent accountants, that the Company 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 SBC and (ii) no gain or loss
will be recognized by the SBC 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 Mergers - Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE COMPANY MERGER MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH SBC STOCKHOLDER AND OTHER
FACTORS, EACH HOLDER OF SBC STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISER TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
COMPANY MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME
AND OTHER TAX LAWS).
Accounting Treatment. The Company Merger will be accounted for as a
"pooling of interests" transaction by FLFC for financial reporting purposes. See
"The Mergers - Accounting Treatment."
Management and Operations After the Mergers. Pursuant to the Merger
Agreement, at the Effective Time, SBC will merge with and into FLFC, with FLFC
as the surviving corporation in the Company Merger. Shortly after the Company
Merger, pursuant to the Merger Agreement, at the effective time of the Bank
Merger, both Southland Bank and Coffee Bank will merge with and into FLB, with
FLB as the surviving savings bank in the Bank Merger. The Board of Directors and
executive officers of FLFC and FLB immediately prior to the Mergers will be the
Board of Directors and executive officers of FLFC and FLB following the Mergers
except that Ken B. Lanier will be elected as a director of FLFC and FLB. Certain
of the current directors of Southland Bank and Coffee Bank will become members
of FLB's community boards of directors in Butler, Georgia and Douglas, Georgia,
respectively. These advisory boards will be established at the Effective Time.
Additionally, following the Bank Merger, Grace Kirksey, the President of
Southland Bank, will serve as First Vice President and Butler City President of
FLB, and
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<PAGE> 12
Gene Haskins, the President of Coffee Bank, will serve as Senior Vice President
and Douglas City President of FLB. See "The Mergers - Management and Operations
After the Mergers" and "The Mergers -Interests of Certain Persons in the
Mergers."
Interests of Certain Persons in the Mergers. Following the Mergers,
John J. Neely, Jr., current Director of SBC and Chairman of the Board and Chief
Executive Officer of Southland Bank, will serve as Butler Chairman of FLB; Gene
Haskins, the current President of Coffee Bank and Director of SBC, will serve as
Senior Vice President and Douglas/Coffee County City President of FLB; and Grace
Kirksey, current President and Director of Southland Bank, will serve as First
Vice President of FLB. Ken B. Lanier, current President and Director of SBC and
Chairman and Chief Executive Officer of Coffee Bank, will serve as a consultant
to FLB following the Mergers. See "The Mergers - Interests of Certain Persons in
the Mergers."
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 SBC Stock entitled to vote thereon; (ii) the Registration
Statement shall have become effective, no stop order suspending the
effectiveness of the Registration Statement shall have been issued, no
proceedings for that purpose shall have been instituted or, to the knowledge of
any party, shall be contemplated, and FLFC shall have received all state
securities laws permits and authorizations necessary to consummate the
transactions contemplated in the Merger Agreement; (iii) receipt of all
governmental and other consents and approvals necessary to permit consummation
of the Mergers, including those of the Office of Thrift Supervision (the "OTS"),
the Federal Reserve Board (the "Federal Reserve") and the Georgia Department of
Banking and Finance (the "DBF"); (iv) the expiration of all periods for the
notification of the exercise of dissenters' rights and no exercise of
dissenters' rights by the holders of more than 5% of the outstanding shares of
SBC Stock; (v) FLFC's "core return on equity," the calculation of which shall be
performed in accordance with FLFC's past practices, for the quarter ended
immediately prior to the Closing Date for which such information is then
publicly available shall not be less than 14.0%; (vi) the consolidated loan loss
reserve of Southland Bank and Coffee Bank shall be at least 1.5% of gross loans,
excluding reserves taken at FLFC's request pursuant to the Merger Agreement; and
(vii) since November 1, 1997, there shall not have occurred any adverse change
of greater than 5.5% from the combined net income of Coffee Bank and Southland
Bank, taken as a whole, as set forth in the business plan dated December 19,
1997 provided to FLFC by SBC under the Merger Agreement, subject to certain
limited exceptions. See "The Mergers - Conditions to Consummation of the
Mergers" and "The Mergers - Amendment, Waiver and Termination."
Regulatory Approvals. The Mergers are subject to the prior approval (or
waiver of the approval requirements) by the OTS, Federal Reserve and DBF. FLFC
has filed applications for the requisite approvals or waivers from each of these
agencies and expects to receive each of such approvals or waivers. See "The
Mergers - Regulatory Approvals."
Conduct of Business Pending the Mergers. SBC has agreed in the Merger
Agreement to, among other things, operate its business only in the ordinary
course consistent 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, SBC has agreed not to take certain actions
relating to the operation of SBC pending consummation of the Mergers 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 SBC may declare and pay a dividend of
$.25 per share per quarter prior to the Closing Date, or (iii) acquire another
business or merge or consolidate with another entity, or sell or otherwise
dispose of a material part of its assets, except in the ordinary course of
business consistent with past practices or as otherwise permitted by the Merger
Agreement. See "The Mergers - Conduct of Business Pending the Mergers."
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time by mutual written consent of the Boards of Directors of
SBC and FLFC. In addition, the Merger Agreement may be terminated prior to the
Effective Time by the Boards of Directors of either FLFC or SBC if (i) the
Merger Agreement fails to receive the requisite vote for approval at the Special
Meeting, (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 forty-five (45) days after written notification by the opposite
party of such breach, (iii) if any court, governmental or regulatory authority
takes any action which prohibits or restrains either party from
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<PAGE> 13
consummating the Mergers, or (iv) if (a) all conditions to closing required by
the Merger Agreement have not been met, or waived by FLFC or SBC, by July 31,
1998 or (b) the Company Merger has not been consummated by August 31, 1998. See
"The Mergers - Summary of Certain Provisions of the Mergers Agreement."
Dissenters' Rights. Under Georgia law, record holders of SBC Stock who
prior to the SBC stockholder vote on the Company Merger, properly demand their
right to dissent and vote against or abstain from voting on the Company Merger
have the right to obtain a cash payment for the "fair value" of their shares of
SBC Stock (excluding any element of value arising from the accomplishment or
expectation of the Company 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 Mergers - 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
Company 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 SBC or
FLFC under applicable federal securities laws and under the accounting
requirements for a pooling of interests transaction. Affiliates of FLFC or SBC
may not sell shares of FLFC Stock acquired in connection with the Company 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.
See "The Mergers - Restrictions on Resales of FLFC Stock."
MARKET PRICES AND DIVIDENDS ON FLFC STOCK AND SBC STOCK
The FLFC Stock is listed and traded on The Nasdaq Stock 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 Stock Market, and the dividends
declared per share of FLFC Stock, for the periods indicated. FLFC has paid all
declared dividends.
<TABLE>
<CAPTION>
SALE PRICES PER DIVIDENDS DECLARED
FISCAL YEAR ENDED SHARE OF PER SHARE OF
SEPTEMBER 30, FLFC STOCK FLFC STOCK
----------------- --------------- ------------------
HIGH LOW
---- ---
<S> <C> <C> <C>
1996
First Quarter................. $10.00 $ 8.78 $.04
Second Quarter............... 10.00 9.33 .05
Third Quarter................. 10.11 9.00 .05
Fourth Quarter ............... 11.45 9.11 .05
1997
First Quarter ................ $14.33 $10.83 $.06
Second Quarter................ 15.00 12.17 .07
Third Quarter................. 15.17 14.00 .07
Fourth Quarter................ 16.67 14.33 .07
1998
First Quarter ................ $22.83 $14.67 $.07
Second Quarter ............... 22.92 19.96 .07
Third Quarter (through
April 20, 1998)......... 24.17 22.00 .00
</TABLE>
ON MARCH 25, 1998 THE BOARD OF DIRECTORS OF FLFC DECLARED A
THREE-FOR-TWO STOCK SPLIT PAYABLE ON APRIL 27, 1998 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.
On February 18, 1998, the last trading day prior to public
announcement that the parties had entered into the Merger Agreement, the last
reported sale price per share of FLFC Stock on The Nasdaq Stock Market was
$20.42. On April 20, 1998, the last reported sale price per share of FLFC Stock
on The Nasdaq Stock Market was $23.50.
There is no established public trading market for the SBC Stock. There
is little or no trading of the SBC Stock with sales occurring generally only
upon repurchase by SBC upon termination of employment or an extraordinary event
such as a share repurchase. Management of SBC does not maintain a record of the
sales prices of trades of SBC Stock; however, in May 1997, SBC repurchased
17,605 shares at a price
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<PAGE> 14
of $56.07 per share. SBC had approximately 100 stockholders of record as of
April 20, 1998. SBC paid dividends of $1.00, $1.00 and $1.00 per share during
each of the years ended December 31, 1995, 1996 and 1997, and paid a dividend
of $.25 per share on March 24, 1998.
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 SBC
Stock at or, in the case of FLFC Stock, after the Effective Time.
Recent Developments
On April 24, 1998, FLFC signed a letter of intent with Peoples Banking
Corporation in Blackshear, Georgia ("Peoples") concerning a proposed transaction
in which FLFC will acquire Peoples and its wholly owned bank subsidiary, Peoples
Bank. Completion of the transaction is subject to the completion of a
satisfactory due diligence review by FLFC, negotiation and execution of a merger
agreement by FLFC and Peoples, approval of the transaction by the Peoples
stockholders and approval of the transaction by bank regulatory authorities. In
addition to its main office in Blackshear, Georgia, Peoples Bank operates one
banking office in Waycross, Georgia. The consideration for the transaction will
be payable in FLFC Stock and is expected to be approximately $310 per share of
Peoples common stock, or an aggregate of $18.5 million of FLFC Stock based on
the closing price of FLFC Stock on April 24, 1998. There are expected to be
one-time merger-related expenses of approximately $1.4 million.
-12-
<PAGE> 15
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 for the year ended
September 30, 1997 and the audited consolidated financial statements of FLFC for
each of the three years in the period ended September 30, 1997, and FLFC's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 and the
unaudited interim consolidated financial statements of FLFC for the three months
ended December 31, 1997, 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 STOCK DIVIDEND PAID ON APRIL 27, 1998. Additionally,
earnings per share calculations have been restated to reflect the adoption of
Statements of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" by FLFC in December 1997. 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 three months ended
December 31, 1997, are not necessarily indicative of the results to be expected
for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.................... $ 24,905 $ 26,595 $ 32,562 $ 38,269 $ 44,004 $ 10,690 $ 11,589
Provision for loan losses.............. 2,565 2,187 2,365 3,106 6,317 593 1,398
Noninterest income, excluding
gains and losses on asset sales...... 6,108 7,684 7,755 8,780 10,260 2,299 2,849
Gains (losses) on sale of loans and
securities.......................... 1,298 403 (237) 1,754 1,874 447 599
Gain on sale of servicing rights....... 3,321 3,367 2,353 790 1,397 333 706
Noninterest expense.................... 24,614 25,524 27,128 33,193 34,319 8,258 8,249
Income before income
taxes, accounting changes and
extraordinary items.................. 8,453 10,338 12,940 13,294 16,899 4,918 6,096
Net income............................. 5,189 7,200 9,345 8,920 8,899 2,966 3,624
COMMON SHARE DATA:
Net income per share, diluted.......... $ 0.53 $ 0.67 $ 0.85 $ 0.77 $ 0.76 $ 0.25 $ 0.31
Cash dividends per share............... .02 .13 .17 .19 .27 .06 .07
Book value per share................... 5.95 6.32 6.92 7.39 8.10 7.65 8.33
Tangible book value per share.......... 5.49 5.90 5.84 6.44 7.31 6.72 7.57
Average number of shares
outstanding, diluted................. 9,857 10,673 11,022 11,570 11,735 11,645 11,863
BALANCE SHEET DATA (PERIOD END):
Total assets........................... $815,050 $792,159 $1,029,693 $1,180,467 $1,269,137 $1,212,681 $1,275,398
Loans (1).............................. 520,990 546,207 686,515 786,729 864,044 818,784 854,540
Non-performing assets (excluding
troubled debt restructurings)........ 21,998 17,133 9,359 9,654 9,199 9,996 12,790
Loans and securities
available-for-sale (2)............... 224,162 197,949 283,286 332,916 336,896 331,313 351,801
Deposits............................... 626,127 652,269 819,860 858,784 945,322 867,354 938,635
Stockholders' equity.................. 61,082 64,167 80,048 86,457 93,914 89,333 96,803
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1996(3) 1997(3)
----- ------ ------ ------ ------ ------- -------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets ................ 0.66% 0.90% 1.03% 0.83% 0.72% 1.00% 1.14%
Return on average equity ................ 9.62 11.47 13.14 10.48 9.63 13.36 15.15
Interest rate spread .................... 3.53 3.61 3.89 3.95 3.88 3.90 3.98
Net interest margin(4) .................. 3.57 3.69 3.94 3.95 3.90 3.92 3.99
Efficiency(5) ........................... 65.72 64.15 62.59 59.10 57.32 56.42 53.61
Earnings to fixed charges:(6)
Excluding interest on deposits ........ 2.14x 2.94x 2.97x 2.49x 2.25x 2.49x 2.92x
Including interest on deposits ........ 1.26x 1.36x 1.34x 1.29x 1.32x 1.39x 1.44x
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans(1)(7) ................ 1.37% 1.27% 1.38% 1.30% 1.36% 1.36% 1.43%
Allowance for loan losses to
period end non-performing loans ....... 99.72 119.04 219.75 184.85 226.03 183.40 168.99
Non-performing assets to period
end loans and repossessed assets(1)(7) 4.05 3.04 1.33 1.21 1.05 1.20 1.47
Non-performing assets to period
end total assets ...................... 2.70 2.16 .91 .82 .72 .82 1.00
Net charge-offs to average loans ........ .63 .42 .11 .31 .56 .24 .43
CAPITAL AND LIQUIDITY:
Tangible capital to adjusted
total assets(8) ....................... 5.66% 6.46% 5.98% 6.08% 7.24% 6.19% 7.51%
Core capital to adjusted total
assets(8) ............................. 5.88 6.73 6.17 6.21 7.34 6.31 7.60
Core capital to risk-based assets(8) .... 8.08 9.49 8.70 8.65 10.08 8.85 10.45
Risk-based capital to risk-based
assets(8) ............................. 11.41 12.99 11.80 11.35 11.21 11.44 11.61
Average equity to average assets ........ 6.87 7.86 7.84 7.93 7.50 7.46 7.53
Loans to deposits(1) .................... 83.21 83.74 83.74 91.61 91.40 94.40 91.04
</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.
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<PAGE> 17
Selected Financial Data of SBC. The following table sets forth selected
historical financial data of SBC and has been derived from and should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements of SBC for the three years ended December 31, 1997, and the
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income ............... $ 4,024 $ 5,351 $ 5,989 $ 6,486 $ 6,969
Provision for loan losses ......... 0 108 92 326 1,447
Noninterest income, excluding
gains (losses) on asset sales ... 915 1,112 776 969 1,037
Gains (losses) on sale of loans and
securities ..................... (22) (89) 12 5 386
Noninterest expense ............... 3,228 4,443 4,434 4,595 5,002
COMMON SHARE DATA:
Net income per share, diluted ..... $ 4.07 $ 4.03 $ 4.81 $ 5.22 $ 4.11
Cash dividends per share .......... 1.00 1.01 1.00 1.00 1.00
Book value per share .............. 34.18 36.82 41.65 45.38 47.25
Average number of shares
outstanding, diluted ............ 334 340 346 348 337
BALANCE SHEET DATA (PERIOD END):
Total assets ...................... $85,450 $117,726 $125,044 $132,516 $148,958
Loans ............................. 50,159 69,080 77,772 89,699 98,668
Non-performing assets (excluding
troubled debt restructurings) ... 513 1,310 1,914 1,122 1,145
Deposits .......................... 72,017 102,642 105,517 112,810 123,166
Stockholders' equity .............. 11,415 12,444 14,370 15,701 15,922
PERFORMANCE RATIOS:
Return on average assets .......... 1.65% 1.24% 1.40% 1.43% 0.99%
Return on average equity .......... 12.46 11.41 12.22 12.06 8.65
Interest rate spread .............. 4.71 4.91 4.42 4.37 4.45
Net interest margin(1) ............ 5.55 5.67 5.62 5.68 5.49
Efficiency(2) ..................... 65.36 68.75 65.54 61.64 62.48
</TABLE>
-15-
<PAGE> 18
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ----- ------ ------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans ............. 2.11% 1.84% 1.49% 1.40% 2.52%
Allowance for loan losses to
period end nonperforming
loans ........................ 230.50 103.34 64.06 129.92 267.31
Nonperforming assets to period
end loans and foreclosed
properties(3) ................ 1.02 1.89 2.46 1.25 1.16
Nonperforming assets to period
end total assets ............. 0.60 1.11 1.53 0.85 0.77
Net chargeoffs to average loans (0.60) 0.12 0.28 0.28 0.23
CAPITAL AND LIQUIDITY:
Average equity to average assets 13.27% 10.86% 11.47% 11.86% 11.45%
Loans to deposits(3) ........... 69.65 67.30 73.71 79.51 80.11
</TABLE>
- ----------------------------
(1) Net interest income divided by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest
income before provision for loan losses and noninterest income
excluding securities gains and losses.
(3) Loans before allowance for loan losses.
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 Mergers accounted for under
the pooling of interests method as of October 1, 1994 for income statement data
and as of December 31, 1997 for balance sheet data. The table also presents on a
per share basis the book value, cash dividends and income from continuing
operations of FLFC and SBC on a historical basis, an equivalent pro forma and a
pro forma combined basis assuming the Mergers. 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 Mergers 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 STOCK DIVIDEND PAID ON APRIL 27, 1998. Additionally,
earnings per share calculations have been restated to reflect the adoption of
SFAS No. 128 by FLFC in December 1997. 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> 19
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, (FLFC)
AND DECEMBER 31, (SBC)
------------------------------------------ THREE MONTHS ENDED THREE MONTHS ENDED
1995 1996 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
---------- ---------- ---------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income ............ $ 38,551 $ 44,755 $ 50,973 $ 12,441 $ 13,387
Provision for loan losses ...... 2,457 3,432 7,764 749 1,714
Noninterest income ............. 10,659 12,298 14,954 3,305 4,418
Noninterest expense ............ 31,562 37,788 39,321 9,408 9,563
Income before income taxes and
extraordinary item ............ 15,191 15,833 18,842 5,589 6,528
Income before extraordinary item 11,010 10,737 13,096 3,445 3,945
COMMON SHARE DATA:
FLFC HISTORICAL:
Income per share before extra-
ordinary item, diluted ....... $ .85 $ .77 $ 1.00 $ .25 $ .31
Book value per share .......... 8.10 8.33
Dividends per share ........... .17 .19 .27 .06 .07
SBC HISTORICAL:
Income per share before extra-
ordinary item, diluted ...... $ 4.81 $ 5.22 $ 4.11 $ 1.38 $ .97
Book value per share .......... 47.25 47.25
Dividends per share ........... 1.00 1.00 1.00 .25 .25
SBC EQUIVALENT PRO FORMA:
Income per share before extra-
ordinary item, diluted ....... $ 4.53 $ 4.21 $ 5.11 $ 1.37 $ 1.53
Book value per share .......... 43.33 44.38
Dividends per share ........... .90 1.00 1.37 .32 .37
FLFC PRO FORMA COMBINED:
Income per share before extra-
ordinary item, diluted ...... $ .86 $ .80 $ .97 $ .26 $ .29
Book value per share .......... 8.23 8.43
Dividends per share ........... .17 .19 .26 .06 .07
Weighted average common shares
outstanding, diluted ........ 12,845 13,401 13,510 13,467 13,604
BALANCE SHEET DATA (PERIOD END):
Total assets...................... $1,424,356
Loans, net....................... 987,170
Securities, available-for-sale.... 302,781
Deposits.......................... 1,061,801
Total stockholders' equity........ 112,725
</TABLE>
-17-
<PAGE> 20
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished by SBC to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of SBC from holders of the outstanding shares of SBC Stock for use at
the Special Meeting to be held at the main office of Coffee County Bank, 102
North Peterson Avenue, Douglas, Georgia at 2:00 p.m., local time, on Tuesday,
June 16, 1998, 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 or any adjournments or postponements thereof. This Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders of SBC on or about May 12, 1998.
This document is also being furnished by FLFC to the stockholders of
SBC as a Prospectus in connection with the issuance by FLFC of shares of FLFC
Stock in connection with the Company Merger.
RECORD DATE; QUORUM
The Board of Directors of SBC has fixed the close of business on May 6,
1998 as the Record Date for determining the SBC stockholders entitled to receive
notice of and to vote at the Special Meeting. Only holders of record of SBC
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 330,345 shares of SBC Stock issued
and outstanding and held by approximately 100 record holders. Holders of SBC
Stock are entitled to one vote on each matter considered and voted on at the
Special Meeting for each share of SBC 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 SBC 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. However, because the
approval of a majority of the outstanding shares of SBC Stock is required to
approve and adopt the Merger Agreement and the consummation of the
transactions contemplated thereby, abstentions 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 SBC 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, SBC's directors own or control the vote of
approximately 80.5% of the outstanding shares of SBC Stock entitled to vote at
the Special Meeting. The directors of SBC have agreed to vote all shares owned
or controlled by them in favor of the Merger Agreement and the transactions
contemplated thereby. Because such individuals own or control a majority of the
outstanding shares of SBC Stock, the approval of the Merger Agreement and the
transactions contemplated thereby is assured. See "Ownership of SBC Stock." As
of the Record Date, FLFC's directors and executive officers, and their
affiliates, held no shares of SBC Stock.
-18-
<PAGE> 21
SOLICITATION AND REVOCABILITY OF PROXIES
Shares of SBC Stock represented by properly executed proxies, if such
proxies are received in time and are not revoked, 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 SBC'S BOARD OF DIRECTORS AS TO ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF. ANY HOLDER OF SBC 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 SBC 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 SBC, (ii) properly submitting to SBC 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 SBC as follows: Southland Bank Corporation of
Georgia, P. O. Box 431, Douglas, Georgia 31534, Attention: Gene Haskins,
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 SBC's
Corporate Secretary or other person responsible for tabulating votes on behalf
of SBC.
Holders of SBC Stock have the right to dissent to the Company Merger
and demand appraisal of, and obtain payment for, the "fair value" of their
shares of SBC 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 Mergers - 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 SBC
Stock who votes by proxy and who wishes to exercise his dissenters' rights must,
after notifying SBC 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 SBC 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 SBC.
RECOMMENDATION OF SBC'S BOARD OF DIRECTORS
The Board of Directors of SBC has unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby, and believes the
Mergers are in the best interest of SBC and its stockholders. Accordingly, the
Board of Directors recommends that stockholders of SBC vote "FOR" approval of
the Merger Agreement and the consummation of the transactions contemplated
thereby. See "The Mergers - Reasons for the Mergers."
-19-
<PAGE> 22
THE MERGERS
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 SBC stockholders are urged to read the Appendices in their
entirety.
THE MERGERS
The Merger Agreement provides, among other things, that SBC will merge
with and into FLFC and that Southland Bank and Coffee Bank will merge with and
into FLB, a savings bank and a wholly owned subsidiary of FLFC. FLFC will be the
surviving corporation in the Company Merger. FLB will be the surviving savings
bank in the Bank 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 SBC 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 SBC
Stock will be 5.265 shares of FLFC Stock, with fractional shares to be settled
in cash.
In the event the Company Merger is approved and consummated, each of
the stockholders of SBC 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 SBC stockholder could
attempt to insure that he receives cash for all of his shares of SBC Stock by
exercising and perfecting his dissenters' rights pursuant to the GBCC. However,
the Merger Agreement provides that in the event the holders of more than 5% of
the outstanding shares of SBC Stock exercise their dissenters' rights, FLFC may
terminate the Merger Agreement. Accordingly, a SBC stockholder who elects to
exercise his dissenters' rights takes the risk that such exercise will result in
the termination of the Merger Agreement. A SBC stockholder that exercises and
perfects his dissenters' rights under the GBCC is entitled to the "fair value"
of his shares of SBC Stock plus interest in the event the Company Merger is
consummated. There can be no assurance that the "fair value" of the SBC 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 SBC Stock, see "Dissenters' Rights"
below.
Pursuant to the Merger Agreement, in the event the Company Merger is
consummated, FLFC will issue an aggregate of approximately 1,739,266 shares of
FLFC Stock in exchange for 330,345 shares of SBC Stock (assuming no SBC
stockholder exercises his or her dissenters' rights).
-20-
<PAGE> 23
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of SBC
stockholders, and if the other conditions to the obligations of the parties to
consummate the Company Merger are satisfied or waived, the Company Merger will
be consummated and effected on the date and at the time a Certificate of Merger
reflecting the Company Merger is filed with the Secretary of State of the State
of Georgia. Either party may terminate the Merger Agreement, for among other
reasons, if (i) all conditions to consummation of the Company Merger have not
been met, or waived by FLFC or SBC, by July 31, 1998, (ii) any such condition
cannot be met by July 31, 1998 and has not been waived by each party in whose
favor such condition inures, or (iii) the Company Merger has not been
consummated by August 31, 1998. See "Summary of Certain Provisions of the Merger
Agreement -- Conditions to the Mergers" and "Summary of Certain Provisions of
the Merger Agreement - Amendment, Waiver and Termination."
EXCHANGE OF SBC STOCK CERTIFICATES
As soon as practicable after the Company Merger, FLFC will send to the
holders of SBC Stock a letter of transmittal providing instructions for
exchanging their SBC Certificates for FLFC Stock. SBC STOCKHOLDERS SHOULD NOT
SURRENDER THEIR SBC CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS. After the Effective Time, each holder of shares of
SBC Stock issued and outstanding at the Effective Time (other than shares held
by Dissenting Stockholders) shall surrender their SBC Certificate or
Certificates to FLFC or its agent, and the SBC Certificates thus surrendered
will be canceled. Unless otherwise designated by a SBC stockholder on the
transmittal letter, certificates representing shares of FLFC Stock issued in
connection with the Company 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 SBC Stock is entitled until such holder surrenders his
SBC Certificate or Certificates for exchange. The SBC Certificate or
Certificates so surrendered must be duly endorsed as FLFC or its agent may
require.
From and after the Effective Time, holders of SBC Certificates will
have no rights with respect to the shares of SBC Stock formerly represented
thereby other than the right to surrender such SBC 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' rights. In
addition, no dividend or other distribution payable to holders of record of FLFC
Stock will be paid to the holder of any SBC Certificates until such holder
surrenders such SBC Certificates for exchange as instructed. Subject to
applicable law, upon surrender of the SBC 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 SBC 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 SBC Certificate surrendered for exchange is issued, the SBC
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 SBC 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.
-21-
<PAGE> 24
NO FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares of
SBC Stock exchanged pursuant to the Company 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 average of the closing per share trading prices of
FLFC Stock on the 20 trading days immediately preceding the tenth business day
prior to the Effective Date (the "Fractional Share Price Determination
Average"). 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, a holder of 25 shares of SBC Stock would be entitled to 131.625 shares
of FLFC Stock (25 multiplied by 5.265). However, because no fractional shares of
FLFC Stock will be issued, that stockholder would receive 131 shares of FLFC
Stock and $13.75 in cash in lieu of the fractional share assuming a Fractional
Share Price Determination Average of $22.00 (.625 x $22.00).
MANAGEMENT AND OPERATIONS AFTER THE MERGERS
The Board of Directors and executive officers of FLFC will not change
as a result of the Company 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 Ken B. Lanier as a director for a term that will expire at the next annual
meeting of stockholders of FLFC. Additionally, Mr. Lanier will be nominated for
reelection as a director of FLFC by the stockholders at that meeting. FLB will
be the surviving savings bank following the Bank Merger and will continue to
operate under its Articles of Incorporation and Bylaws in effect at the time of
the Bank Merger. The Board of Directors of FLB also will be increased by one
member and will elect Mr. Lanier as a director. Further, John J. Neely, Jr.,
current Director of SBC and Chairman of the Board and Chief Executive Officer of
Southland Bank, will serve as Butler Chairman of FLB; Gene Haskins, current
President of Coffee Bank and Director of SBC, will serve as Senior Vice
President and Douglas/Coffee County City President of FLB; and Grace Kirksey,
current President and Director of Southland Bank, will serve as City President,
Butler and First Vice President of FLB following the Mergers. Ken B. Lanier,
current President and Director of SBC and Chairman and Chief Executive Officer
of Coffee Bank, will serve as a consultant to FLB following the Mergers.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Other than as described herein, no director or executive officer of
FLFC or SBC, and no affiliate of any such person, has any substantial interest,
direct or indirect, in the Mergers, other than an interest arising from the
ownership of SBC 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 SBC
Stock.
Following the Effective Time and the effective time of the Bank Merger,
the Boards of Directors of FLFC and FLB, respectively, will elect Ken B. Lanier
as a director of each such entity. Additionally, it is expected that other
directors of SBC will serve on the Butler Community Board or the Douglas
Community Board following the Effective Time.
In connection with the Mergers, FLB will enter into employment
agreements with John J. Neely, Jr., the current Chairman and Chief Executive
Officer of Southland Bank, Gene Haskins, the current President of Coffee Bank
and Grace Kirksey, the current President of Southland Bank, and a consulting
agreement with Ken B. Lanier, the current President of SBC and Chairman and
Chief Executive Officer of Coffee Bank.
Pursuant to his employment agreement, Mr. Neely will be employed by FLB
as Butler Chairman for a period of three years, expiring on the third
anniversary of the closing date of the Company Merger. Mr. Neely shall receive
compensation as Butler Chairman during the
-22-
<PAGE> 25
remainder of calendar year 1998 based on an annual salary of $110,000. For
services rendered during the calendar years 1999, 2000 and 2001 (through
termination of his agreement), Mr. Neely shall receive an annual salary of
$75,000, $50,000 and $25,000, respectively.
Pursuant to the consulting agreement, Mr. Lanier shall be employed as a
consultant to FLB for a term of three years, expiring on the third anniversary
of the closing date of the Company Merger. In consideration for services as a
consultant, Mr. Lanier will receive compensation in the same amounts as set
forth above with respect to Mr. Neely.
Mr. Haskins' employment agreement replaces his current agreement with
Coffee Bank and SBC. Mr. Haskins' agreement has an initial term of five years
expiring on the fifth anniversary of the closing date of the Company Merger and
will continue thereafter only with respect to certain change of control
provisions set forth therein. Mr. Haskins will be employed as Douglas/Coffee
County City President and will have the official title of Senior Vice President
of FLB. Upon execution of the employment agreement, Mr. Haskins shall receive a
signing bonus of $100,000 payable $20,000 as of the date of signing and $20,000
on each of the first, second, third and fourth anniversary dates of his
agreement. During the first year of the term of the employment agreement, Mr.
Haskins will receive an annual salary of $98,000. Thereafter, Mr. Haskins will
receive merit reviews and possible increases in such base salary annually. In
addition to any stock options granted pursuant to FLB's Performance Excellence
Plan, Mr. Haskins will receive a grant of options to purchase 11,250 shares of
FLFC Stock upon signing of the agreement, with an exercise price equal to the
closing price of the FLFC Stock on the date thereof. This option shall be vested
25% as of the date of grant and 25% on the first, second and third anniversaries
of the employment agreement, provided that vesting shall accelerate upon a
change of control as defined therein.
During the term of the agreement, if Mr. Haskins' employment is
involuntarily terminated by FLB or his position is reduced to a position of
diminished responsibility by FLB, or he is forced to relocate, Mr. Haskins will
receive as severance compensation an amount equal to the number of years
remaining under the term of the employment agreement multiplied by his annual
salary rate in effect at the time of separation plus an amount equal to the last
fiscal year's incentive award earned under FLB's then current incentive
compensation plan. In such case, Mr. Haskins shall also continue to be eligible
for coverage under FLB's life insurance and medical plans for the remainder of
the term of the employment agreement, or until he obtains new employment,
whichever shall first occur. Within one year following the date of the
employment agreement, after a 180-day waiting period has expired, Mr. Haskins
may voluntarily terminate his employment with FLB and receive in equal monthly
payments over the succeeding twelve months the sum of his salary in effect at
the time of separation plus an amount equal to the last fiscal year incentive
award earned by him prior to separation, including for these purposes the last
incentive award earned by him as an employee of Coffee Bank. If, following
voluntary termination, Mr. Haskins becomes re-employed during the twelve-month
cash severance period, then each of the remaining monthly payments shall be
reduced by 50% of his monthly salary rate at his new employer. Following
voluntary termination, Mr. Haskins will continue to be eligible for continuation
of coverage under FLB's life insurance and medical plans through the
twelve-month cash severance period.
Following a change of control of FLB, as defined by the employment
agreement, Mr. Haskins will be entitled to severance payments substantially
similar to those described above, if his employment is terminated during the
remainder of the agreement term. If, following a change of control occurring
after the expiration of the five-year term of the employment agreement, Mr.
Haskins' employment is terminated by FLB or its successor, Mr. Haskins would be
entitled to a severance payment equal to six times his then monthly salary rate
payable in a lump sum upon termination.
Ms. Kirksey will be employed by FLB as City President, Butler, with the
official title of First Vice
-23-
<PAGE> 26
President of FLB. Ms. Kirksey's employment agreement will have a term of three
years, expiring on the third anniversary of the closing date of the Company
Merger. In consideration for her employment by FLB, Ms. Kirksey will receive a
salary at an annual rate of not less than $70,000 and upon execution of the
employment agreement will receive a bonus of $10,000. On the first and second
anniversaries of her agreement, Ms. Kirksey shall receive an additional bonus of
$10,000.
Pursuant to the agreements described above, Mr. Haskins and Ms. Kirksey
have each agreed to a covenant not to compete for a period of one year following
termination of their respective agreements within a 50-mile radius of Douglas,
Georgia and a 25-mile radius of Butler, Georgia, respectively. Mr. Lanier and
Mr. Neely have each agreed to a covenant not to compete for a period of three
years following termination of their respective agreements within a 50-mile
radius of Douglas, Georgia and a 50-mile radius of Butler, Georgia,
respectively.
After the Effective Time, FLFC will provide generally to officers and
employees of SBC, Southland Bank and Coffee Bank 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 FLFC benefit plans, employees of SBC, Southland Bank
and Coffee Bank will be given full credit for all prior service at SBC,
Southland Bank and Coffee Bank and shall not be subject to any waiting periods
with respect to such benefits.
BACKGROUND OF THE MERGERS
During the latter part of 1996, in connection with the development by
SBC's Board of Directors of its business plan for 1997, SBC's Board began to
evaluate its long term strategic focus. In the past, it had been the strategy of
SBC to concentrate on earnings growth by increasing market share within its
existing markets and through improved efficiencies in operations. While this
strategy was historically successful, the rapidly changing financial services
industry and the need for sustained earnings growth warranted extensive analysis
of all possible alternatives.
In past years, the Board of SBC had considered mergers in which SBC
would be the surviving institution, but had limited success in pursuing such
transactions. The primary reason for SBC's inability to consummate acquisitions
of other, smaller banking institutions was that the SBC Stock was not an
attractive currency for the sellers with which they negotiated as it is closely
held and no market exists in such stock. In early 1997, the Board had an initial
meeting with R-H to discuss SBC's options. The Board's primary objectives were
to develop a strategy that would allow SBC to maintain a competitive position
within the financial services industry, to achieve sustainable earnings growth
and to eventually establish liquidity in its stock. The two primary options
identified were a merger with an entity of equivalent size or a merger with a
larger institution in which that institution would acquire SBC.
In the months that followed (June to August), the SBC Board entered
into discussions with two different institutions to evaluate the possibility of
a merger. The first institution was approximately the same size as SBC and, if a
transaction had been consummated, SBC would likely have been the surviving
entity. The second institution was approximately twice the size of SBC and would
have been the surviving entity. The Board eventually terminated negotiations
with the first institution on or about July 1997 because of certain management
issues and the determination that the combined companies would still have
difficulty achieving future growth and liquidity. Following termination of those
negotiations and as it became clear that SBC's Board's goals would be best
achieved through the acquisition of SBC by a larger institution, SBC's Board
decided, based on advice from R-H, that it would likely enhance the value of the
SBC Stock to use a limited auction process to identify
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interested merger partners.
The Board of SBC met with members of the R-H Financial Institutions
Corporate Finance team and signed an agreement whereby R-H would conduct a
limited auction and advise SBC in evaluating merger offers. The auction process
was held and final bids were received mid-November 1997. The auction process
provided limited results in part based on SBC's size and the markets it served.
The SBC Board and the R-H team then spent several weeks evaluating alternatives
for SBC before deciding, based on multiple factors (see "Reasons for the
Mergers"), to focus its efforts on reaching a definitive merger agreement with
FLFC, which had responded to R-H as part of the limited auction.
FLFC's initial bid was an offer to acquire the shares of SBC in a
tax-free merger at a value of $116 for each share of SBC. After conducting due
diligence, FLFC submitted a revised bid on November 26, 1997, which had been
reduced to a value of $103 for each share of SBC. The primary reasons for the
price reduction were that: (i) during its initial review, FLFC had assumed that
certain income was recurring when in fact it was non-recurring, (ii) SBC was
subject to a termination fee on a data processing contract, the amount of which
had not been determined and (iii) based on FLFC's analysis, certain loans with
an aggregate principal balance of approximately $500,000 required additional
loan loss reserves. As a result of further negotiations between FLFC and SBC
during December 1997 and January 1998, FLFC and SBC reached agreement as to a
merger transaction whereby FLFC would exchange 3.51 (5.265 after giving effect
to the three-for-two stock split effected by FLFC on April 27, 1998) shares of
its common stock for each share of SBC. Based on the then current market price
of FLFC Stock of $31 per share, this exchange ratio resulted in a value of
approximately $109 per share of SBC Stock.
On February 12, 1998, the Board of SBC reviewed the terms of the Merger
Agreement (including all Schedules and Exhibits thereto) which had been
previously distributed to it, and, with the counsel of R-H, determined the
Mergers were in the best interests of the SBC stockholders, approved the terms
of the Merger Agreement and resolved to recommend that SBC stockholders approve
the Mergers.
REASONS FOR THE MERGERS
The Board of Directors of SBC believes that the Mergers are fair to,
and in the best interests of, SBC and its stockholders. Accordingly, after
consideration of relevant business, financial, legal and market factors, the
Board of Directors of SBC approved the Merger Agreement and the transactions
contemplated thereby by unanimous vote and voted to recommend that SBC
stockholders vote FOR the approval of the Merger Agreement and the transactions
and proposals contemplated thereby.
In deciding to approve the Merger Agreement and to recommend its
approval by SBC's stockholders, SBC's Board considered, among other things, the
following material factors:
1. The Financial Terms of the Mergers. The Board of Directors of SBC
believes that the Merger Consideration is fair to SBC stockholders based upon
SBC's current financial condition and future prospects and upon its perception
of the future prospects of FLFC. In coming to this conclusion, SBC's Board of
Directors evaluated the strategic options available to SBC, including continuing
its current business on a stand alone basis, pursing strategic alliances with or
acquisitions of other banking institutions and the sale of SBC, together with
the terms of the Mergers, which presented many benefits to SBC and its
stockholders, including an opportunity to exchange shares of SBC which are not
publically traded for shares of FLFC traded on The Nasdaq Stock Market.
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2. Comparing SBC's Value as a Continuing Independent Entity with its Value
in Combination with FLFC. The Board of Directors considered the benefits that
could be expected to accrue to SBC stockholders from the Mergers, including the
increased liquidity of the FLFC Stock and the possibility of a higher stock
price for the FLFC Stock, compared to the Board's view of what would be achieved
by SBC operating as an independent entity.
3. Tax-free Nature of the Mergers. The Board of Directors of SBC
considered the nonfinancial terms and structure of the Mergers, in particular
the fact that the Mergers will qualify as a tax-free reorganization for SBC
stockholders for federal income tax purposes to the extent such stockholders
receive FLFC Stock in the Mergers. See "The Mergers -- Certain Federal Income
Tax Consequences."
4. Consolidation in the Banking Industry in Georgia. The Board of
Directors of SBC considered the current environment of the banking industry and
the trend toward consolidation and increasing size for banking institutions, as
well as recent regulatory changes concerning state-wide banking. These various
factors indicate the possibility of changes in the banking system for the State
of Georgia, including the nature and type of entities with which SBC will
increasingly compete, which could have a negative impact on stockholder value of
an independent bank operating in a non-metropolitan market. These factors were
weighed with the probability of SBC being able on a stand alone basis to
increase its size through acquisitions and the related effect on stockholder
value and dilution of stockholder interest.
5. Effectiveness of Auction Process. The SBC Board considered the process
utilized by SBC in exploring and dealing with acquisition proposals and in
negotiating with FLFC and concluded that the process utilized provided a
reasonable basis to conclude that the Merger Consideration represents fair value
to SBC stockholders.
6. Opinion of The Robinson-Humphrey Company, LLC The Board of Directors of
SBC considered the fact that R-H has rendered its opinion that the exchange
ratio is fair from a financial point of view to SBC stockholders. The opinion of
R-H is set forth in Appendix D and is incorporated herein by reference. See "The
Mergers -- Opinion of Financial Advisor."
In light of the variety and number of factors considered by the SBC
Board in conjunction with its evaluation of the Mergers, it was not practicable
to assign relative weights to the foregoing factors, and the SBC Board did not
do so.
THE BOARD OF DIRECTORS OF SBC 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 Mergers are consistent with
this strategy.
OPINION OF FINANCIAL ADVISOR
General.
SBC retained R-H to act as its financial adviser in connection with the
Company Merger. R-H has rendered an opinion to SBC's Board of Directors that,
based on the matters set forth therein, the consideration to be received
pursuant to the Company Merger is fair, from a financial point of view, to the
SBC stockholders.
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The text of such opinion is set forth in Appendix D to this Prospectus/Proxy
Statement and should be read in its entirety by stockholders of SBC.
The consideration to be received by SBC stockholders in the Company
Merger was determined by SBC and FLFC in their negotiations. No limitations were
imposed by the Board of Directors or management of SBC 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 SBC's 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 SBC, and has not made or obtained any independent
valuation or appraisals of any properties, assets or liabilities of SBC. R-H has
assumed and relied upon the accuracy and completeness of the financial and other
information that was provided to it by SBC 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 Company Merger and the
presentation of that opinion to SBC's Board of Directors, R-H performed two
valuation analyses with respect to SBC: (i) an analysis of comparable prices and
terms of recent transactions involving financial institutions acquiring banks;
and (ii) a discounted cash flow analysis. For purposes of the comparable company
and comparable transaction analyses, FLFC stock was valued at $30.50 per share
(prior to giving effect to the three-for-two split of the FLFC Stock effected in
the form of a 50% stock dividend paid on April 27, 1998). Both of these
methodologies are discussed briefly below.
Comparable Transaction Analysis. R-H performed three analyses of
premiums paid for selected banks with comparable characteristics to
SBC. Comparable transactions were considered to be: (i) transactions
since January 1, 1997, where the seller was a bank with total assets
between $100 million and $500 million; (ii) transactions between
January 1, 1997, where the seller was a bank located in the Southeast
with total assets between $100 million and $500 million, and (iii)
transactions since January 1, 1997 where the seller was a bank located
in Georgia.
(i) Based on the first of the foregoing transactions
since January 1, 1997, where the seller was a bank with total
assets between $100 million and $500 million, the analysis
yielded a range of transaction values to book value of 89.68
percent to 433.83 percent, with a mean of 242.28 percent and a
median of 236.44 percent. These compare to a transaction value
for the Company Merger of approximately 213.48 percent of
SBC's book value as of December 31, 1997.
The analysis yielded a range of transaction values as a
percentage of tangible book value for the comparable
transactions ranging from 89.68 percent to 439.21 percent,
with a mean of 249.32 percent and a median of 238.97 percent.
These compare to a transaction value to tangible book value at
December 31, 1997 of approximately 237.81 percent for the
Company Merger.
The analysis yielded a range of transaction values as a
multiple of trailing twelve month earnings per share. These
values ranged from 6.99 times to 74.30 times, with a mean of
22.34
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times and a median of 21.20 times. These compare to a
transaction value to the December 31, 1997 trailing twelve
month earnings per share of 17.24 times for the Company
Merger.
Lastly, the analysis yielded a range of transaction values as
a percentage of total assets for the comparable transactions
ranging from 5.07 percent to 34.31 percent, with a mean of
21.74 percent and a median of 21.85 percent. These compare to
a transaction value to total assets at December 31, 1997 of
approximately 23.62 percent for the Company Merger.
(ii) Based on transactions since January 1, 1997, where
the seller was a bank located in the Southeast with total
assets between $100 million and $500 million since January 1,
1997, the analysis yielded a range of transaction values to
book value of 150.56 percent to 433.83 percent, with a mean of
267.28 percent and a median of 267.66 percent. These compare
to a transaction value for the Company Merger of approximately
213.48 percent of SBC's book value as of December 31, 1997.
The analysis yielded a range of transaction values as a
percentage of tangible book value for the comparable
transactions ranging from 150.56 percent to 439.21 percent,
with a mean of 273.02 percent and a median of 265.05 percent.
These compare to a transaction value to tangible book value at
December 31, 1997 of approximately 237.81 percent for the
Company Merger.
The analysis yielded a range of transaction values as a
multiple of trailing twelve month earnings per share. These
values ranged from 12.74 times to 74.30 times, with a mean of
23.89 times and a median of 22.21 times. These compare to a
transaction value to the December 31, 1997 trailing twelve
month earnings per share of 17.24 times for the Company
Merger.
Lastly, the analysis yielded a range of transaction values as
a percentage of total assets for the comparable transactions
ranging from 12.02 percent to 34.31 percent, with a mean of
23.39 percent and a median of 23.37 percent. These compare to
a transaction value to total assets at December 31, 1997 of
approximately 23.62 percent for the Company Merger.
(iii) Based on transactions since January 1, 1997, where
the seller was a bank located in Georgia, the analysis yielded
a range of transaction values to book value of 135.95 percent
to 411.09 percent, with a mean of 247.12 percent and a median
of 233.78 percent. These compare to a transaction value for
the Company Merger of approximately 213.48 percent of SBC's
book value as of December 31, 1997.
The analysis yielded a range of transaction values as a
percentage of tangible book value for the comparable
transctions ranging from 135.95 percent to 439.21 percent,
with a mean of 261.66 and a median of 233.78 percent. These
compare to a transaction value to tangible book value at
December 31, 1997 of approximately 237.81 percent for the
Company Merger.
The analysis yielded a range of transaction values as a
multiple of trailing twelve month earnings per share. These
values ranged from 12.71 times to 32.87 times, with a mean of
20.09 times and a median of 18.18 times. These compare to a
transaction value to the December 31, 1997 trailing twelve
months earnings per share of 17.24 times for the Company
Merger.
Lastly, the analysis yielded a range of transaction values as
a percentage of total assets for the comparable transactions
ranging from 18.36 percent to 40.58 percent, with a mean of
26.11 percent and a median of 23.19 percent. These compare to
a transaction value to total assets at December 31, 1997 of
approximately 23.62 percent for the Company Merger.
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No company or transaction used in the comparable transaction analyses
is identical to SBC. 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 SBC could produce through 2002, under various circumstances,
assuming that SBC performed in accordance with the earnings/return
projections of management at the time that SBC entered into acquisition
discussions in August 1997. R-H estimated the terminal value for SBC at
the end of the period by applying multiples of earnings ranging from
12.0 times to 14.0 times 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
SBC and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a reference range of $36.11 to
$42.53 million, or $109.09 to $128.48 per share, for SBC.
Compensation of R-H.
Pursuant to an engagement letter dated August 18, 1997 between SBC and
R-H, SBC agreed to pay a $50,000 Fairness Opinion Fee at the time of rendering
and an incremental Success Fee (to be paid at closing) equal to 1.50 percent on
the total consideration received by stockholders less the Fairness Opinion Fee.
SBC 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 gross negligence of
R-H.
As part of its investment banking business, R-H is regularly engaged in
the valuation of securities in connection with Company Mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. SBC'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 U.S., and its
knowledge of financial institutions and SBC 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 Company Merger; the federal income tax consequences to SBC's
stockholders as a result of the Company 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 SBC's stockholders. A more
detailed summary of these federal income tax consequences is included in the
opinion letter issued by Coopers & Lybrand L.L.P. to FLFC which is incorporated
in this document and attached as Appendix C.
This summary is for general information only and is not a comprehensive
analysis of applicable federal income tax laws. In addition, no information is
provided with respect to the tax consequences under foreign, state
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or local laws.
SBC 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 Mergers.
Coopers & Lybrand L.L.P. has delivered its opinion that the Company
Merger qualifies as a tax-free reorganization as defined in Section 368(a)(1)(A)
of the Code.
Federal Income Tax Consequences to SBC Stockholders.
Consequences to SBC Stockholders Who Receive FLFC Stock. A stockholder
who receives only FLFC Stock in exchange for his or her shares of SBC 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 SBC Stock
will recognize gain or loss for federal income tax purposes measured by the
difference, if any, between the total cash received for the SBC Stock and such
holder's basis in his or her SBC Stock. The gain or loss will be characterized
for federal income tax purposes as capital gain or loss if the holder's shares
of SBC Stock were held as capital assets.
Basis of FLFC Stock. The basis of the total amount of FLFC Stock
received by a SBC stockholder who receives only FLFC Stock will be identical to
the basis of the total amount of SBC Stock exchanged.
Holding Period. The holding period for federal income tax purposes of
the FLFC Stock received by a SBC stockholder will include the holding period for
the SBC Stock exchanged.
Federal Income Tax Consequences of Ownership of FLFC Stock Issued in the
Mergers.
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 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 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
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.
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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, unless
certain requirements are met. Backup withholding does not constitute an
additional tax and may be credited against the holder's regular income tax
liability.
REGULATORY APPROVALS
The Mergers are subject to the prior approval (or waiver of the
approval requirements) by the OTS, Federal Reserve and DBF. FLFC has filed
applications for the requisite approvals or waivers from the OTS, Federal
Reserve and DBF in connection with the Mergers and fully expects to receive each
of such approvals or waivers.
SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Conditions to the Mergers. The obligations of SBC and FLFC to
consummate the Mergers 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 SBC 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
and no proceedings for that purpose shall have been instituted or, to the
knowledge of any party, shall be contemplated; (v) 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; (vi) no suit,
investigation, action or other proceeding shall be threatened or instituted
against SBC or FLFC to restrain or prohibit the transactions contemplated by the
Merger Agreement, or to obtain damages or other relief from such parties, in
connection with the Merger Agreement or the consummation of the transactions
contemplated thereby and no governmental agency shall have given notice to any
party to the effect than consummation of the transaction contemplated by the
Merger Agreement violated any law; (vii) FLFC and SBC shall have received the
opinion of Coopers & Lybrand L.L.P., in form and substance reasonably
satisfactory to both of them, as to certain tax aspects of the Mergers,
including an opinion that the receipt of FLFC Stock by SBC stockholders will not
be a taxable event to such stockholders. The obligations of FLFC and FLB to
consummate the Mergers are also subject to the satisfaction or waiver of certain
additional conditions, including: (i) neither SBC nor FLFC shall have received
notification of demands from Dissenting Stockholders who hold an aggregate of
more than 5% of the outstanding SBC Stock; (ii) John J. Neely, Jr. and Grace
Kirksey shall have entered into employment agreements with FLB, Gene Haskins
shall have entered into an amendment with FLB to the Officer Compensation
Continuation Agreement between Mr. Haskins and SBC and Ken B. Lanier shall have
entered into a consulting agreement with FLB; (iii) the approximately 200 acres
of farmland described on Exhibit 6.02(k) to the Merger Agreement shall have been
sold, or a bona fide agreement for the sale thereof shall have been entered
into, by SBC, and such sale shall have resulted, or will upon consummation
result, in a gain to SBC of at least $200,000; (iv) John J. Neely, Jr., Ken B.
Lanier, Edwina Hames and Thomas T. Neely, or their designee or designees, shall
have purchased the Southland Bank loans listed on Exhibit 6.02(m) to the Merger
Agreement totaling approximately $500,000 at a price equal to 85% of each such
loan's then principal balance; (v) since November 1, 1997, there shall not have
occurred any adverse change of greater than 5.5% from the combined net income of
Coffee Bank and Southland Bank, taken as a whole, as set forth in the business
plan dated December 19, 1997 previously provided to FLFC by SBC; provided that
such calculation will exclude the incurrence by SBC of expenses relating to the
transactions contemplated by the Merger Agreement (including, without
limitation, fees and expenses of R-H and SBC's accountants and lawyers), payment
by SBC's consolidated group of additional compensation to employees during
December 1997, the affect of any increase
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in loan loss reserves at FLFC's request and any occurrences which reasonably may
be characterized as non-recurring events or which SBC and FLFC reasonably agree
are not likely to have a material adverse effect on the long-term financial
performance of SBC's consolidated group; (vi) FLFC shall receive satisfactory
assurances from their independent accountants that the consummation of the
Mergers will not be a taxable event to FLFC and FLB and will qualify for
pooling-of-interest accounting treatment; (vii) all officers and directors of
SBC, Southland Bank and Coffee Bank shall have delivered to FLFC their
resignations; (viii) the fees payable by SBC in connection with the termination
of its data processing contract shall not exceed $1,006,000; and (ix) the
consolidated loan loss reserve of Southland Bank and Coffee Bank shall be at
least 1.5% of gross loans.
In addition to the above, the obligations of SBC, Southland Bank and
Coffee Bank to consummate the Mergers are subject to the satisfaction or waiver
of certain additional conditions, including: (i) SBC shall have received letters
from R-H dated the date of the mailing of the Proxy Statement to stockholders of
SBC and dated the date of the Special Meeting, confirming R-H's prior opinion to
the Board of Directors of SBC to the effect that the consideration to be paid in
the Company Merger is fair to the SBC stockholders from a financial point of
view; and (ii) FLFC's "core return on equity," the calculation of which shall be
performed in accordance with FLFC's past practices, for the quarter ended
immediately prior to the Closing Date for which such information is then
publicly available shall not be less than 14.0%.
No assurances can be provided as to when or if all of the conditions
precedent to the Mergers 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 Mergers may be waived, in whole
or in part, to the extent permissible under applicable law, except for the
receipt of letters from R-H confirming R-H's opinion that the Merger
Consideration is fair to its stockholders from a financial point of view, by the
party for whose benefit the condition has been imposed, without the approval of
the SBC stockholders. See "Amendment, Waiver and Termination" below.
Conduct of Business Pending the Mergers. SBC 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 consistent 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.
SBC has agreed in the Merger Agreement not to take certain actions
relating to the operation of its business pending consummation of the Mergers
without the prior approval of FLFC. Accordingly, SBC, among other things, may
not (i) acquire another business or merge or consolidate with another entity, or
sell or otherwise dispose of a material part of its assets, except in the
ordinary course of business consistent with past practices or as otherwise
permitted in the Merger Agreement; (ii) increase any salaries, wages or employee
benefits or hire, commit to hire or terminate any employee; (iii) amend its
charter document or bylaws, or amend any resolution or agreement concerning
indemnification of its directors or officers; (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, except that SBC may
declare and pay its regular dividend at a quarterly rate of $0.25 per share
prior to the Closing Date; (v) dispose of investment securities in amounts or in
a manner inconsistent with past practices or make investments in non-investment
grade securities or which are inconsistent with past investment practices; (vi)
enter into any new line of non-banking business; (vii) make any extension of
credit which, when added to all other extensions of credit to a borrower and its
affiliates, would exceed SBC's, Southland Bank's or Coffee Bank's applicable
regulatory lending limits; (viii) take or cause to be taken any action which
would disqualify the Mergers as a "pooling of interests" for accounting purposes
or as
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a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended; (ix) establish any additional branch bank or office;
(x) make any material changes in the interest rates paid on its deposits or
charged on its loans except on a basis consistent with internal policies and
procedures in accordance with past practices; (xi) make any capital expenditures
or capital additions or betterments in excess of $50,000 in the aggregate; or
(xii) fail to maintain Southland Bank's or Coffee Bank's loan loss reserves in a
manner consistent with past practice and in accordance with such banks' internal
policies, FDIC requirements and requirements of the DBF.
In addition, SBC has agreed not to solicit, directly or indirectly, any
acquisition proposal from any other person or entity. SBC 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. SBC 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, SBC
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 SBC, provided that after the approval of the Company Merger
by SBC's stockholders, no amendment may decrease the Merger Consideration to be
received by SBC stockholders without the requisite approval of SBC stockholders.
Prior to or at the Effective Time, either SBC 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 Mergers abandoned, at
any time prior to the Effective Time by mutual written consent of SBC and FLFC.
In addition, the Merger Agreement may be terminated prior to the Effective Time
by the Boards of Directors of either FLFC or SBC if (i) the Merger Agreement
fails to receive the requisite vote for approval at the Special Meeting, (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
forty-five (45) days after written notification by the opposite party of such
breach, (iii) all conditions to closing required by the Merger Agreement have
not been met by or waived by FLFC or SBC by July 31, 1998, or (iv) the Mergers
have not been consummated by August 31, 1998. In addition, the Merger Agreement
may be terminated prior to the Effective Time by FLFC if the Board of Directors
of SBC (i) withdraws, modifies, or changes its recommendation to its
stockholders of the Merger Agreement or shall have resolved to do any of the
foregoing; (ii) shall have recommended to the stockholders of SBC or approved
any of the following: (a) any merger, consolidation, share exchange, business
combination or other similar transaction, other than as contemplated by the
Merger Agreement, (b) any sale, lease, transfer or other disposition of all or
substantially all of the assets of any member of SBC's consolidated group or (c)
any acquisition, by any person or group, of beneficial ownership of 15% or more
of any class of SBC's Stock (an "Acquisition Transaction"); or (iii) shall have
made any announcement of any agreement to do any of the foregoing. Finally, the
Merger Agreement may be terminated prior to the Effective Time by the Board of
Directors of SBC in the event SBC receives a written offer with respect to an
Acquisition Transaction and the Board of Directors of SBC determines in good
faith, after consultation with its financial advisors and counsel, that such
Acquisition Transaction is more favorable to SBC's stockholders than the
transactions contemplated by the Merger Agreement.
-33-
<PAGE> 36
EXPENSES AND FEES
Except as described below, 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 by FLFC as a result of the Board of Directors of SBC (i)
having withdrawn, modified or changed its recommendation to its stockholders of
the Merger Agreement or (ii) having recommended to the stockholders of SBC any
other Acquisition Transaction, or by SBC in the event SBC receives a written
offer with respect to an Acquisition Transaction and determines in good faith
that such transaction is more favorable to SBC's stockholders than the
transactions contemplated by the Merger Agreement, SBC shall pay or cause to be
paid to FLFC upon demand a fee of $150,000 and shall reimburse FLFC for 100% of
its costs and expenses (including, but not limited to, fees and expenses of
legal counsel and accountants, investment banking fees and printing and mailing
costs) subject to a maximum amount of $150,000, as liquidated damages. If the
Merger Agreement is terminated by either FLFC or SBC at such time as all
conditions to consummation of the Mergers have been satisfied or prior to the
last date under the Merger Agreement when such conditions could have been
satisfied, and the other party is otherwise prepared to close but for such
terminating party's failure to close, such terminating party must pay to the
other party a fee of $150,000 and reimburse the other party for 100% of its
costs and expenses as described above, subject to a maximum amount of $150,000,
as liquidated damages.
ACCOUNTING TREATMENT
The Mergers 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 SBC Stock exchanged in the Company
Merger for cash pursuant to the exercise of dissenters' rights or in lieu of
fractional shares not exceed 10% of the outstanding shares of SBC Stock. Under
pooling of interests accounting, the assets and liabilities of SBC as of the
Effective Time are recorded at their recorded book values and added to those of
FLFC, and the stockholders' equity of SBC will be combined in FLFC's
consolidated balance sheet. Financial statements issued after consummation of
the Mergers will be restated retroactively to reflect the consolidated
historical financial position and results of operations of FLFC and SBC as if
the Mergers were effected prior to the periods covered by the financial
statements. See "Pro Forma Combined Condensed Financial Data."
RESTRICTIONS ON RESALES OF FLFC STOCK
The shares of FLFC Stock to be issued in connection with the Company
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 SBC 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 Company Merger except pursuant to an effective registration statement under
the Securities Act or other applicable exemption from the registration
requirements of the Securities Act. Such affiliates may sell their shares in
accordance with the exemption from registration provided by Rule 144 under the
Securities Act. In general, under Rule 144, as currently in effect, an affiliate
may sell securities in brokers' transactions or directly through market makers
provided the number of shares sold in any three-month period does not exceed the
greater of 1% of the then outstanding shares of FLFC's Stock (approximately
101,871 shares, based on the number of shares to be outstanding immediately
following the Company Merger) or the average weekly trading volume in the public
market during the four calendar weeks preceding the filing of the seller's Form
144. Sales under Rule 144 are also subject to certain notice of sale
requirements and the availability of current public information concerning FLFC.
FLFC may place restrictive legends on certificates representing FLFC Stock
issued to all persons who are deemed to be "affiliates" of SBC or FLFC under
Rule 145. In addition, each director, executive officer and 10% beneficial owner
of SBC has agreed not to sell the shares of FLFC Stock that he or she receives
in
-34-
<PAGE> 37
connection with the Merger until financial results covering at least 30 days of
post-Company Merger combined operations have been published.
The FLFC Stock is listed for trading on The Nasdaq Stock 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, a
Dissenting Stockholder who desires to receive the fair value of his or her SBC
Stock in cash rather than to receive the Merger Consideration as part of the
Company Merger may do so if he or she 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 Company Merger and receive payment in cash for his SBC Stock must deliver,
prior to the vote of the SBC Stockholders, written notice of his intent to
demand payment of the fair value of his shares of SBC Stock if the Company
Merger is effectuated. The notice must be delivered to Southland Bank
Corporation of Georgia, P. O. Box 431, Douglas, Georgia 31534, Attention: Gene
Haskins, Corporate Secretary. 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 SBC Stockholders, SBC 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 SBC Certificates, (ii) state the date by which
SBC must receive the First Payment Demand, which date shall be fixed by SBC 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
SBC or to receive payment of the fair value of his or her shares of SBC Stock.
SBC shall send the Dissenters' Notice to each of the Dissenting Stockholders no
later than ten days after the date on which the SBC 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 or her
address as it appears in the stock transfer books of SBC or at such address as
the Dissenting Stockholder supplies by notice to SBC.
Each Dissenting Stockholder to whom SBC sends a Dissenter's Notice must
demand payment for his or her shares by written notice to SBC (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 SBC Stock which he or she
owns) and a demand for payment to the Dissenting Stockholder of the fair value
of his or her shares. In addition, the Dissenting Stockholder must deposit his
or her SBC Certificate(s) with SBC in accordance with the terms of the
Dissenters' Notice. Any Dissenting Stockholder who does not submit a First
Payment Demand or deposit his or her SBC Stock certificate(s) at SBC, each as
set forth in the Dissenters' Notice, shall lose his or her 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 Company Merger or SBC's
receipt of the First Payment Demand, SBC shall offer to pay the Dissenting
Stockholders who have complied with the provisions of the GBCC the amount SBC
estimates to be the fair value of the shares plus accrued interest. SBC's offer
of payment shall be accompanied by (i) SBC'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
-35-
<PAGE> 38
and the latest available interim financial statements, if any; (ii) a statement
of SBC'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 SBC's offer by providing written
notice to SBC 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, SBC shall
make payment for the Dissenting Stockholder's SBC Stock within 60 days after the
date SBC made the offer or the date on which the Company Merger occurs,
whichever date is later. If a Dissenting Stockholder is dissatisfied with SBC's
offer, such Dissenting Stockholder may notify SBC in writing of, and demand
payment of, his own estimate of the fair value of his or her shares and the
amount of interest due (the "Second Payment Demand"). A Dissenting Stockholder
waives his or her right to demand payment of a different amount than that
offered by SBC unless such Dissenting Stockholder makes a Second Payment Demand
within 30 days after the date SBC makes its offer.
In the event a Dissenting Stockholder's Second Payment Demand remains
unsettled within 60 days after SBC receives the Dissenting Stockholder's Second
Payment Demand, SBC shall commence a nonjury equitable valuation proceeding in
the Coffee County Superior Court to determine the fair value of the shares and
accrued interest. SBC 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 SBC does not commence the proceeding within 60 days after receiving
the Dissenting Stockholder's Second Payment Demand, SBC 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. The GBCC provides that, for
purposes of dissenters' rights, the value of the SBC Stock is determined
immediately before the Effective Time and that the fair value excludes any
appreciation or depreciation in anticipation of the Company Merger.
-36-
<PAGE> 39
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following Pro Forma Combined Condensed Balance Sheet as of December
31, 1997, assumes the Mergers had been completed as of December 31, 1997, and
reflects the assumed consummation of the Mergers accounted for as a pooling of
interests as of such date. The following Pro Forma Combined Condensed Income
Statements for the three months ended December 31, 1996 and 1997, and for the
years ended September 30, 1995, 1996 and 1997, assume the Mergers had been
completed as of October 1, 1994. The Pro Forma Combined Condensed Income
Statements for the three months ended December 31, 1996 and 1997 and for the
years ended September 30, 1995, 1996 and 1997 include the historical
consolidated income statements of FLFC for such periods and of SBC for the three
months ended December 31, 1996 and 1997 and the years ended December 31, 1995,
1996 and 1997. The following pro forma information assumes that no SBC
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 SBC.
The pro forma combined condensed financial data has been prepared based
upon the historical consolidated financial statements of FLFC and SBC. 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 March 25, 1998, the Board of Directors of FLFC declared a
three-for-two stock split payable on April 27, 1998 in the form of a 50% stock
dividend. Unless indicated otherwise, all of the information in this Proxy
Statement/Prospectus give effect to the split. Additionally, earnings per share
calculations have been restated to reflect the adoption of SFAS No. 128 by FLFC
in December 1997.
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 SBC, appearing elsewhere or
incorporated by reference herein. See "Incorporation of Certain Information by
Reference" and "Southland Bank Corporation of Georgia Financial Statements."
-37-
<PAGE> 40
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL
----------------------------- PRO FORMA PRO FORMA
ASSETS FLFC SBC ADJUSTMENTS COMBINED
- ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks ........................ $ 37,844 $ 8,126 $ 45,970
Federal funds sold ............................. 5,983 5,950 11,933
Securities available-for-sale .................. 271,328 31,453 302,781
Loans, net ..................................... 891,186 95,984 987,170
Premises and equipment, net .................... 24,408 3,133 27,541
Real estate, net ............................... 4,087 215 4,302
Intangible assets .............................. 8,819 1,696 10,515
Other assets ................................... 31,743 2,401 34,144
----------- ----------- -----------
TOTAL ASSETS ................................... $ 1,275,398 $ 148,958 $ $ 1,424,356
=========== =========== ====== ===========
LIABILITIES
Deposits ....................................... $ 938,635 $ 123,166 $ 1,061,801
Notes payable and
other borrowed money ......................... 226,045 9,045 235,090
Other liabilities .............................. 13,915 825 14,740
----------- ----------- -----------
TOTAL LIABILITIES .............................. 1,178,595 133,036 1,311,631
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock ................................... 11,656 3 (3)(1) 13,397
1,741 (2)
Additional paid-in capital ..................... 38,558 5,645 (5,645)(1) 41,257
2,699 (2)
Retained earnings .............................. 45,649 11,398 57,047
Net unrealized gain on securities .............. 1,209 84 1,293
Treasury stock at cost ......................... (269) (1,208) 1,208 (1) (269)
----------- ----------- ------ -----------
TOTAL STOCKHOLDERS' EQUITY ..................... 96,803 15,922 -- 112,725
----------- ----------- ------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .......................... $ 1,275,398 $ 148,958 $ -- $ 1,424,356
=========== =========== ====== ===========
</TABLE>
- -------------------------
(1) To eliminate SBC's capital.
(2) To record the issuance of shares of FLFC Stock at par value ($1.00 per
share) in exchange for all of the outstanding shares of SBC. Conversion
ratio of 5.265 shares of FLFC Stock per share of SBC Stock.
-38-
<PAGE> 41
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
-------------------- PRO FORMA PRO FORMA
FLFC SBC ADJUSTMENTS COMBINED
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $25,341 $3,055 $28,396
Interest expense...................... 13,752 1,257 15,009
------- ------ -------
Net interest income................. 11,589 1,798 13,387
Provision for loan losses............. 1,398 316 1,714
------- ------ -------
Net interest income after provision
for loan losses................... 10,191 1,482 11,673
Noninterest income.................... 4,154 264 4,418
Noninterest expense................... 8,249 1,314 9,563
------- ------ -------
Income before income tax expense.... 6,096 432 6,528
Income tax expense ................... 2,472 111 2,583
------- ------ -------
Income before
extraordinary item................ $ 3,624 $ 321 $ 3,945
======= ====== =======
Income per common share before
extraordinary item:
Basic............................. $ .31 $ .97 $ .30
Diluted........................... $ .31 $ .97 $ .29
Average common shares outstanding:
Basic............................. 11,603 331 (331)(1) 13,344
1,741 (2)
Diluted............................ 11,863 331 (331)(1) 13,604
1,741 (2)
</TABLE>
- -------------------------
(1) To eliminate SBC's Stock.
(2) To convert SBC Stock into FLFC Stock at a conversion ratio of 5.265
shares of FLFC Stock per share of SBC Stock.
-39-
<PAGE> 42
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
-------------------- PRO FORMA PRO FORMA
FLFC SBC ADJUSTMENTS COMBINED
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $23,347 $2,792 $26,139
Interest expense...................... 12,657 1,041 13,698
------- ------ -------
Net interest income................... 10,690 1,751 12,441
Provision for loan losses............. 593 156 749
------- ------ -------
Net interest income after provision
for loan losses................... 10,097 1,595 11,692
Non-interest income................... 3,079 226 3,305
Non-interest expense.................. 8,258 1,150 9,408
------- ------ -------
Income before income tax
expense and extraordinary item.... 4,918 671 5,589
Income tax expense
(benefit) ........................ 1,952 192 2,144
------- ------ -------
Income before
extraordinary item................ 2,966 479 3,445
Dividends on preferred stock.......... 113 -- 113
------- ------ -------
Income before extraordinary
item applicable to common
stockholders...................... $ 2,853 $ 479 $ 3,332
======= ====== =======
Earnings per common share before
extraordinary item:
Basic............................. $ .27 $ 1.38 $ .27
Diluted........................... $ .25 $ 1.38 $ .26
Average common shares outstanding:
Basic............................. 10,674 346 (346)(1) 12,496
1,822 (2)
Diluted........................... 11,645 346 (346)(1) 13,467
1,822 (2)
</TABLE>
- -------------------------
(1) To eliminate SBC Stock.
(2) To convert SBC Stock into FLFC Stock at a conversion ratio of 5.265
shares of FLFC Stock per share of SBC Stock.
-40-
<PAGE> 43
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 (FLFC)
YEAR ENDED DECEMBER 31, 1997 (SBC)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
-------------------- PRO FORMA PRO FORMA
FLFC SBC ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $96,847 $11,727 $108,574
Interest expense...................... 52,843 4,758 57,601
------- ------- --------
Net interest income................. 44,004 6,969 50,973
Provision for loan losses............. 6,317 1,447 7,764
------- ------- --------
Net interest income after provision
for loan losses................... 37,687 5,522 43,209
Noninterest income.................... 13,531 1,423 14,954
Noninterest expense................... 34,319 5,002 39,321
------- ------- --------
Income before income tax
expense and extraordinary item.... 16,899 1,943 18,842
Income tax expense ................... 5,189 557 5,746
------- ------- --------
Income before
extraordinary item................ 11,710 1,386 13,096
Dividends on preferred stock.......... 113 -- 113
------- ------- --------
Income before extraordinary
item applicable to common
stockholders...................... $11,597 $ 1,386 $ 12,983
======= ======= ========
Earnings per common share before
extraordinary item:
Basic............................. $ 1.03 $ 4.11 $ 1.00
Diluted............................ $ 1.00 $ 4.11 $ .97
Average common shares outstanding:
Basic............................. 11,235 337 (337)(1) 13,010
1,775 (2)
Diluted............................ 11,735 337 (337)(1) 13,510
1,775 (2)
</TABLE>
- -------------------------
(1) To eliminate SBC Stock.
(2) To convert SBC Stock into FLFC Stock at a conversion ratio of 5.265
shares of FLFC Stock per share of SBC Stock.
-41-
<PAGE> 44
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 (FLFC)
YEAR ENDED DECEMBER 31, 1996 (SBC)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
-------------------- PRO FORMA PRO FORMA
FLFC SBC ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $84,319 $10,595 $94,914
Interest expense...................... 46,050 4,109 50,159
------- ------- -------
Net interest income................. 38,269 6,486 44,755
Provision for loan losses............. 3,106 326 3,432
------- ------- -------
Net interest income after provision
for loan losses................... 35,163 6,160 41,323
Noninterest income.................... 11,324 974 12,298
Noninterest expense................... 33,193 4,595 37,788
------- ------- -------
Income before income tax
expense and extraordinary item.... 13,294 2,539 15,833
Income tax expense ................... 4,374 722 5,096
------- ------- -------
Income before
extraordinary item................ 8,920 1,817 10,737
Dividends on preferred stock.......... 454 -- 454
------- ------- -------
Income before extraordinary
item applicable to common
stockholders...................... $ 8,466 $ 1,817 $10,283
======= ======= =======
Income per common share before
extraordinary item:
Basic............................. $ .81 $ 5.25 $ .83
Diluted........................... $ .77 $ 5.22 $ .80
Average common shares outstanding:
Basic............................. 10,532 346 (346)(1) 12,354
1,822 (2)
Diluted........................... 11,570 348 (348)(1) 13,401
1,831 (2)
</TABLE>
- -------------------------
(1) To eliminate SBC Stock.
(2) To convert SBC Stock into FLFC Stock at a conversion ratio of 5.265
shares of FLFC Stock per share of SBC Stock.
-42-
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995 (FLFC)
YEAR ENDED DECEMBER 31, 1995 (SBC)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
-------------------- PRO FORMA PRO FORMA
FLFC SBC ADJUSTMENTS COMBINED
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $70,341 $9,955 $80,296
Interest expense...................... 37,779 3,966 41,745
------- ------ -------
Net interest income................. 32,562 5,989 38,551
Provision for loan losses............. 2,365 92 2,457
------- ------ -------
Net interest income after provision
for loan losses................... 30,197 5,897 36,094
Noninterest income.................... 9,871 788 10,659
Noninterest expense................... 27,128 4,434 31,562
------- ------ -------
Income before income tax
expense and extraordinary item.... 12,940 2,25l 15,191
Income tax expense ................... 3,595 586 4,181
------- ------ -------
Income before
extraordinary item................ 9,345 1,665 11,010
Dividends on preferred stock.......... 864 -- 864
------- ------ -------
Income before extraordinary
item applicable to common
stockholders...................... $ 8,481 $1,665 $10,146
======= ====== =======
Income per common share before
extraordinary item:
Basic............................. $ .97 $ 4.83 $ .97
Diluted........................... $ .85 $ 4.81 $ .86
Average common shares outstanding:
Basic............................. 8,687 345 (345)(1) 10,503
1,816 (2)
Diluted........................... 11,022 346 (346)(1) 12,845
1,823 (2)
</TABLE>
- -------------------------
(1) To eliminate SBC Stock.
(2) To convert SBC Stock into FLFC Stock at a conversion ratio of 5.265
shares of FLFC Stock per share of SBC Stock.
43
<PAGE> 46
SOUTHLAND BANK CORPORATION OF GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The following discussion reviews the results of operations and assesses the
financial condition of SBC in Douglas, Georgia. This discussion should be read
in conjunction with the consolidated financial statements and accompanying notes
appearing elsewhere herein. These financial statements and financial review
include certain forward-looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. Those factors
include fluctuations in interest rates, inflation, government regulations, and
economic conditions and competition in the geographic business areas in which
SBC conducts its operations.
The following table presents condensed average balance sheets for the periods
indicated, and the percentages of each of these categories to total average
assets for each period.
<TABLE>
<CAPTION>
TABLE 1
AVERAGE BALANCE SHEETS
(Dollars in thousands) Years Ended December 31
------------------------------------------------------------------------------
1997 % 1996 % 1995 %
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash & due from banks.................... 4,575 3.27 % 4,710 3.71 % 4,265 3.59 %
Time deposits-other banks................ 48 0.03 % 77 0.06 % 187 0.16 %
Federal funds sold....................... 1,916 1.37 % 2,578 2.03 % 2,316 1.95 %
Taxable investment securities............ 28,953 20.69 % 27,324 21.52 % 27,933 23.52 %
Non-taxable investment securities........ 5,059 3.62 % 5,307 4.18 % 6,028 5.07 %
Market adjustment-securities............. (106) (0.08)% (37) (0.03)% (221) (0.19)%
Loans, net of interest................... 93,626 66.92 % 81,890 64.47 % 73,551 61.92 %
Allowance for loan losses................ (1,369) (0.98)% (1,199) (0.94)% (1,247) (1.05)%
Bank premises & equipment................ 2,695 1.93 % 1,887 2.86 % 1,734 1.46 %
Other real estate........................ 208 0.15 % 101 0.08 % 130 0.11 %
Other assets............................. 4,306 3.08 % 4,361 3.43 % 4,103 3.45 %
------------------------------------------------------------------------------
TOTAL ASSETS 139,911 100.00 % 126,999 101.36 % 118,779 100.00 %
==============================================================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing.................. 21,733 15.53 % 25,291 19.91 % 21,551 18.14 %
Interest bearing...................... 91,706 65.55 % 81,861 64.46 % 78,820 66.36 %
Federal funds purchased.................. 3,302 2.36 % 366 0.29 % 329 0.28 %
Demand notes-U.S. Treasury............... 241 0.17 % 148 0.12 % 244 0.21 %
Other borrowed money..................... 5,993 4.28 % 3,105 2.44 % 3,281 2.76 %
Other liabilities........................ 912 0.65 % 1,160 0.91 % 934 0.79 %
------------------------------------------------------------------------------
Total Liabilities 123,887 88.55 % 111,931 88.14 % 105,159 88.53 %
------------------------------------------------------------------------------
Common stock............................. 4 0.00 % 3 0.00 % 3 0.00 %
Surplus.................................. 5,620 4.02 % 5,530 4.35 % 5,520 4.65 %
Retained earnings........................ 10,920 7.80 % 10,034 7.90 % 8,600 7.24 %
Other stockholders' equity............... (520) (0.37)% (499) (0.39)% (503) (0.42)%
------------------------------------------------------------------------------
Total stockholders' equity 16,024 11.45 % 15,068 11.86 % 13,620 11.47 %
------------------------------------------------------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 139,911 100.00 % 126,999 100.00 % 118,779 100.00 %
==============================================================================
</TABLE>
Consolidated total assets of $149.0 million at December 31, 1997 increased by
$16.4 million, or 12.4%, over total assets at December 31, 1996. Total assets of
$132.5 million at December 31, 1996 increased by $7.5 million, or 6.0%, over
total consolidated assets at December 31, 1995. On average, the balance sheet
grew by 10.2% during 1997 and 6.9% during 1996. This growth is reflective of the
overall strong economy and continued marketing efforts.
44
<PAGE> 47
LOANS
The loan portfolio constitutes the major interest earning asset of SBC. To
analyze prospective loans, management assesses SBC's objectives for both
credit quality and interest rate pricing to determine whether to extend a loan
and the appropriate rate of interest for each loan. The loan portfolio is
concentrated in various commercial, real estate and consumer loans to
individuals and entities located in Central and Southern Georgia. Accordingly,
the ultimate collectibility of the loans is largely dependent upon economic
conditions in the central and south Georgia areas.
Loans, net of unearned income, totaling $98.5 million and $89.7 million at
December 31, 1997 and 1996, respectively, amounted to 66.1% and 67.7% of total
assets, and 79.9% and 79.5% of deposits. The average yields generated by
interest and fees from the loan portfolio amounted to 10.17% during 1997 and
10.27% during 1996. SBC's allowance for loan losses at December 31, 1997 and
1996 was 2.59% and 1.42% of outstanding net loans, respectively.
The following table presents the composition of SBC's loan portfolio, both in
dollars and in percentages of the total portfolio, at the end of each of the
past two years.
<TABLE>
<CAPTION>
TABLE 2
LOANS BY TYPE
(Dollars in thousands) December 31
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Commercial, Financial
and Agricultural............................. $28,521 $33,279
Real Estate-Construction........................ 2,871 3,439
Real Estate-Mortgage............................ 46,883 34,104
Real Estate - Farm Land......................... 10,075 8,751
Loans to Individuals............................ 10,261 9,817
All Other Loans................................. 57 310
---------------------------
Total Loans................................ 98,668 89,700
Unearned Income................................. (197) (43)
Allowance for Loan Losses....................... (2,487) (1,255)
---------------------------
Total Net Loans............................ $95,984 $88,402
===========================
Percentage of Total Portfolio:
- ------------------------------
Commercial, Financial
and Agricultural............................. 29.7 % 37.7 %
Real Estate-Construction ....................... 3.0 % 3.9 %
Real Estate - Mortgage.......................... 48.8 % 38.6 %
Real Estate - FarmLand.......................... 10.5 % 9.9 %
Loans to Individuals............................ 10.7 % 11.1 %
All Other Loans................................. 0.1 % 0.4 %
--------------------------
Total Loans................................ 102.8 % 101.2 %
Unearned Income................................. (0.2)% (0.1)%
Allowance for Loan Losses....................... (2.6)% (1.4)%
--------------------------
Total Net Loans............................ 100.0 % 100.0 %
==========================
</TABLE>
45
<PAGE> 48
The following table presents SBC's loan maturities and certain interest
sensitivity data as of December 31, 1997. Loans may be periodically renewed with
principal reductions and appropriate interest rate adjustments.
TABLE 3
LOAN MATURITY DISTRIBUTION AND INTEREST SENSITIVITY
(In thousands)
<TABLE>
<S> <C>
Maturity:
One year or less.................................. $56,066
After One year through five years................. 27,903
After five years.................................. 14,502
-------
Total............................................. $98,471
=======
Rate Sensitivity:
Predetermined interest rates...................... $60,604
Floating or adjustable interest rates............. 37,867
-------
Total............................................. $98,471
=======
</TABLE>
INVESTMENT SECURITIES
The investment securities portfolio is another major interest earning asset of
SBC and consists largely of obligations of the U.S. Government and its'
agencies. All investments are classified as either Available for Sale or Held to
Maturity. The investment portfolio provides the company with a source of
liquidity and is a resource used to help balance interest rate risk and credit
risk related to the loan portfolio. Investments amounted to $31.4 million, or
21.1% of total assets at December 31, 1997, down from $31.7 million, or 23.9% of
total assets at December 31, 1996. The decrease in investment portfolio size
relative to the balance sheet reflects the shift in earning assets into the loan
portfolio during 1997 to fund the loan portfolio growth.
The average 1997 yield on the portfolio, excluding the impact of SFAS No. 115
market value adjustments for unrealized gains and losses on available for sale
securities as discussed below, was 6.62%, compared to 6.82% for 1996. The
stability of the bond yields over this time frame indicates a reasonably stable
interest rate environment in the bond markets. During 1997, the investment
securities portfolio, excluding unrealized gains and losses, represented 26.2%
of average earning assets and 24.3% of average total assets. During 1996, the
portfolio averaged 27.8% of average earning assets and 25.7% of average total
assets.
The following table presents the carrying values of Available for Sale and Held
to Maturity investment securities held by SBC at December 31, 1997 and 1996.
Available for Sale securities are shown at fair value, while Held to Maturity
securities are shown at amortized or accreted cost.
TABLE 4
INVESTMENT SECURITIES
(In thousands)
<TABLE>
<CAPTION>
December 31
---------------------
1997 1996
---------------------
<S> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries......................... 10,086 5,035
U.S. Government Agencies................
Other................................. 11,728 11,747
Mortgage-backed....................... 0 3,679
State, county & municipal............... 546 550
Other investments....................... 1,884 3,177
---------------------
Total................................... 24,244 24,188
=====================
</TABLE>
46
<PAGE> 49
TABLE 4 (Continued)
INVESTMENT SECURITIES
(In thousands)
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
--------------------
<S> <C> <C>
HELD TO MATURITY
U.S. Treasuries....................... $ 0 $ 0
U.S. Government Agencies
Other............................... 500 1,610
Mortgage-backed..................... 357 551
State, county & municipal............. 6,351 5,356
Other investments..................... 0 0
--------------------
Total................................. $7,208 $7,517
====================
<CAPTION>
December 31
---------------------
1997 1996
---------------------
<S> <C> <C>
TOTAL INVESTMENT SECURITIES
U.S. Treasuries....................... $10,086 $ 5,035
U.S. Government Agencies..............
Other............................... 12,228 13,357
Mortgage-backed..................... 357 4,230
State, county & municipal............. 6,897 5,906
Other investments..................... 1,884 3,177
---------------------
Total................................. $31,452 $31,705
=====================
</TABLE>
The following table illustrates the contractual maturities and weighted average
yields of investment securities held at December 31, 1997. Expected maturities
will differ from contractual maturities because certain issuers have the right
to call or prepay obligations with or without call or prepayment penalties. The
weighted average yields are calculated on the basis of the amortized cost and
effective yields of each security weighted for the scheduled maturity of each
security.
TABLE 5
MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
------ ------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Agency........ $2,343 $19,971 $ 0 $ 0
Mortgage-backed................... 0 357 0 0
State, county and municipal....... 504 3,277 1,524 1,593
Other............................. 249 868 0 0
---------------------------------------------------
Total............................. $3,096 $24,473 $1,524 $1,593
===================================================
</TABLE>
The above maturity distribution does not include Southland's investment in FHLB
or Farmer Mac stock.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YIELD YIELD YIELD YIELD YIELD
---------------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency......... 5.73% 6.00% 0.00% 0.00%
Mortgage-backed.................... 0.00 7.00 0.00 0.00
State, county and municipal........ 7.67 5.83 5.29 6.39
Other.............................. 5.60 6.44 0.00 0.00
--------------------------------------------------
Total.............................. 6.04% 6.01% 5.29% 6.39%
==================================================
</TABLE>
47
<PAGE> 50
As of December 31, 1997, SBC had no holdings of securities of a single issuer in
which the aggregate book value and aggregate market value of the securities
exceeded ten percent of stockholders' equity, with the exception of U. S.
Treasury and U. S. Government Agencies securities.
OTHER ASSETS
SBC holds additional earning assets in overnight Federal Funds Sold. These
balances amounted to $6.0 million and $1.9 million as of December 31, 1997 and
1996, respectively. Balances in nonearning assets are comprised of cash and
correspondent bank balances, fixed assets, income receivable on loans and
investments and other miscellaneous assets. Management works to minimize
non-earning asset balances in order to maximize profit potential.
48
<PAGE> 51
DEPOSITS
Deposits are SBC's primary liability and funding source. Total deposits
experienced moderate growth in 1997, increasing 9.2% from $112.8 million at
December 31, 1996 to $123.2 million at December 31, 1997. During 1997, 19.2% of
average deposits were held in non-interest bearing checking accounts, 33.8% were
in low yield interest-bearing transaction and savings accounts, and 47.0% were
in time certificates with higher yields. Comparable average deposit mix
percentages during 1996 were 23.6%, 29.4% and 47.0%, respectively.
The average cost of total deposits, including non-interest checking accounts,
during 1997 was 3.70%, up 9 basis points from 3.61% in 1996. The increase in
1997 average deposits cost resulted from a moderate increase in low cost
deposits from their noninterest paying counterpart paired with an increase in
deposit rates paid on time deposits.
SBC's total interest expense on deposits and borrowed funds as a percentage of
average earning assets amounted to 3.25% during 1997, down from 3.30% during
1996. The small reduction in the average cost of funds as compared with average
earning assets during 1997 is attributable more to the increase in interest
earning assets than a shift in deposit classifications.
The following table presents the average amount outstanding and the average rate
paid on deposits by SBC for the years 1997 and 1996.
TABLE 6
AVERAGE DEPOSITS
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------
Average Average Average Average
Amount Rate Amount Rate
---------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing Demand Deposits $ 21,733 0.00% $ 25,291 0.00%
Interest-bearing Demand and Savings 38,399 3.10% 31,456 3.76%
Time Deposits 53,307 5.65% 50,405 5.33%
--------------------------------------------
$113,439 3.70% $107,152 3.61%
============================================
</TABLE>
The table below presents the maturities of time deposits as of December 31,
1997. The company's large denomination time deposits are generally from
customers within the local market area, therefore providing a greater degree of
stability than is typically associated with this source of funds. The company
holds no foreign deposits.
TABLE 7
MATURITY DISTRIBUTION OF TIME DEPOSITS
(In thousands)
<TABLE>
<CAPTION>
Time Time
Deposits Deposits
$100,000 Less Than
As of December 31: or Greater $100,000 Total
----------------------------------
<S> <C> <C> <C>
Three Months or Less $ 4,916 $13,667 $18,583
Over Three Months through Twelve Months 7,054 20,773 27,827
Over Twelve Months 1,993 7,488 9,481
----------------------------------
$13,963 $41,928 $55,891
==================================
</TABLE>
49
<PAGE> 52
OTHER LIABILITIES
Other liabilities averaged $1.15 million at December 31, 1997 and $1.31 million
at December 31, 1996, consisting of interest payable on deposits, federal income
taxes payable and other accrued but unpaid expenses.
LIQUIDITY
SBC, primarily through the actions of Southland Bank and Coffee Bank, engages in
liquidity management to insure adequate cash flow for deposit withdrawals and
credit commitments. Needs are met through loan repayments, net interest and fee
income, and the sale or maturity of existing assets. In addition, liquidity is
continuously provided through the acquisition of new deposits or the renewal of
maturing deposits. Management monitors deposit flow and evaluates alternate
pricing structures to retain and grow deposits as needed. Through various
asset/liability management strategies, a balance is maintained among goals of
liquidity, safety and earnings potential. Balances held in cash and
correspondent banks are reviewed daily to maximize the federal funds investment
position. Internal policies which are consistent with regulatory liquidity
guidelines are monitored and enforced by Southland Bank and Coffee Bank.
The investment portfolio provides a ready means to raise cash without loss if
liquidity needs arise. At December 31, 1997, approximately $24.1 million in
bonds, at amortized cost, were held as available for sale, and $2.6 million of
these bonds mature within a one year period. Southland Bank and Coffee Bank from
time to time invest in short term certificates of deposit at other banks, and
generally maintain a net sold position in overnight federal funds.
Management continually monitors the relationship of loans to deposits as it
relates to the company's liquidity posture. SBC had ratios of loans to deposits
of 79.9%, 79.5% and 73.7% at December 31, 1997, 1996, and 1995, respectively,
which were considered by management to be satisfactory levels for liquidity
purposes. The stability of Southland Bank's and Coffee Bank's core deposit base
is an important factor in SBC's liquidity position. A heavy percentage of
Southland Bank's and Coffee Bank's deposit base is comprised of accounts of
individuals and small businesses with comprehensive banking relationships and
limited volatility. SBC has no brokered deposits. Additionally, there are only
minimal amounts of deposits of public and governmental entities which require a
pledge of SBC's assets.
SBC has an unsecured line of credit and Southland Bank and Coffee Bank have
established borrowing lines for federal funds through correspondent banks.
Borrowing capacity also exists through Southland Bank's and Coffee Bank's
membership in the Federal Home Loan Bank program. Management believes that the
various funding sources discussed above are adequate to meet the liquidity needs
of the banks and SBC in the future without any material adverse impact on
operating results.
The following table presents certain information concerning the SBC's short-term
borrowings and funds purchased for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE 8
SHORT-TERM BORROWINGS
(Dollars in thousands) December 31
---------------------
1997 1996
---------------------
<S> <C> <C>
Balance at year-end:
Repurchase agreements............................. $6,284 $ 0
Other borrowed money.............................. 2,762 2,790
Funds purchased................................... 0 70
Average interest rates at year-end:
Repurchase agreements............................. 4.9% 0
Other borrowed money.............................. 7.18% 7.40%
Funds purchased................................... 0.00% 5.50%
Maximum amount outstanding at any month-end:
Repurchase agreements............................. $6,284 $ 0
Other borrowed money.............................. 9,640 3,716
Funds purchased................................... 3,350 1,610
Aggregate Short-term Borrowings:
Average Amount Outstanding........................ $5,993 $3,105
Weighted Average Interest Rate.................... 6.37% 7.21%
Aggregate Funds Purchased:
Average Amount Outstanding........................ $ 881 $ 366
Weighted Average Interest Rate.................... 5.79% 4.64%
</TABLE>
50
<PAGE> 53
CAPITAL RESOURCES AND DIVIDENDS
SBC has always placed great emphasis on maintaining a strong capital base and
continues to exceed all minimum capital requirements. SBC's equity capital of
$15.9 million at December 31, 1997 amounts to 10.7% of total assets, compared to
11.8% at December 31, 1996. On average, the equity capital was 11.5% of assets
during 1997, compared to 11.9% for 1996.
Regulators use a risk adjusted calculation to aid them in their determination of
capital adequacy by weighting assets based on the degree of risk associated with
on- and off-balance sheet assets. The majority of these risk weighted assets for
SBC are on-balance sheet assets in the form of loans. A small portion of risk
weighted assets are considered off-balance sheet assets comprised of letters of
credit and loan commitments. Capital is categorized as either core (Tier 1)
capital or supplementary (Tier 2) capital. Tier 1 capital consists primarily of
stockholders' equity minus any intangible assets while Tier 2 capital consists
of the allowance for loan losses up to certain limits, certain short term and
other preferred stock and certain debt instruments.
Current regulatory standards require bank holding companies to maintain a
minimum risk based capital ratio of qualifying total capital to risk weighted
assets of 8.0%, with at least 4.0% of the capital consisting of Tier 1 capital,
and a Tier 1 leverage ratio of at least 4.0%. Additionally, the regulatory
agencies define a well capitalized bank as one which has a leverage ratio of at
least 5%, a Tier 1 capital ratio of at least 6%, and a total risk based capital
ratio of at least 10%. SBC's capital ratios under these guidelines as of
December 31, 1997 and 1996 are well above the levels for a well capitalized bank
as shown in the following table.
51
<PAGE> 54
TABLE 9
CAPITAL RATIOS (a)
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31: 1997 1996
----------------------
<S> <C> <C>
Total Tier 1 Capital 15,350 14,016
Total Risk Based Capital 16,578 15,251
Total Net Risk Weighted Assets 96,946 98,777
<CAPTION>
Minimum
Requirement
-----------
<S> <C> <C> <C>
Total Risk Based Capital Ratio 8.0% 17.1% 15.4%
Tier 1 Capital Ratio 4.0% 15.8% 14.2%
Leverage Ratio 4.0% 11.2% 10.0%
</TABLE>
(a) Risk based capital ratios for both years presented were prepared using risk
based capital rules finalized in November, 1994, which exclude the impact of
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities".
Management of SBC is not aware of any current recommendations by regulatory
authorities which, if they were to be implemented, would have a material effect
on SBC's liquidity, capital resources or operations.
RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1997, 1996 AND 1995
SBC's net income was approximately $1,386,000, $1,817,000, and $1,664,000 for
1997, 1996 and 1995, respectively. Earnings per common and common equivalent
share amounted to $4.11 in 1997, $5.25 in 1996, and $4.83 in 1995. SBC's return
on average assets amounted to 0.99% for 1997, 1.43% for 1996, and 1.40% for
1995. The return on average equity was 8.65%, 12.06%, and 12.22%, respectively.
NET INTEREST INCOME
Net interest income (the difference between the interest earned on assets and
the interest paid on deposits and liabilities) is the principal source of
earnings for SBC. SBC's average net interest rate margin, on a taxable
equivalent basis, has been strong by industry standards at 5.49% in 1997 and
5.68% in 1996. The 1997 net interest income before tax equivalency adjustments
totaled $6,969,000, up 7.4% from 1996, when it amounted to $6,486,000. This
moderate increase can be attributed largely to the overall decline in rates paid
on deposits along with the aforementioned loan growth. Average interest earning
assets rose by 10.6% in 1997 over 1996. Loans represented 66.9% of the average
balance sheet in 1997, up from 64.5% in 1996. Investment securities and federal
funds sold, combined, for these same time periods were 25.7% and 27.7% of
average earning assets, respectively.
Net interest income before tax equivalency adjustments increased by
approximately $980,000 from 1995 to 1996. Essentially all of this increase is
attributed to the moderate balance sheet growth during 1996. The net interest
margin over this period remained somewhat stable at 5.68% in 1996 from 5.62% in
1995. This slight increase is partly attributable to the average loan portfolio,
which exhibited an overall growth of 11.3% over the previous year. Average loans
as a percentage of average total assets increased 260 basis points in 1996, from
61.9% in 1995 to 64.5% in 1996.
52
<PAGE> 55
TABLE 10
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(Dollars in thousands) BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans, Net of Unearned Income................ $ 93,626 $ 9,521 10.17% $ 81,890 $ 8,407 10.27%
Investment Securities:
Taxable.................................... 28,953 1,803 6.23% 27,324 1,725 6.31%
Tax-exempt................................. 5,059 448 8.86% 5,307 500 9.42%
---------------------- ------------------------
Total investment securities............... 34,012 2,251 6.62% 32,631 2,225 6.82%
Interest-bearing deposits in
other banks................................ 48 3 6.25% 77 1 1.30%
Funds sold................................... 1,916 105 5.48% 2,578 132 5.12%
---------------------- ------------------------
Total interest-earning assets............. 129,602 11,880 9.17% 117,176 10,765 9.19%
---------------------- ------------------------
Non-interest-earning assets:
Cash......................................... 4,575 4,710
Allowance for loan losses.................... (1,369) (1,199)
Unrealized loss on available for
sale securities........................... (106) (37)
Other assets................................. 7,209 6,349
--------- ---------
Total noninterest-earning
assets.................................... 10,309 9,823
--------- ---------
Total assets.............................. $ 139,911 $ 126,999
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand and savings........ $ 38,399 $ 1,192 3.10% $ 31,456 $ 1,182 3.76%
Other time................................. 53,307 3,014 5.65% 50,405 2,686 5.33%
---------------------- ------------------------
Total interest-bearing
deposits................................. 91,706 4,206 4.59% 81,861 3,868 4.73%
---------------------- ------------------------
Other Interest-bearing Liabilities:
Debt......................................... 5,993 382 6.37% 3,105 224 7.21%
Funds purchased and securities
under agreement to repurchase.............. 3,302 171 5.18% 366 17 4.64%
---------------------- ------------------------
Total other interest-bearing
liabilities.............................. 9,295 553 5.95% 3,471 241 6.94%
---------------------- ------------------------
Total interest-bearing
liabilities.............................. 101,001 4,759 4.71% 85,332 4,109 4.82%
---------------------- ------------------------
Non-interest-bearing liabilities and
stockholders' equity:
Demand deposits............................. 21,733 25,291
Other liabilities........................... 1,153 1,308
Stockholders' equity........................ 16,024 15,068
--------- ---------
Total Noninterest-bearing
liabilities and
stockholders' equity..................... 38,910 41,667
--------- ---------
Total liabilities and
stockholders' equity..................... $ 139,911 $ 126,999
========= =========
Interest rate spread........................... 4.45% 4.37%
===== =====
Net interest income............................ $ 7,121 $ 6,656
======== ========
Net interest margin............................ 5.49% 5.68%
===== =====
</TABLE>
(1) The average balance of loans includes the average balance of nonaccrual
loans. Income on such loans is recognized and recorded on the cash basis.
(2) Taxable-equivalent adjustments totaling $152, $170 and $197 for 1997, 1996
and 1995, respectively, are included in tax-exempt interest on investment
securities. The adjustments are based on a federal tax rate of 34 percent
with appropriate reductions for the effect of disallowed interest expense
incurred in carrying tax-exempt obligations.
53
<PAGE> 56
The following table provides a detailed analysis of the changes in interest
income and interest expense due to changes in rate and volume for the year 1997
compared to the year 1996 and the year 1996 compared to the year 1995.
<TABLE>
<CAPTION>
TABLE 11
-----------------------------------------------------------------------------
RATE/VOLUME ANALYSIS 1997 COMPARED TO 1996 1996 COMPARED TO 1995
-----------------------------------------------------------------------------
Change Due To (a) Change Due To (a)
-----------------------------------------------------------------------------
Net Net
Volume Rate Change Volume Rate Change
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
LOANS, net - taxable........................... $ 1,205 $ (91) $ 1,114 $ 878 $ (211) $ 667
Investment securities: 0
Taxable............................ 103 (25) 78 (37) 75 38
Tax-exempt......................... (23) (29) (52) (69) (11) (80)
Interest earning deposits in other banks....... 0 2 2 (8) (4) (12)
Federal funds sold............................. (34) 7 (27) 15 (15) 0
-----------------------------------------------------------------------------
TOTAL INTEREST INCOME........................ 1,251 (136) 1,115 779 (166) 613
-----------------------------------------------------------------------------
INTEREST EXPENSE
Interest bearing demand and savings deposits... 261 (251) 10 103 (54) 49
Time Deposits.................................. 155 173 328 22 75 97
Federal funds purchased and securities under
agreement to repurchase.................... 136 18 154 2 (5) (3)
Other Debt..................................... 208 (50) 158 (12) 12 0
-----------------------------------------------------------------------------
TOTAL INTEREST EXPENSE....................... 760 (110) 650 115 28 143
-----------------------------------------------------------------------------
NET INTEREST INCOME.......................... $ 491 $ (26) $ 465 $ 664 $ (194) $ 470
=============================================================================
</TABLE>
(a) Changes in net interest income for the periods, based on either changes in
average balances or changes in average rates for interest earning assets and
interest-bearing liabilities, are shown on this table. During each year there
are numerous and simultaneous balance and rate changes; therefore, it is not
possible to precisely allocate the changes between balances and rates. For the
purpose of this table, changes that are not exclusively due to balance changes
or rate changes have been attributed to rates.
INTEREST RATE RISK MANAGEMENT
The management of interest rate risk is the primary goal of SBC's
asset/liability management function. SBC attempts to achieve consistent growth
in net interest income while limiting volatility from changes in interest rates.
Management seeks to accomplish this goal by balancing the maturity and repricing
characteristics of various assets and liabilities. SBC's asset/liability mix is
sufficiently balanced so that the effect on net interest income of interest rate
moves in either direction is not expected to be significant over time.
The principal tool used by SBC to measure its interest rate sensitivity is a
Sendero Simulation Model which forecasts the effects that a +/- 200 basis point
shift would have on SBC's balance sheet and income statement. This model is
employed at the subsidiary levels and also forecasts the impact a shift in rates
would have on SBC's equity and risk-based capital. Exposure to interest rate
risk is evaluated quarterly by Southland Bank's and Coffee Bank's
Asset/Liability Management Committees.
54
<PAGE> 57
The following table reflects the gap positions of SBC's consolidated balance
sheet as of December 31, 1997 at various repricing intervals. This gap analysis
indicates that SBC was moderately liability sensitive over the three month and
one year time horizons at December 31, 1997, with cumulative gap ratios of
(23.3%) and (22.4%). The projected deposit repricing volumes reflect adjustments
based on management's assumptions of the expected rate sensitivity to current
market rates for core deposits without contractual maturity (i.e.,
interest-bearing checking, savings and money market accounts). Management
believes that these adjustments allow for a more accurate profile of SBC's
interest rate risk position.
<TABLE>
<CAPTION>
TABLE 12
INTEREST RATE SENSITIVITY
-----------------------------------------------------
(Dollars in thousands) Over 3 Over 1 year
0 up to 3 up to 12 up to Over 5
Amounts maturing or repricing: months months 5 years years
- ------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C>
EARNING ASSETS:
Investment securities (1)......................... $ 1,216 $ 2,646 $ 24,473 $ 3,117
Loans, net of unearned income..................... 29,659 26,407 27,903 14,502
Other earning assets.............................. 6,007 0 0 0
----------------------------------------------------
Interest sensitive assets 36,882 29,053 52,376 17,619
----------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits.................. 37,015 0 0 0
Savings........................................... 5,834 0
Certificates, less than $100,000.................. 13,667 20,773 7,473 15
Certificates, $100,000 and over................... 4,916 7,054 1,993
Other borrowings.................................. 7,083 1,243 719
----------------------------------------------------
Interest sensitive liabilities............... 68,515 27,827 10,709 734
----------------------------------------------------
Interest sensitivity gap.................. (31,633) 1,226 41,667 16,885
====================================================
Cumulative interest sensitivity gap....... (31,633) (30,407) 11,260 28,145
====================================================
Cumulative interest sensitivity gap as a
percentage of total interest
sensitive assets.................... (23.3)% (22.4)% 8.3% 20.7%
====================================================
Cumulative interest sensitive assets
as a percentage of cumulative
interest sensitive liabilities....... 53.8 % 68.4 % 110.5% 126.1%
====================================================
====================================================
</TABLE>
(1) Excludes the effect of SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities."
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the
amount necessary to be transferred to the allowance for loan losses to maintain
a level which it considers adequate in relation to the risk of future losses
inherent in the loan portfolio. During routine examinations of banks, the
Federal Deposit Insurance Corporation (FDIC) and the Georgia Department of
Banking and Finance from time to time, may require additions to banks'
provisions for loan losses and allowances for loan losses if the regulators'
credit evaluations differ from those of management.
Management determines the adequacy of the allowance through a combination of
factors including loan officer assessments of the individual credits, current
economic conditions, loan loss experience, regulatory guidelines and current
levels of nonperforming loans. SBC expensed $1,447,000 in 1997, $326,000 in 1996
and $92,000 in 1995 for loan loss provisions. The allowance for loan losses on
December 31, 1997 was 2.59% of outstanding loans, compared to 1.42% and 1.49% as
of December 31, 1996 and 1995. Management of SBC believes that the $2,486,000
balance in the allowance for loan losses at December 31, 1997 is adequate to
absorb known risks in the loan portfolio. No assurance can be given, however,
that adverse economic conditions or other circumstances will not result in
increased losses in SBC's loan portfolio.
55
<PAGE> 58
On January 1, 1995, SBC adopted 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". The change did not have a
material impact on the financial statements. 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. When a loan becomes impaired, management
calculates the impairment based on the present value of expected future cash
flows discounted at the loan's effective interest rate. If the loan is
collateral dependent, the fair value of the collateral is used to measure the
amount of impairment. The amount of impairment and any subsequent changes are
recorded as an adjustement to the reserve for loan losses. When management
considers a loan, or a portion thereof, as uncollectible, it is charged against
the allowance for loan losses.
The following table summarizes loans charged off, recoveries of loans previously
charged off and additions to the allowance which have been charged to operating
expense for the periods indicated. SBC has no lease financing or foreign
loans.
<TABLE>
<CAPTION>
TABLE 13
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) 1997 1996
---------------------
<S> <C> <C>
Average amount of loans outstanding.................... $93,626 $81,890
Balance of reserve for possible loan losses at
beginning of period................................. 1,255 1,157
Charge-offs:
Commercial, financial and agricultural........... 214 198
Real estate...................................... 50 22
Consumer......................................... 133 109
---------------------
Total charge-offs...................................... 397 329
---------------------
Recoveries:
Commercial, financial and agricultural........... 102 24
Real estate...................................... 9 32
Consumer......................................... 69 44
---------------------
Total recoveries....................................... 180 100
---------------------
Net loans charged off during the year.................. 217 229
---------------------
Provision for loan losses.............................. 1,448 327
---------------------
Allowance for loan losses at end of year............... 2,486 1,255
=====================
Allowance for loan losses to year end net loans........ 2.59% 1.42%
=====================
Ratio of net charge-offs to average loans.............. 0.23% 0.28%
=====================
</TABLE>
56
<PAGE> 59
An allocation of the allowance for loan losses has been made according to the
respective amounts deemed necessary to provide for the possibility of incurred
losses within the various loan categories. The allocation is based primarily on
previous charge-off experience, adjusted for risk characteristic changes among
each category. Additional allowance amounts are allocated by evaluating the loss
potential of individual loans that management has considered impaired. The
allowance for loan loss allocation is based on subjective judgment and
estimates, and therefore is not necessarily indicative of the specific amounts
or loan categories in which charge-offs may ultimately occur. The table below
exhibits these allocations for the past two years.
<TABLE>
<CAPTION>
TABLE 14
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) December 31
-----------------------------------------
1997 1996
-----------------------------------------
Reserve %(1) Reserve %(1)
-----------------------------------------
<S> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial and agricultural $ 870 29% $ 439 37%
Real estate-construction 75 3 38 4
Real estate-mortgage 249 48 126 38
Real estate - farm land 174 10 88 10
Loans to individuals 373 10 188 11
All Other Loans 745 0 376 0
----------------------------------------
Total allowance for loan losses $2,486 100% $1,255 100%
========================================
</TABLE>
(1) Loan balance in each category expressed as a percentage of total year-end
loans.
ASSET QUALITY
Nonperforming assets consist of nonaccrual and loans restructured due to
debtor's financial difficulties, and real estate acquired through foreclosure
and repossession. Nonaccrual loans are those loans on which recognition of
interest income has been discontinued. Restructured loans generally allow for an
extension of the original repayment period or a reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower. Loans, whether secured or unsecured, are generally placed on
nonaccrual status when principal and/or interest is 90 days or more past due, or
sooner if it is known or expected that the collection of all principal and
interest is unlikely. Any loan past due 90 days or more, if not classified as
nonaccrual based on a determination of collectibility, is classified as a past
due loan.
Other real estate is initially recorded at the lower of cost or estimated market
value at the date of acquisition. A provision for estimated losses is recorded
when a subsequent decline in value occurs. The provision for estimated losses
recognized and recorded during 1997 totaled $15,000.
57
<PAGE> 60
Nonperforming assets at December 31, 1997 amounted to approximately $1,145,000,
or 0.77% of total assets, down from approximately $1,157,000, or 0.87% of total
assets at December 31, 1996.
TABLE 15
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
(In thousands) 1997 1996
------------------------
<S> <C> <C>
Loans accounted for on a nonaccrual
basis $ 930 $ 966
Installment loans and term loans
contractually past due ninety days
or more as to interest or principal
payments and still accruing 16 3
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 0 0
Loans now current about which there are
serious doubts as to the ability of
the borrower to comply with present
loan repayment terms 0 0
Foreclosed assets 215 191
-------------------
Total nonperforming assets $1,161 $1,160
===================
</TABLE>
At December 31, 1997, there were other loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention which are not included in the
table above. Management of SBC is aware of no such loans not included above
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which any
information causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
NONINTEREST INCOME
Noninterest income in 1997 totaled $1,423,000, up 46.1% from $974,000 in 1996.
Eighty-four percent of the increase, or $375,000, is attributed to gains on
sales of loans recognized in the current year.
Noninterest income of $974,000 in 1996 represented a 23.6% increase from
$788,000 recorded in 1995. This increase is attributable to an increase in fee
income. The increase in service charges on deposits amounting to $126,000
representing 67.6% of the total increase in non-interest income.
NONINTEREST EXPENSES
Noninterest expenses were $5,002,000 for the year 1997, up 11.6% from $4,595,000
in 1996. Almost 51% of the increase is attributed to higher costs of salaries
and benefits.
Salaries and benefits increased by $270,000, or 10.7%. Occupancy costs rose by
$28,000, or 4.8%, due to an expansion of facilities in Douglas during the fourth
quarter of 1997. All other overhead expenses increased by $109,000, or 7.9%, due
principally to volume and growth related increases.
Noninterest expenses in 1996 were $4,595,000, up 3.6% over 1995 noninterest
expenses of $4,434,000. Salaries and benefits expense increased by $141,000 or
5.9%, while occupancy costs rose by 13.4% in 1996 due to renovation of existing
facilities.
58
<PAGE> 61
INCOME TAXES
Income tax expense in 1997 amounted to $557,000, or an effective rate of 28.7%,
on the year's pre-tax earnings. Income tax expense in 1996 was $721,000,
equating to a 28.4% effective tax rate. This effective rate is up slightly from
26.0%, or $586,000 in 1995. See Note 7 to SBC's consolidated financial
statements for a detailed analysis of income taxes.
The following table presents selected financial ratios for each of the periods
indicated:
TABLE 16
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
--------------------
<S> <C> <C>
Return on Assets.................................. .99% 1.43%
Return on Equity.................................. 8.65% 12.06%
Dividends Payout.................................. .24% .19%
Equity to Assets.................................. 11.45% 11.86%
</TABLE>
INFLATION
Inflation impacts the financial condition and operating results of SBC. However,
because most of the assets of SBC are monetary in nature, the effect is less
significant compared to other commercial or industrial companies with heavy
investments in inventories and fixed assets. Inflation influences the growth of
total banking assets, which in turn produces a need for an increased equity
capital base to support the growing bank. Inflation also influences interest
rates and tends to raise the general level of salaries, operating costs and
purchased services. SBC has not attempted to measure the effect of inflation on
various types of income and expense due to difficulties in quantifying the
impact.
Management's awareness of inflationary effects has led to various operational
strategies to cope with its impact. SBC engages in various asset / liability
management strategies to control interest rate sensitivity and minimize exposure
to interest rat risk. Prices for banking products and services are continually
reviewed in relation to current costs, and overhead cost cutting is an ongoing
task.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 "Reporting Comprehensive Income". This statement established standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. This is effective for fiscal years
beginning after December 15, 1997. SBC does not expect any material changes to
its current reporting format in response to this statement.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", and is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting operating segments by public business enterprises in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports to stockholders. The adoption of
this statement will have no effect on the financial statements of SBC.
YEAR 2000 COMPUTER ISSUE
SBC has developed preliminary plans to address the possible exposures related to
the impact on its financial, informational and operational systems of the Year
2000. FiServe, Inc. currently provides data processing services for SBC.
Additional costs related to the Year 2000 conversion are not anticipated as the
proposed merger would be effected prior to this date. Other equipment is being
identified and vendors are being contacted. While there may be some expenses
incurred during the next two years, it is not expected to have a material effect
on SBC's consolidated financial statements.
59
<PAGE> 62
OWNERSHIP OF SBC STOCK
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 31, 1997, information
concerning the beneficial ownership of SBC Stock for each current director of
SBC, each person known to SBC to be the beneficial owner of more than 5% of the
SBC stock 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>
DIRECTORS AND EXECUTIVE OFFICERS:
Ken B. Lanier(2) ............................... 66,490 20.1%
Director, President and
Chief Executive Officer
Edwina N. Hames ................................ 38,366 11.6%
Director
Gene Haskins ................................... 1,706 *
Director & Secretary
John J. Neely, Jr.(3) .......................... 87,200 26.4%
Director & Chairman of the Board
Thomas T. Neely(4) ............................. 72,100 21.8%
Director & Assistant Secretary
Todd Lanier .................................... 3,348 1.0%
Chief Financial Officer
All current directors and executive
officers as a group (6 persons) ........... 269,210 81.4%
PRINCIPAL STOCKHOLDERS:
Victoria N. Lanier(5) .......................... 66,490 20.1%
1623 Club Drive
Douglas, Georgia 31533
Joan R. Neely(6) ............................... 72,100 21.8%
P.O. Box 694
Reynolds, Georgia 31076
Lott Properties Limited ........................ 22,925 6.9%
1101 North Peterson Avenue
Douglas, Georgia 31533
Walnut Creek, L.P. ............................. 87,200 26.4%
P.O. Box 727
Butler, Georgia 31006
</TABLE>
- --------------------
* Less than one percent
(1) The stock ownership information shown has been furnished to SBC by the
named persons and group. Beneficial ownership
60
<PAGE> 63
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) Includes 33,245 shares held of record by Mr. Lanier's spouse, Victoria
N. Lanier, over which Mr. Lanier disclaims beneficial ownership.
(3) The shares indicated represent shares held by Walnut Creek, L.P., a
family limited partnership, for which Rambullette Corporation, of which
Mr. Neely serves as President, is the general partner.
(4) Includes 36,050 shares held of record by Mr. Neely's spouse, Joan R.
Neely, over which Mr. Neely disclaims beneficial ownership.
(5) Includes 33,245 shares held of record by Ms. Lanier's spouse, Ken B.
Lanier, over which Ms. Lanier disclaims beneficial ownership.
(6) Includes 36,050 shares held of record by Ms. Neely's spouse, Thomas T.
Neely, over which Ms. Neely disclaims beneficial ownership.
61
<PAGE> 64
BUSINESS INFORMATION CONCERNING FLFC AND FLB
FLFC is a savings and loan holding company headquartered in Macon,
Georgia which owns and operates FLB and its principal wholly owned subsidiaries,
Liberty Mortgage Corporation ("Liberty Mortgage") and NewSouth Financial
Services, Inc. ("NewSouth"). At December 31, 1997, First Liberty had total
assets of approximately $1.3 billion, total deposits of approximately $939
million and stockholders' equity of approximately $97 million.
FLB is a federally chartered stock savings bank headquartered in Macon,
Georgia which serves Macon, Savannah and several other Georgia cities through
its home office and 30 full service offices. FLB operates as a system of
community banks under a single charter along with a residential construction
loan production office located in Atlanta, Georgia. Based on total assets at
December 31, 1997, FLB is the largest savings institution headquartered in
Georgia.
Through Liberty Mortgage, Liberty Bank also operates a mortgage banking
business through correspondent relationships in all of its market areas and a
number of other states. Liberty Mortgage originates permanent first mortgage
loans on residential properties for Liberty Bank's portfolio and for sale in the
secondary market. During fiscal 1997, Liberty Mortgage originated approximately
$305 million of permanent residential mortgage loans. Liberty Mortgage's loan
servicing portfolio was approximately $978 million at December 31, 1997,
including approximately $187 million of loans serviced for Liberty Bank.
During 1996, First Liberty organized NewSouth to engage in the consumer
finance business in selected Georgia market areas. NewSouth commenced operations
in four offices during the first quarter of fiscal 1997, and opened three
additional offices during the fourth quarter of fiscal 1997.
In November 1996, the Company acquired by merger Middle Georgia Bank
("MGB"). MGB on the date of acquisition held the following approximate balances:
loans of $67 million, cash and investments of $58 million, premises and
equipment of $1 million and deposits of $117 million. This business combination
has been accounted for utilizing the pooling-of-interests method of accounting.
No intangible assets were recorded from the acquisition.
In September 1995, the Company acquired by merger Tifton Banks, Inc.
("Tifton") of Tifton, Georgia, and its subsidiary, Tifton Bank & Trust Company
("Tifton Bank"). Tifton Bank on the date of acquisition held the following
approximate balances: loans of $42 million, cash and investments of $21 million,
premises and equipment of $1 million and deposits of $45 million. Intangible
assets resulting from the acquisition amounted to approximately $2 million.
In March 1995, the Company acquired three banking offices located in
Sylvania, Vidalia and Waycross, Georgia from First Union National Bank of
Georgia. Total assets acquired were approximately $3 million and total cash
received and deposits assumed were approximately $95 million. Intangible assets
resulting from the acquisition were approximately $4 million.
In December 1994, the Company acquired by merger Central Banking
Company ("CBC") of Swainsboro, Georgia, and its subsidiary, The Central Bank
("Central Bank"). Central Bank on the date of acquisition held the following
approximate balances: loans of $21 million, cash and investments of $34 million,
premises and equipment of $1 million and deposits of $52 million. Intangible
assets resulting from the acquisition amounted to approximately $2 million.
In March 1993, Liberty Bank acquired six branch offices, located in
supermarkets in Savannah, Georgia, from another institution. Liberty Bank
operated four branches in Savannah prior to the acquisition. Total assets
acquired by Liberty Bank were approximately $7 million and total deposits
assumed were approximately $38 million. Intangible assets resulting from the
acquisition amounted to approximately $1 million.
62
<PAGE> 65
In December 1992, the Company acquired First Federal Savings and Loan
Association, Milledgeville, Georgia ("First Federal") in a supervisory
merger-conversion for a cash purchase price of $1,000. First Federal, on the
date of acquisition, held loans and mortgage-backed securities of approximately
$32 million, cash and investments of approximately $6 million, premises and
equipment with a value of approximately $1 million, deposits of approximately
$38 million, and other borrowings of approximately $3 million. Intangible assets
resulting from the acquisition amounted to approximately $449,000.
Recent Developments
On April 24, 1998, FLFC signed a letter of intent with Peoples Banking
Corporation in Blackshear, Georgia ("Peoples") concerning a proposed transaction
in which FLFC will acquire Peoples and its wholly owned bank subsidiary, Peoples
Bank. Completion of the transaction is subject to the completion of a
satisfactory due diligence review by FLFC, negotiation and execution of a merger
agreement by FLFC and Peoples, approval of the transaction by the Peoples
stockholders and approval of the transaction by bank regulatory authorities. In
addition to its main office in Blackshear, Georgia, Peoples Bank operates one
banking office in Waycross, Georgia. The consideration for the transaction will
be payable in FLFC Stock and is expected to be approximately $310 per share of
Peoples common stock, or an aggregate of $18.5 million of FLFC Stock based on
the closing price of FLFC Stock on April 24, 1998. There are expected to be
one-time merger-related expenses of approximately $1.4 million.
For further information concerning FLFC and FLB, see FLFC's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997 and its
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997,
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 April 20, 1998, 11,627,455
shares of FLFC Stock were outstanding and are fully paid and nonassessable, and
no shares of FLFC Preferred Stock were 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 (if any), all assets of FLFC
available for distribution, in cash or in kind. Holders of shares of FLFC Stock
do not have preemptive rights to subscribe for additional shares on a pro rata
basis if and when additional shares are offered for sale by FLFC. See
"Comparison of Stockholder Rights."
PREFERRED STOCK
Pursuant to FLFC's Amended and Restated 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.
63
<PAGE> 66
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the GBCC (under which FLFC is incorporated), FLFC's
Amended and Restated 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 the Effective Time, SBC 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 SBC 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 SBC, and the respective Articles of Incorporation and
Bylaws of FLFC and SBC.
AUTHORIZED CAPITAL STOCK
SBC. SBC is authorized to issue 1,000,000 shares of SBC Stock, $50.00
par value per share, of which 330,345 shares were issued and outstanding as of
April 20, 1998. Accordingly, the Board of Directors of SBC has the authority to
issue up to 669,655 additional shares of SBC Stock without stockholder approval.
One SBC stockholder currently has options to purchase an aggregate of 305 shares
of SBC Stock. It is anticipated that such stockholder will exercise these
options prior to the Effective Time.
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 April 20, 1998, 11,627,455 shares of FLFC Stock were issued and
outstanding, 22,340 shares were treasury shares, and 13,354,930 shares were
available for issuance. Of the shares of FLFC Stock available for issuance,
614,025 shares were subject to options granted under FLFC's 1992 Stock Incentive
Plan (the "1992 Option Plan") but not exercised, an additional 632,625 shares
were reserved for issuance under the 1992 Option Plan, 87,750 shares were
subject to options granted under FLFC's 1995 Director Stock Option Plan (the
"1995 Option Plan") but not exercised, and an additional 92,250 shares were
reserved for issuance under the 1995 Option Plan. Approximately 1,739,266 shares
of FLFC Stock will be issued in the Company Merger. As of April 20, 1998, no
FLFC Preferred Stock was outstanding. Accordingly, following the Company Merger,
the Board of Directors of FLFC has the authority to issue without stockholder
approval 10,189,014 shares of FLFC Stock for other purposes and 5,000,000 shares
of FLFC Preferred Stock. 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
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FLFC 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 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 Stock may deem to be in their best interests or
in which holders of FLFC Stock may receive a premium for their shares over the
then market price. Additionally, FLFC's Board of Directors could issue a series
of preferred stock with rights more favorable with regard to dividends and
liquidation than the rights of the holders of FLFC Stock and which could also be
used for the purpose of preventing an attempt to gain control of FLFC of which
the Board of Directors does not approve. FLFC's Board of Directors, however, has
no current plans to issue shares of FLFC Stock or FLFC Preferred Stock after the
Mergers. For a description of the terms of FLFC's capital stock, see
"Description of FLFC Capital Stock."
PREEMPTIVE RIGHTS
The GBCC requires that, unless provided otherwise in SBC's Articles of
Incorporation, SBC 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.
SBC 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 SBC Stock is subject to the Financial
Institutions Code and the regulations of the DBF promulgated thereunder which,
among other things, provide that SBC may pay dividends on SBC Stock in cash or
property only if SBC is not insolvent and the payment of dividends would not
render SBC insolvent. Additionally, SBC may pay dividends only out of retained
earnings of SBC, and no dividends may be paid if paid-in capital plus
appropriated retained earnings are less than 20% of SBC's capital stock.
Further, dividends may not be declared and paid without the approval of the DBF
if (i) SBC's total classified assets
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exceed 80% of its equity capital, (ii) SBC'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 SBC, 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.
DIRECTORS
SBC. The Board of Directors of SBC shall consist of not less than three
nor more than twenty-five members. Presently there are five members of the
Board, including one employee of Southland Bank and two employees of Coffee
Bank. Members of the Board of Directors are elected by the stockholders at the
annual meeting of stockholders and serve until the next stockholders' 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 SBC. 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 such directors constitute 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
SBC. SBC holds an annual meeting of stockholders. Not less than twenty
nor more than fifty 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.
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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, Chairman of the Board or the Board of Directors.
Each stockholder shall be given not less than twenty nor more than fifty 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 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
SBC. The Articles of Incorporation and Bylaws of SBC 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 by 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
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those beneficially owned by the Interested Stockholder. If either of the
exceptions referred to in (a) or (b) above is present, the Business Combination
with the Interested Stockholder may be effected upon receiving the affirmative
vote of the holders of a majority of the then outstanding shares of FLFC Stock.
Such provisions may not be repealed or amended unless such action is approved by
the affirmative vote of the holders of not less than 80% of the outstanding
shares of FLFC Stock, excluding any shares owned by an Interested Stockholder.
FLFC's Bylaws also contain provisions requiring higher approval
requirements of the Board of Directors and stockholders for Business
Combinations involving FLFC and any Interested Stockholder. The business
combination bylaw, adopting the predecessor sections of Sections 14-2-1131 to
- -1133, inclusive, of the GBCC, is designed to encourage any person, before
becoming an Interested Stockholder, to seek approval of the Board of Directors
of the terms of any contemplated Business Combination. The bylaw, by adopting
the sections of the GBCC, prohibits FLFC from engaging in a Business Combination
with an Interested Stockholder for a period of five years from the date such
Interested Stockholder acquired 10% of FLFC's outstanding voting stock unless
the Interested Stockholder: (i) obtained the consent of the Board of Directors
prior to acquiring 10% of the outstanding shares; (ii) becomes the owner of at
least 90% of the outstanding shares, excluding certain management shares, in the
same transaction in which the 10% interest was acquired; or (iii) acquires
additional shares resulting in 90% ownership subsequent to the 10% acquisition
and obtains the approval of the holders of a majority of the remaining shares,
excluding management shares. By prohibiting Business Combinations with an
Interested Stockholder for a period of five years, subject to the three
exceptions described above, the bylaw attempts to preserve the independence of
the Board of Directors and its ability to negotiate freely on behalf of FLFC.
As noted above, FLFC 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 FLFC Stock.
SHAREHOLDER RIGHTS PLAN
SBC. SBC has not adopted a stockholder rights plan or similar plan.
FLFC. In August 1989, the Board of Directors of FLFC adopted a
Shareholder 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 Shareholder 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
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FLFC Stock that the majority of the Continuing Directors has determined to be
substantial (which amount shall in no event be less than ten percent of the
outstanding FLFC Stock) and (ii) a determination by a majority of the Continuing
Directors who are not officers of FLFC that (a) such beneficial ownership is
intended to cause FLFC to repurchase any of the FLFC Stock beneficially owned by
such person or to cause pressure on FLFC to take action intended to provide such
person with short-term financial gain under circumstances where such directors
determine that such action would not be in the best long-term interests of FLFC
or its stockholders and (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 $32.00, 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
SBC 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 SBC.
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As a bank holding company, SBC is subject to the supervision of the
Federal Reserve and the DBF. As state chartered banks, Southland Bank and Coffee
Bank are subject to the supervision of the DBF and Federal Deposit Insurance
Corporation (the "FDIC") and to regulatory capital requirements imposed by the
FDIC. The FDIC has issued risk-based capital rules for banks which make
regulatory capital requirements sensitive to differences in risk profiles of
various banking organizations. The FDIC's risk capital rules apply directly to
state-chartered banks, such as Southland Bank and Coffee Bank, 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.
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 any
manner the election of a majority of the directors
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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.
On September 30, 1996, the President signed into law the Omnibus
Consolidated Appropriations Act which included, among other provisions, the
Deposit Insurance Funds Act of 1996 (the "DIFA"). The principal purpose of the
DIFA was to recapitalize the Savings Associate Insurance Fund (the "SAIF") so
that over time its deposit insurance assessments could be reduced to parity with
those of the Bank Insurance Fund (the "BIF"), and to provide for the eventual
merger of the SAIF and the BIF. Specifically, the DIFA requires, in pertinent
part, (i) a one-time special assessment of SAIF members, calculated at 65.7
basis points, to recapitalize the SAIF; (ii) full prorata sharing by BIF and
SAIF member of the debt service obligations of the Financing Corp. ("FICO")
beginning no later than January 1, 2000, and non-pro rata sharing (with premiums
of 6.4 basis points for SAIF members and 1.3 basis points for SAIF members)
until that date; and (iii) a merger of the BIF and the SAIF into a new Deposit
Insurance Fund (the "DIF") on January 1, 1999, if bank and savings association
charters have been combined by that date. The latter requirement cannot be
implemented without further legislation requiring the combination of such
charter types.
The effects of the DIFA on FLB are significant. The special assessment,
which was paid to the FDIC on November 27, 1996, was $3.6 million, based upon
FLB's SAIF-assessable deposits as of March 31, 1995. Since the FDIC's non-FICO
deposit insurance assessments are presently at zero for well-capitalized
institutions such as FLB, beginning January 1, 1997, FLB pays only the FICO
premium.
Legislation has been introduced in Congress which provides for the
elimination of all federal savings association charters. 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 likelihood of enactment of any such 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, which was 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. 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.
REGULATION OF FLB
Community Reinvestment Act.
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The Community Reinvestment Act of 1977 ("CRA") requires the federal
bank regulatory agencies to encourage financial institutions to meet the credit
needs of low- and moderate-income borrowers in their local communities. In May
1995, the federal bank regulatory agencies published final amended regulations
promulgated pursuant to the CRA. The final regulations eliminated the 12
assessment factors under the former regulation and replaced them with
performance tests. Institutions are no longer required to prepare CRA Statements
or extensively document director participation, marketing efforts or the
ascertainment of community credit needs. Under the final rule, an institution's
size and business strategy determines the type of examination that it will
receive. Large, retail-oriented institutions are examined using a
performance-based lending, investment and service test. Small institutions are
examined using a streamlined approach. Wholesale and limited purpose
institutions are examined under a community development test. All institutions
have the option of being evaluated under a strategic plan formulated with
community input and pre-approved by the applicable bank regulatory agency. While
FLB has not been examined under the amended regulations, it will be examined as
a large, retail-oriented institution.
CRA regulations provide for certain disclosure obligations. In
accordance with the CRA, each institution must post a CRA notice advising the
public of the right to comment to the institution and its regulator on the
institution's CRA performance and to review the CRA public file. Each lending
institution must maintain for public inspection a public file that includes a
listing of branch locations and services, a summary of lending activity, a map
of its communities, and any written comments from the public on its performance
in meeting community credit needs. Large institutions also are required to
collect certain data including the amount and location of, originated and
purchased small business, small farm, community development, and home mortgage
loans, and to report this data to their regulatory agencies.
Public disclosure of written CRA evaluations of financial institutions
made by regulatory agencies is required under the CRA. This promotes enforcement
of CRA requirements by providing the public with the status of a particular
institution's community reinvestment record. FLB received an "outstanding"
rating on the most recent performance evaluation of its CRA efforts by the OTS.
Congress and various federal agencies responsible for implementing fair
lending laws have been increasingly concerned with discriminatory lending
practices. In 1994, those federal agencies announced a Joint Policy Statement
detailing specific discriminatory practices prohibited under the Equal
Opportunity Act and the Fair Housing Act. In the Policy Statement, three methods
of proving lending discrimination were identified: (i) overt evidence of
discrimination, where a lender blatantly discriminates on a prohibited basis;
(ii) evidence of disparate treatment, when a lender treats applicants
differently based upon a prohibited factor, even where there is no showing that
the treatment was motivated by intention to discriminate; and (iii) evidence of
disparate impact, when a lender applies a practice uniformly to all applicants,
but the practice has a discriminatory effect, even where such practices are
neutral in appearance and applied equally.
Federal Home Loan Bank System.
FLB is a member of the FHLB System, which consists of 12 regional FHLBs
subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs maintain central credit facilities primarily for member
institutions.
FLB, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount at least equal
to the greater of: (i) 1% of the aggregate outstanding principal amount of its
unpaid residential mortgage loans, home purchase contracts and similar
obligations as of the
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beginning of each year, (ii) 5% of its advances (borrowings) from the FHLB of
Atlanta, or (iii) $500. Additionally, during 1996 the FHLB of Atlanta imposed a
maximum investment in its capital stock equal to $500,000 over the required
minimum. During the quarter ended September 30, 1996, FLB increased its advances
from the FHLB of Atlanta to avoid a forced redemption of its excess capital
stock in the FHLB of Atlanta. FLB is in compliance with this requirement with an
investment of $9.7 million in FHLB of Atlanta stock at December 31, 1997.
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. The 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 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 accounts plus
short-term borrowings. These regulations also require each 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 December 31, 1997. Effective November 24, 1997, the OTS lowered its liquidity
requirement for savings institutions from 5% to 4%, and eliminated the
requirement that institutions hold assets equal to 1% of the liquidity base in
cash or short-term liquid assets.
Insurance of Accounts.
Deposits at FLB are insured by the FDIC to a maximum of $100,000 for
each insured depositor. 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. If
insurance of accounts is terminated by the FDIC, deposits in the institution
will continue to be insured by the FDIC for a period of two years following the
date of termination. The FDIC requires an annual audit by independent
accountants and also periodically makes its own examinations of insured
institutions.
As an insurer, the FDIC issues regulations, conducts examinations and
generally supervises the
73
<PAGE> 76
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 under capitalized. 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 rate assessed for insured
deposits range from zero to $.27 per $100 of domestic deposits. Additionally, on
May 20, 1997, the FDIC Board of Directors voted to collect on behalf of the FICO
assessments sufficient to meet the funding requirements of the FICO for the
remainder of 1997. The FICO rate on BIF- and SAIF-assessable deposits is $.0126
and $.063, respectively, per $100 on an annual basis. See "Recent Legislation"
above.
In addition to the payment of deposit insurance premiums to the FDIC,
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. In 1997, FLB paid $217,000 to the OTS for such assessments.
Additionally, the OTS assesses fees for the processing of various applications.
Qualified Thrift Lender Test.
Historically, the amount of advances which might be obtained by a
member institution from the FHLB has been subject to the institution's
compliance with a qualified thrift lender ("QTL") test. The QTL test generally
requires that an institution maintain 65% of its total portfolio assets in
qualified thrift investments. This level must be maintained on a monthly average
basis in nine out of every twelve months. For purposes of the QTL test,
"portfolio assets" equal total assets minus (i) goodwill and other intangible
assets, (ii) the value of property used by an institution in the conduct of its
business and (iii) assets of the type used to meet liquidity requirements in an
amount not exceeding 20% of the savings institution's total assets. Qualified
thrift investments include (i) loans made to purchase, refinance, construct,
improve or repair domestic residential or manufactured housing, (ii) home equity
loans, (iii) securities backed by or representing an interest in mortgages on
domestic residential or manufactured housing, (iv) obligations issued by the
federal deposit insurance agencies and (v) shares of FHLB stock owned by the
savings institution. Subject to a 20%-of-portfolio assets limitation, qualified
thrift investments also include 50% of the dollar amount of domestic residential
mortgage loans originated and sold within 90 days of origination, consumer loans
(up to a maximum of 10% of portfolio assets), investments in certain
subsidiaries, loans for the purchase or construction of schools, churches,
nursing homes and hospitals, shares of stock issued by the FHLMC or the FNMA and
200% of investments in loans for low-to-moderate income housing and certain
other community oriented investments.
A savings institution that does not meet the QTL test must either
convert to a bank charter or comply with the restrictions imposed for
noncompliance. If the institution converts to a bank charter, it will continue
to pay SAIF insurance assessments and any applicable exit and entrance fees
before converting to BIF insurance. If the institution does not convert to a
bank charter, it must comply with the following additional restrictions on the
operations of the institution: (i) the institution may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for both a national bank and a savings
institution; (ii) the branching powers of the institution shall be restricted to
those of a national bank;
74
<PAGE> 77
(iii) the institution generally will not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the institution shall be subject to
the rules regarding payment of dividends by a national bank. A savings
institution that has not converted to a bank charter within three years after
failing to qualify as a QTL may not retain any investment or engage in any
activity not permitted for both a national bank and a savings institution and
must also repay all FHLB System advances. FLB's qualified thrift investments as
of September 30, 1997 were $796 million, or 67% of its portfolio assets at that
date. FLB expects to remain in compliance with the QTL test.
Capital Requirements.
Since 1989, OTS capital regulations have set 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 December 31, 1997, 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 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 mortgage servicing rights included in core capital).
Most national banks are 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 are required to
maintain core capital levels at least as high as national banks.
The OTS capital regulations require savings institutions to maintain a
ratio of total capital to total risk-weighted assets of 8%. 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 the 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.
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 values of
an institution's portfolio
75
<PAGE> 78
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.
Capital Distributions.
Capital distributions 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 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. 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 distribution in excess of
that amount requires 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
FLFC as the sole stockholder of FLB. FLB's ability to pay dividends to FLFC is
subject to the financial performance of FLB which is dependent upon, among other
things, economic conditions in the markets in which FLB operates, 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 FRB 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
all amounts from $4.7 million to $43.1 million of net transactions, plus 10% on
the remainder. The balances maintained to meet the reserve requirements imposed
by the FRB may be used to satisfy liquidity requirements imposed by the OTS.
Members of the FHLB System also are authorized to borrow from the FRB "discount
window" subject to restrictions imposed by FRB regulations. However, Federal
Reserve policy generally requires that a savings institution exhaust its FHLB
resources before borrowing from the Federal Reserve.
Transactions with Affiliates.
FLB is also subject to certain transactions with affiliates rules
applicable to banks and savings institutions which are set forth in Sections
23A, 23B and 22(h) of the Federal Reserve Act as well as additional limitations
imposed by OTS regulations. Such regulations generally impose quantitative and
qualitative limitations on loans and other transactions between an institution
and its affiliates, including loans to insiders.
76
<PAGE> 79
Consumer Protection and Other Laws and Regulations.
FLB, Liberty Mortgage and NewSouth are also subject to various laws and
regulations dealing generally with consumer protection matters including without
limitation the Equal Credit Opportunity Act and Regulation B, the Electronic
Funds Transfer Act and Regulation E, the Truth in Lending Act and Regulation Z,
the Truth in Savings Act and Regulation DD, the Expedited Funds Availability Act
and Regulation CC, the Bank Secrecy Act and fair housing laws. FLB, Liberty
Mortgage and NewSouth may be subject to potential liability for material
violations of these laws and regulations.
State Regulation.
As a federally chartered savings institution, FLB generally is not
subject to those provisions of Georgia law governing state chartered financial
institutions or to the jurisdiction of the DBF. However, the DBF interprets the
Georgia Bank Holding Company Act to require the prior approval of the DBF for
any acquisition of control of any savings institution (whether chartered by
state or federal authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to include
savings and loan holding companies as "bank holding companies," thus giving the
DBF the authority to make examinations of FLFC and any subsidiaries and to
require periodic and other reports. Existing DBF regulations do not restrict the
business activities or investments of FLFC or FLB.
State usury laws are applicable to federally insured institutions with
regard to loans made within Georgia. Generally speaking, Georgia law does not
establish ceilings on interest rates although certain specialized types of
lending in which FLB and NewSouth engage, such as making loans of $3,000 or
less, are subject to state 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.
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.
The Small Business Job Protection Act of 1996 repealed the reserve
method of accounting for bad debts utilized by thrift institutions effective for
taxable years beginning after December 31, 1996. The bad debt reserve for tax
purposes that arose in tax years beginning before December 31, 1987 ("Base-Year
Reserve") will generally not be recaptured while post-1987 bad debt tax reserves
would be recaptured as taxable income ratably over a six-year period beginning
with the tax year ended September 30, 1997, unless FLB meets a special
residential loan requirement which will suspend the start of the recapture for
two years. Substantially all of FLB's reserves are Base-Year Reserves. For the
tax year ended September 30, 1997, FLB determined its tax bad debt deduction
based on the specific charge-off method of accounting.
77
<PAGE> 80
State Taxation
FLFC's federal taxable income with certain adjustments is subject to
the Georgia corporate income tax at a rate of 6 percent. The primary difference
between taxable income for Georgia and federal income tax purposes is interest
income on United States government obligations, which is not taxable for Georgia
income tax purposes.
EXPERTS
The consolidated statements of financial position of FLFC as of
September 30, 1997 and 1996 and the consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997, included in FLFC's Annual Report on Form 10-K for the
year ended September 30, 1997 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
impaired loans and mortgage servicing rights in 1996, dated November 6, 1997, 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, 1997 and 1996,
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 quarter ended
December 31, 1997, 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 SBC at December 31, 1997 and
1996 and for the three year period ended December 31, 1997 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
Mergers. See "The Mergers - Certain Federal Income Tax Consequences."
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, SBC's Board of
Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement/Prospectus.
However, if any other matter shall come before the Special Meeting or any
adjournments or postponements thereof and shall be voted upon, the proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined by
a majority of the Board of Directors.
78
<PAGE> 81
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants............................................. F-2
Consolidated Balance Sheets................................................... F-3
Consolidated Statements of Income............................................. F-5
Consolidated Statements of Changes in Stockholders' Equity.................... F-6
Consolidated Statements of Cash Flows......................................... F-7
Notes to Consolidated Financial Statements.................................... F-9
</TABLE>
F-1
<PAGE> 82
[MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Southland Bank Corporation of Georgia and Subsidiaries
We have audited the accompanying consolidated balance sheets of SOUTHLAND BANK
CORPORATION OF GEORGIA AND SUBSIDIARIES as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southland Bank
Corporation of Georgia and Subsidiaries as of December 31, 1997 and 1996 and the
results of operations and cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ McNair, McLeMore, Middlebrooks & Co., LLP
---------------------------------------------
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
Macon, Georgia
April 2, 1998
F-2
<PAGE> 83
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS $ 8,125,909 $ 3,845,056
------------- -------------
FEDERAL FUNDS SOLD 5,950,000 1,850,000
------------- -------------
INVESTMENT SECURITIES (AGGREGATE FAIR VALUE OF
$31,645,398 AND $31,889,781 AS OF DECEMBER 31,
1997 AND 1996, RESPECTIVELY) 31,452,450 31,704,952
------------- -------------
LOANS 98,667,883 89,699,384
Allowance for Loan Losses (2,486,415) (1,254,992)
Unearned Interest and Fees (197,071) (42,798)
------------- -------------
95,984,397 88,401,594
------------- -------------
PREMISES AND EQUIPMENT 3,133,343 2,213,997
------------- -------------
OTHER REAL ESTATE 215,047 155,960
------------- -------------
COST IN EXCESS OF NET ASSETS ACQUIRED 1,696,356 1,817,340
------------- -------------
OTHER ASSETS 2,400,682 2,527,556
------------- -------------
TOTAL ASSETS $ 148,958,184 $ 132,516,455
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 84
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
DEPOSITS
Noninterest-Bearing $ 24,426,043 $ 27,387,699
Interest-Bearing 98,739,486 85,422,269
------------- -------------
123,165,529 112,809,968
------------- -------------
BORROWED MONEY
Federal Funds Purchased and Securities Sold
Under Agreement to Repurchase 6,283,618 70,000
Demand Note Issued to the U.S. Treasury 489,008 206,074
Other Borrowed Money 2,272,762 2,583,577
------------- -------------
9,045,388 2,859,651
------------- -------------
OTHER LIABILITIES 824,862 1,145,715
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01 Per Share; 5,000,000
Shares Authorized, 352,415 and 348,969 Shares Issued
as of December 31, 1997 and 1996, Respectively 3,524 3,490
Paid-In Capital 5,644,722 5,544,740
Retained Earnings 11,398,046 10,347,185
------------- -------------
17,046,292 15,895,415
Treasury Stock, at Cost (21,713 and 2,577 Shares
as of December 31, 1997 and 1996, Respectively) (1,161,364) (88,026)
Unearned Compensation-Restricted Stock (47,082) (44,116)
Net Unrealized Gain (Loss) on Securities, Net of Deferred
Tax Liability of $43,561 in 1997 and Deferred Tax Benefit
of $32,017 in 1996 84,559 (62,152)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,922,405 15,701,121
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 148,958,184 $ 132,516,455
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE> 85
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 9,521,424 $ 8,406,603 $ 7,740,014
Federal Funds Sold 104,811 132,172 131,834
Deposits with Other Banks 3,003 931 12,593
Investment Securities
U.S. Treasury 572,357 341,531 389,588
U.S. Government Agencies 909,848 1,184,715 1,165,422
State, County and Municipal 366,086 358,804 412,497
Other Investments 209,678 129,124 72,173
Dividends on Other Investments 40,259 41,602 31,015
----------- ----------- -----------
11,727,466 10,595,482 9,955,136
----------- ----------- -----------
INTEREST EXPENSE
Deposits 4,205,536 3,868,178 3,721,609
Federal Funds Purchased and Securities Sold Under
Agreement to Repurchase 171,163 16,851 19,855
Demand Notes Issued to U.S. Treasury 11,300 6,627 10,171
Other Borrowed Money 370,319 217,800 214,281
----------- ----------- -----------
4,758,318 4,109,456 3,965,916
----------- ----------- -----------
NET INTEREST INCOME 6,969,148 6,486,026 5,989,220
Provision for Loan Losses 1,447,394 325,964 92,224
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,521,754 6,160,062 5,896,996
----------- ----------- -----------
NONINTEREST INCOME
Service Charges on Deposits 819,722 784,093 658,425
Gain from Sales of SBA Loans 375,163 -- --
Securities Gains 11,370 4,696 11,874
Other 216,335 184,811 117,464
----------- ----------- -----------
1,422,590 973,600 787,763
----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and Employee Benefits 2,781,963 2,512,010 2,371,029
Occupancy and Equipment 612,913 584,745 515,737
Data Processing Expense 386,385 357,916 310,761
Stationery, Printing and Supplies 117,525 124,884 120,156
Legal and Professional Fees 153,462 187,022 129,074
Amortization 120,984 120,984 120,984
Other 828,858 707,451 866,275
----------- ----------- -----------
5,002,090 4,595,012 4,434,016
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,942,254 2,538,650 2,250,743
INCOME TAXES 556,717 721,321 586,296
----------- ----------- -----------
NET INCOME $ 1,385,537 $ 1,817,329 $ 1,664,447
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 4.11 $ 5.25 $ 4.83
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 4.11 $ 5.22 $ 4.81
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 86
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
UNEARNED GAIN (LOSS)
COMPENSATION ON SECURITIES
SHARES COMMON PAID-IN RETAINED TREASURY RESTRICTED AVAILABLE
OUTSTANDING STOCK CAPITAL EARNINGS STOCK STOCK FOR SALE TOTAL
----------- ------ ---------- ----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 345,654 $3,484 $5,519,740 $ 7,557,471 $ (95,526) $(50,374) $(490,504) $12,444,291
Net Income 1,664,447 1,664,447
Cash Dividends (345,804) (345,804)
Sale of Treasury Stock 200 7,500 7,500
Amortization of Unearned
Compensation 13,756 13,756
Unrealized Gain on Securities,
Net of Tax 586,007 586,007
-------- ------ ---------- ----------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995 345,854 3,484 5,519,740 8,876,114 (88,026) (36,618) 95,503 14,370,197
Net Income 1,817,329 1,817,329
Cash Dividends (346,258) (346,258)
Issuance of Common Stock 538 6 25,000 (25,006) --
Amortization of Unearned
Compensation 17,508 17,508
Unrealized Loss on Securities,
Net of Tax Benefit (157,655) (157,655)
-------- ------ ---------- ----------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1996 346,392 3,490 5,544,740 10,347,185 (88,026) (44,116) (62,152) 15,701,121
Purchase of Treasury Stock (19,136) (1,073,338) (1,073,338)
Exercise of Stock Options 3,000 30 74,970 75,000
Net Income 1,385,537 1,385,537
Cash Dividends (334,676) (334,676)
Issuance of Common Stock 446 4 25,012 (25,016) --
Amortization of Unearned
Compensation 22,050 22,050
Unrealized Gain on Securities,
Net of Tax 146,711 146,711
-------- ------ ---------- ----------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1997 330,702 $3,524 $5,644,722 $11,398,046 $(1,161,364) $(47,082) $ 84,559 $15,922,405
======== ====== ========== =========== =========== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 87
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,385,537 $ 1,817,329 $ 1,664,447
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities
Depreciation 286,679 256,128 222,184
Amortization and Accretion 195,231 112,811 153,024
Provision for Loan Losses 1,447,394 325,964 92,224
Deferred Compensation 38,781 36,189 11,944
Deferred Income Taxes (438,117) (61,763) (20,285)
Securities Gains (11,370) (4,696) (11,874)
Gain from Sale of SBA Loan (375,163) -- --
Loss on Sale of Equipment -- 3,059 38,473
Loss on Sale of Other Real Estate and Repossessions 13,929 6,482 13,065
Unrealized Loss on Other Real Estate 15,000 -- --
Unrealized Loss on Securities -- (35,000) --
CHANGE IN
Interest Receivable (38,103) (120,649) (189,717)
Prepaid Expenses (9,671) -- --
Interest Payable 68,052 (764) 64,850
Accrued Expenses and Accounts Payable (124,940) 13,044 125,228
Other 262,323 (311,772) 77,588
------------ ------------ ------------
2,715,562 2,036,362 2,241,151
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of SBA Loans 3,775,323 -- --
Investment in SBA Loans (3,400,160) -- --
Interest-Bearing Deposits in Other Banks -- -- 700,000
Purchase of Investment Securities
Available for Sale (8,347,991) (22,845,625) (6,979,894)
Held to Maturity (2,088,206) (702,169) (2,047,234)
Other Investments (854,275) -- --
Proceeds from Sale of Investment Securities
Available for Sale 7,440,308 17,071,575 7,346,841
Held to Maturity -- 4,471,058 --
Proceeds from Maturities, Calls and Paydowns
of Investment Securities
Available for Sale 2,157,850 750,000 --
Held to Maturity 2,126,278 2,241,943 4,633,813
Purchase of Assets Held for Sale (41,160) -- --
Loans to Customers (9,216,460) (12,279,423) (9,094,730)
Purchase of Premises and Equipment (1,206,024) (416,906) (795,499)
Other Real Estate 98,245 102,407 159,784
Cash Surrender Value of Life Insurance 13,282 (29,688) (10,133)
------------ ------------ ------------
(9,542,990) (11,636,828) (6,087,052)
------------ ------------ ------------
</TABLE>
F-7
<PAGE> 88
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Interest-Bearing Customer Deposits (2,957,612) 9,561,700 (2,155,904)
Noninterest-Bearing Customer Deposits 13,313,172 (2,268,536) 5,031,078
Dividends Paid (334,676) (346,258) (345,804)
Federal Funds Purchased 6,213,618 70,000 --
Note to Federal Home Loan Bank, Net (310,816) (3,646,068) 2,199,185
Notes and Debentures, Net 282,934 2,526,103 (87,540)
Proceeds from Issuance of Common Stock 75,000 -- --
Sale (Purchase) of Treasury Stock (1,073,338) -- 7,500
------------ ------------ ------------
15,208,282 5,896,941 4,648,515
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,380,854 (3,703,525) 802,614
CASH AND CASH EQUIVALENTS, BEGINNING 5,695,055 9,398,580 8,595,966
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 14,075,909 $ 5,695,055 $ 9,398,580
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 89
SOUTHLAND BANK CORPORATION OF GEORGIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Southland Bank
Corporation of Georgia and its wholly-owned subsidiaries, Southland Bank
(including its wholly-owned subsidiary, Southland Financial Group, Inc.) located
in Butler, Georgia and Coffee County Bank located in Douglas, Georgia (the
Banks). The 1997 merger of a former wholly-owned subsidiary, Crawford County
Bank, into Southland Bank has no effect on consolidated financial position or
results of operations. All significant intercompany accounts have been
eliminated. The accounting and reporting policies of Southland Bank Corporation
of Georgia 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. Certain reclassifications have been made
in the 1995 and 1996 financial statements to conform to the 1997 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.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share (SFAS 128). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share (EPS) with basic and
diluted EPS. Unlike primary EPS, basic EPS excludes any dilutive effects of
options, warrants and convertible securities. Diluted EPS is very similar to
fully diluted EPS. All EPS amounts presented have been restated, as applicable,
to conform with the new requirements.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The new statement is effective for periods beginning after December 15, 1997 and
requires that certain additional information be reported in the financial
statements and related notes. Southland will adopt SFAS 130 in the first quarter
of 1998.
INVESTMENT SECURITIES
The Company records investment securities under Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under the provisions of SFAS 115, the Company 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 Company 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.
F-9
<PAGE> 90
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONTINUED)
Securities available for sale are measured at fair value with unrealized gains
and losses reported net of deferred taxes as a separate component of
stockholders' equity. Fair value represents an approximation of realizable value
as of December 31, 1997 and 1996. Realized and unrealized gains and losses are
determined using the specific identification method. Premiums and discounts are
recognized in interest income using the interest method over the period to
maturity. Unrealized losses are recorded in the statements of income on all
securities having permanent declines in value.
LOANS
Interest income on loans is recognized using the effective interest method on
all loans except for lease financing loans. Interest on these loans is
recognized using the sum-of-the-months digits method which results in no
material difference from the use of the effective interest method.
Loans are generally reported at principal amount less unearned interest and
fees. Impaired loans are recorded under SFAS 114, Accounting by Creditors for
Impairment of a Loan and SFAS 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.
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.
Southland Bank Corporation of Georgia and Subsidiaries' loans consist of
commercial, financial and agricultural loans, real estate mortgage loans and
consumer loans primarily to individuals and entities located throughout central
and south Georgia. Accordingly, the ultimate collectibility of the loans is
largely dependent upon economic conditions in the central and south Georgia
areas.
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.
An allowance for loan losses is maintained for all impaired loans. 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.
F-10
<PAGE> 91
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
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 Company's allowance for loan
losses. Such agencies may require the Company 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 7-40 Straight-Line
Furniture and Equipment 5-15 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.
CASH FLOWS
For reporting cash flows, cash and cash equivalents include cash on hand,
interest-bearing and noninterest-bearing amounts due from banks and federal
funds sold. Cash flows from demand deposits, NOW accounts, savings accounts and
loans are reported net.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
consolidated 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 either be taxable or deductible when the assets and
liabilities are recovered or settled.
F-11
<PAGE> 92
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at the
date of acquisition. Losses from the acquisition of property in full or partial
satisfaction of debt are recorded as loan losses. Subsequent declines in value,
routine holding costs and gains or losses upon disposition are included in other
losses. As of December 31, 1997 and for the year then ended, other real estate
has been reduced by an allowance for unrealized loss totaling $15,000.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired represents the excess of purchase price
paid for subsidiary stock over the fair value of net assets acquired and is
being amortized on a straight-line basis over twenty-five and fifteen years.
MERGERS OF WHOLLY-OWNED SUBSIDIARIES
Effective October 16, 1997, The Citizens State Bank of Butler, Georgia and
Crawford County Bank of Roberta, Georgia were merged. The surviving bank, The
Citizens State Bank, was subsequently renamed Southland Bank. The Crawford
County Bank office remains open and now serves as a branch office of Southland
Bank.
(2) CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Components of cash and balances due from depository institutions are as follows
as of December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash on Hand and Cash Items $1,879,870 $2,191,609
Noninterest-Bearing Deposits with Other Banks 6,189,275 1,620,731
Interest-Bearing Deposits with Other Banks 56,764 32,716
---------- ----------
$8,125,909 $3,845,056
========== ==========
</TABLE>
The Banks are required to maintain reserve funds in cash or on deposit with the
Federal Reserve Bank. The required reserves as of December 31, 1997 and 1996
totaled $872,000 and $758,000, respectively.
F-12
<PAGE> 93
(3) INVESTMENT SECURITIES
Investment securities as of December 31, 1997 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
U.S. Treasury $ 10,023,295 $ 67,894 $ (4,857) $ 10,086,332
U.S. Government Agencies 11,693,166 50,114 (15,691) 11,727,589
State, County and Municipal 522,317 23,391 545,708
Corporate 1,109,905 7,786 (518) 1,117,173
Federal Home Loan Bank Stock 758,700 758,700
Other Equity Securities 8,425 8,425
------------ ------------ ------------ ------------
$ 24,115,808 $ 149,185 $ (21,066) $ 24,243,927
============ ============ ============ ============
SECURITIES HELD TO MATURITY
U.S. Government Agencies
Mortgage Backed $ 356,905 $ 8,125 $ (468) $ 364,562
Other 500,000 940 500,940
State, County and Municipal 6,351,618 185,063 (712) 6,535,969
------------ ------------ ------------ ------------
$ 7,208,523 $ 194,128 $ (1,180) $ 7,401,471
============ ============ ============ ============
</TABLE>
The amortized cost and fair value of investment securities as of December 31,
1997, 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>
SECURITIES
--------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 2,594,106 $ 2,591,592 $ 503,853 $ 512,070
Due After One Year Through Five Years 20,713,624 20,841,244 3,275,032 3,344,633
Due After Five Years Through Ten Years 40,953 43,966 1,181,006 1,219,492
Due After Ten Years 1,891,727 1,960,714
----------- ----------- ----------- -----------
23,348,683 23,476,802 6,851,618 7,036,909
Federal Home Loan Bank Stock 758,700 758,700
Mortgage Backed Securities 356,905 364,562
Other Equity Securities 8,425 8,425
----------- ----------- ----------- -----------
$24,115,808 $24,243,927 $ 7,208,523 $ 7,401,471
=========== =========== =========== ===========
</TABLE>
F-13
<PAGE> 94
(3) INVESTMENT SECURITIES (CONTINUED)
Investment securities as of December 31, 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
U.S. Treasury $ 5,050,101 $ 442 $ (15,511) $ 5,035,032
U.S. Government Agencies
Mortgage Backed 3,723,413 14,129 (58,465) 3,679,077
Other 11,807,966 13,986 (74,637) 11,747,315
State, County and Municipal 523,333 26,924 550,257
Corporate 2,735,003 12,837 (13,874) 2,733,966
Federal Home Loan Bank Stock 433,800 433,800
Other Equity Securities 8,425 8,425
------------ ------------ ------------ ------------
$ 24,282,041 $ 68,318 $ (162,487) $ 24,187,872
============ ============ ============ ============
SECURITIES HELD TO MATURITY
U.S. Government Agencies
Mortgage Backed $ 551,190 $ 7,681 $ (649) $ 558,222
Other 1,610,455 2,625 (6,095) 1,606,985
State, County and Municipal 5,355,435 187,346 (6,079) 5,536,702
------------ ------------ ------------ ------------
$ 7,517,080 $ 197,652 $ (12,823) $ 7,701,909
============ ============ ============ ============
</TABLE>
Proceeds from sales of investments available for sale were $7,440,308 in 1997,
$21,542,633 in 1996 and $7,346,841 in 1995. Gross realized gains totaled
$31,421, $108,911 and $18,412 in 1997, 1996 and 1995, respectively. Gross
realized losses totaled $20,051, $104,215 and $6,538 in 1997, 1996 and 1995,
respectively.
Investment securities having a carrying value approximating $10,236,000 and
$18,544,000 as of December 31, 1997 and 1996, respectively, were pledged to
secure public deposits and for other purposes.
(4) LOANS
The composition of loans as of December 31 are:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial, Financial and Agricultural $28,521,156 $33,278,853
Real Estate-Construction 2,870,585 3,438,842
Real Estate-Farmland 10,075,333 8,751,181
Real Estate-Other 46,883,064 34,103,765
Installment Loans to Individuals 10,260,567 9,817,386
All Other Loans 57,178 309,357
----------- -----------
$98,667,883 $89,699,384
=========== ===========
</TABLE>
F-14
<PAGE> 95
(4) LOANS (CONTINUED)
Nonaccrual loans are loans for which principal and interest are doubtful of
collection in accordance with original loan terms and for which accruals of
interest have been discontinued due to payment delinquency. Nonaccrual loans
totaled $929,937 and $966,312 as of December 31, 1997 and 1996, respectively.
Foregone interest on nonaccrual loans approximated $158,100 in 1997, $153,300 in
1996 and $131,900 in 1995.
Southland Bank Corporation of Georgia and Subsidiaries recognize impaired loans
as nonaccrual loans delinquent in excess of 90 days for which collateral values
are insufficient to recover outstanding principal and interest under original
loan terms. Impaired loan data as of December 31 and for the years then ended
follow:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total Investment in Impaired Loans $ 569,227 $ 420,017
Less Allowance for Impaired Loan Losses (127,815) (123,800)
--------- ---------
Net Investment, December 31 $ 441,412 $ 296,217
========= =========
Average Investment during the Year $ 556,523 $ 588,680
========= =========
Income Recognized during the Year $ 498 $ --
========= =========
Income Collected during the Year $ 498 $ --
========= =========
</TABLE>
(5) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized below for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, BEGINNING $ 1,254,992 $ 1,157,030 $ 1,268,864
Provision Charged to Operating Expenses 1,447,394 325,964 92,224
Loans Charged Off (396,998) (328,935) (244,017)
Loan Recoveries 181,027 100,933 39,959
----------- ----------- -----------
BALANCE, ENDING $ 2,486,415 $ 1,254,992 $ 1,157,030
=========== =========== ===========
</TABLE>
F-15
<PAGE> 96
(6) PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land $ 231,000 $ 231,000
Building 3,017,354 2,169,741
Furniture, Fixtures and Equipment 2,535,548 2,177,129
----------- -----------
5,783,902 4,577,870
Accumulated Depreciation (2,650,559) (2,363,873)
----------- -----------
$ 3,133,343 $ 2,213,997
=========== ===========
</TABLE>
Depreciation charged to operations totaled $286,679 in 1997, $256,128 in 1996
and $222,184 in 1995.
(7) INCOME TAXES
The Company records income taxes under SFAS 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 components of income tax expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current Federal $ 994,834 $ 783,084 $ 606,581
Deferred Federal (438,117) (61,763) (20,285)
--------- --------- ---------
$ 556,717 $ 721,321 $ 586,296
========= ========= =========
</TABLE>
F-16
<PAGE> 97
(7) INCOME TAXES (CONTINUED)
Income tax expense amounted to $556,717 in 1997, $721,321 in 1996 and $586,296
in 1995, which is less than the tax expense computed by applying the statutory
federal tax rate of 34 percent in 1997, 1996 and 1995 to income before income
taxes. The reasons for the differences are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
STATUTORY FEDERAL INCOME TAXES $ 660,366 $ 863,141 $ 765,253
Tax-Exempt Interest (135,605) (154,721) (180,678)
Interest Expense Disallowance 16,013 16,853 15,579
Other 15,943 (3,952) (13,858)
--------- --------- ---------
ACTUAL FEDERAL INCOME TAXES $ 556,717 $ 721,321 $ 586,296
========= ========= =========
</TABLE>
Deferred taxes in the accompanying balance sheets as of December 31 include the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for Loan Losses $ 681,498 $ 247,338
Deferred Compensation 97,993 84,807
Other Real Estate 5,100 --
--------- ---------
784,591 332,145
--------- ---------
DEFERRED TAX LIABILITIES
Premises and Equipment (72,162) (66,161)
Securities Accretion (25,844) (17,517)
Other (118,089) (118,088)
--------- ---------
(216,095) (201,766)
--------- ---------
568,496 130,379
DEFERRED TAX (LIABILITY) ASSET ON
SECURITIES GAINS AND LOSSES (43,561) 32,017
--------- ---------
NET DEFERRED TAX ASSETS $ 524,935 $ 162,396
========= =========
</TABLE>
F-17
<PAGE> 98
(8) DEPOSITS
Components of interest-bearing deposits as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Interest-Bearing Demand $37,014,596 $30,118,658
Savings 5,834,294 5,809,628
Time, $100,000 and Over 13,935,792 10,760,626
Other Time 41,954,804 38,733,357
----------- -----------
$98,739,486 $85,422,269
=========== ===========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $11,989,000 and $9,134,000
as of December 31, 1997 and 1996, respectively.
As of December 31, 1997, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------- -----------
<S> <C>
1998 $44,671,541
1999 6,754,191
2000 2,304,584
2001 1,457,623
2002 and Thereafter 702,657
-----------
$55,890,596
===========
</TABLE>
(9) SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Securities sold under agreement to repurchase generally mature one day from the
transaction date. Treasury and government agency securities sold under
repurchase agreements are held and segregated by the Bank's investment
safekeeping agent. Investments are identified as subject to the repurchase
agreement and may be substituted by the Bank, subject to agreement by the buyer.
The agreements, as of December 31, 1997, mature the following day.
Information concerning securities sold under agreements to repurchase for 1997
is summarized as follows:
<TABLE>
<S> <C>
Average Balance During the Year $2,963,178
Average Interest Rate During the Year 4.9%
Maximum Month-End Balance During the Year $6,283,618
Carrying Value as of December 31, 1997 $3,021,971
Estimated Fair Value as of December 31, 1997 $3,021,971
</TABLE>
F-18
<PAGE> 99
(10) OTHER BORROWED MONEY
Other borrowed money is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Advance agreements with Federal Home Loan Bank of
Atlanta, dated October 1992 through November 1996,
payable in full on various dates through 2008.
Interest rates ranging from 5.53 percent to 8.66
percent are determined under the fixed rate credit,
principal reducing credit and principal reducing
optional advance programs. $2,227,762 $2,583,577
========== ==========
</TABLE>
Estimated maturities for the next five years assuming semiannual amortization
and interest rates in effect as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------- -----------
<S> <C>
1998 $ 310,815
1999 310,815
2000 310,815
2001 310,815
2002 310,815
Thereafter 673,687
----------
$2,227,762
==========
</TABLE>
(11) PROFIT SHARING PLAN
The Banks have profit sharing plans that cover substantially all employees.
Contributions to the plans are at the discretion of the board of directors.
During 1997, 1996 and 1995, contributions charged to operations were $138,436,
$156,795 and $159,681, respectively.
(12) COMMITMENTS AND CONTINGENCIES
In the normal course of business, certain commitments and contingencies are
incurred which are not reflected in the financial statements. These include
various guarantees and standby letters of credit. Commitments under standby
letters of credit approximate $738,000 and $2,075,000 as of December 31, 1997
and 1996, respectively. Unfulfilled loan commitments as of December 31, 1997 and
1996 total $10,515,000 and $3,277,000, respectively. No losses are anticipated
as a result of these commitments.
Rental expense under operating leases totaled $7,200 for the years ended
December 31, 1997, 1996 and 1995.
F-19
<PAGE> 100
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments for land under long-term operating leases are:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------- -----------
<S> <C>
1998 $ 7,200
1999 7,200
2000 7,200
2001 2,400
-------
$24,000
=======
</TABLE>
(13) RELATED PARTY TRANSACTIONS
The Banks have direct and indirect loans outstanding to certain officers,
directors and related interests. 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. A summary of activity of
related party loans is shown below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
BALANCE, BEGINNING $ 547,069 $ 517,965
New Loans 1,372,103 297,752
Repayments (896,443) (268,648)
Transactions Due to Changes in Directors 402,245 --
----------- -----------
BALANCE, ENDING $ 1,424,974 $ 547,069
=========== ===========
</TABLE>
(14) RESTRICTED STOCK
The Company has granted restricted stock under its long-term incentive plan to
key officers and employees. The restricted stock was granted at 100 percent of
the fair market value at the date of grant. Shares of restricted stock are
subject to forfeiture until the expiration of seven years of service commencing
on the date of grant. During the forfeiture period, certificates for shares of
restricted stock are nontransferable. The restricted shares are entitled to all
the rights of an outstanding common share. On December 31, 1990 and December 31,
1991, the Company granted 1,525 shares and 915 shares, respectively, at fair
market value of $41 per share. On January 1, 1996, the Company granted 538
shares at fair market value of $46.48 per share. On March 6, 1997, the Company
granted an additional 446 shares at a fair value of $56.09 per share. As of
December 31, 1997, there have been no forfeitures. Compensation expense charged
to income was $22,050 in 1997, $17,508 in 1996 and $13,756 in 1995.
F-20
<PAGE> 101
(15) NONCOMPENSATORY STOCK OPTION PLAN
During 1987 and 1990, key employees were granted the right to purchase shares of
common stock at the fair value as of the grant date in accordance with the
Company's incentive stock option plan. On February 10, 1987, 3,000 shares were
granted at a price of $25 per share. On December 31, 1990, 305 shares were
granted at a price of $41 per share. Unexercised options expire on December 31,
2000.
A summary of option transactions follows:
<TABLE>
<S> <C>
Granted to Date 3,305
Canceled --
Exercised 3,000
-----
Outstanding, December 31, 1997 305
=====
Eligible to be Exercised, December 31, 1997 305
=====
</TABLE>
(16) DEFERRED COMPENSATION PLAN
The Company has deferred compensation plans covering certain directors through
individual deferred compensation contracts. In accordance with the terms of the
contracts, the Company is committed to pay the directors deferred compensation
in a lump sum payment upon termination of the director's employment with the
Corporation or upon death or disability. The director has the option to choose
an alternate plan receiving monthly installments over a ten-year period.
Liabilities accrued under the plan totaled $288,214 and $249,433 as of December
31, 1997 and 1996, respectively. Provisions charged to operations totaled
$38,781 in 1997, $36,188 in 1996 and $11,944 in 1995. The effective date of the
agreements was January 1, 1995.
(17) INTEREST INCOME AND EXPENSE
Interest income of $398,838, $455,062 and $531,406 from state, county and
municipal bonds was exempt from regular income taxes in 1997, 1996 and 1995,
respectively.
Interest on deposits includes interest expense on time certificates of $100,000
or more totaling $589,405, $569,396 and $550,843 for the years ended December
31, 1997, 1996 and 1995.
(18) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the following were made during the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest Expense $4,690,266 $3,458,285 $3,902,177
========== ========== ==========
Income Taxes $1,077,134 $ 947,580 $ 751,847
========== ========== ==========
</TABLE>
F-21
<PAGE> 102
(18) SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Noncash financing and investing activities for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Acquisitions of Real Estate
Through Loan Foreclosures $ 186,261 $ 157,056 $ 229,958
========== ========== ==========
</TABLE>
(19) INTANGIBLE ASSETS
On January 3, 1994, Southland Bank Corporation of Georgia acquired United Bank
of Crawford (subsequently changed to Crawford County Bank) in a business
combination accounted for as a purchase. The purchase price of $3,526,870
exceeded the fair value of the net assets of Crawford County Bank by $1,426,614,
which is being amortized on the straight-line method over 15 years. Other
goodwill resulted from acquisitions of subsidiary bank shares from minority
stockholders in prior years and is being amortized over 25 years. Goodwill as of
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
CRAWFORD
COUNTY
BANK OTHER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Original Amount $ 1,426,614 $ 829,537 $ 2,256,151
Amortized to Date (382,807) (176,988) (559,795)
----------- ----------- -----------
Unamortized Goodwill $ 1,043,807 $ 652,549 $ 1,696,356
=========== =========== ===========
</TABLE>
Amortization totaled $120,984, for the years ended December 31, 1997, 1996 and
1995.
(20) 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
Southland Bank Corporation of Georgia and Subsidiaries' 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
Company, but rather a good-faith estimate of the increase or decrease in value
of financial instruments held by the Company since purchase, origination or
issuance.
CASH AND SHORT-TERM INVESTMENTS - For cash, due from banks, bank-owned
deposits 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.
F-22
<PAGE> 103
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
BORROWED MONEY - The carrying amount of variable rate borrowings is a
reasonable estimate of fair value. The fair value of fixed rate borrowings is
estimated by discounting contractual cash flows based on current rates.
STANDBY LETTERS OF CREDIT AND COMMITMENTS TO EXTEND CREDIT - Because standby
letters of credit and commitments to extend credit are made using variable
rates, the contract value is a reasonable estimate of fair value.
The carrying amount and estimated fair values of the Company's financial
instruments as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and Short-Term Investments $ 14,076 $ 14,076 $ 5,695 $ 5,695
Investment Securities Available for Sale 24,244 24,244 24,188 24,188
Investment Securities Held to Maturity 7,209 7,401 7,518 7,702
Loans 98,668 98,475 89,699 89,468
LIABILITIES
Deposits 123,166 123,320 112,810 112,929
Borrowed Money 9,045 9,045 2,790 2,790
UNRECOGNIZED FINANCIAL INSTRUMENTS
Standby Letters of Credit 738 738 2,075 2,075
Commitments to Extend Credit 10,515 10,515 3,277 3,277
</TABLE>
F-23
<PAGE> 104
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 Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company'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.
F-24
<PAGE> 105
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 other real estate, deferred income
taxes and premises and equipment. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates.
(21) REGULATORY CAPITAL MATTERS
The amount of dividends payable to the parent company from the subsidiary banks
is limited by various banking regulatory agencies. The amount of cash dividends
available from subsidiaries for payment in 1998 without prior approval from the
banking regulatory agencies approximates $802,000. Upon approval by regulatory
authorities, the banks may pay cash dividends to the parent company in excess of
regulatory limitations.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and, possibly, additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets. The
amounts and ratios as defined in regulations are presented hereafter. Management
believes, as of December 31, 1997, the Company meets all capital adequacy
requirements to which it is subject and is classified as well capitalized under
the regulatory framework for prompt corrective action. In the opinion of
management, there are no conditions or events since prior notification of
capital adequacy from the regulators that have changed the institution's
category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital
to Risk-Weighted Assets $16,577,788 17.10% $ 7,757,552 8.00% $ 9,696,940 10.00%
Tier I Capital
to Risk-Weighted Assets 15,349,938 15.83 3,878,776 4.00 5,818,164 6.00
Tier I Capital
to Average Assets 15,349,938 11.21 5,475,734 4.00 6,844,667 5.00
</TABLE>
F-25
<PAGE> 106
(21) REGULATORY CAPITAL MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital
to Risk-Weighted Assets $15,251,159 15.44% $ 7,902,155 8.00% $ 9,877,694 10.00%
Tier I Capital
to Risk-Weighted Assets 14,015,924 14.19 3,950,930 4.00 5,926,395 6.00
Tier I Capital
to Average Assets 14,015,924 10.03 5,589,601 4.00 6,987,500 5.00
</TABLE>
(22) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (Statement 128), Earnings per Share.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS") and supersedes Accounting Principles Board Opinion No. 15 ("APB
15") and its related interpretations. It replaces the presentation of primary
EPS with a presentation of basic EPS, which excludes dilution, and requires dual
presentation of basic and diluted EPS for all entities with complex capital
structures. Diluted EPS is computed similarly to fully diluted EPS pursuant to
APB 15. Statement 128 is effective for periods ending after December 15, 1997,
including interim periods, and will require restatement of all prior period EPS
data presented with earlier application not permitted. The following presents
earnings per share for the years ended December 31, 1997, 1996 and 1995 under
the requirements of Statement 128:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE $ 4.11 $ 5.25 $ 4.83
Weighted Average Common Shares 337,130 346,076 344,866
DILUTED EARNINGS PER SHARE 4.11 5.22 4.81
Weighted Average Common Shares 337,353 347,821 346,288
</TABLE>
F-26
<PAGE> 107
(22) EARNINGS PER SHARE (CONTINUED)
In October 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(Statement 123). Statement 123 establishes a "fair value" based method of
accounting for stock-based compensation plans 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 for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees
(Opinion 25). Entities electing to remain with the accounting in Opinion 25 must
make proforma disclosures of net income and earnings per share, as if the fair
value based method of accounting defined in Statement 123 had been applied.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. Southland Bank Corporation continues to follow Opinion 25 in
accounting for its stock-based compensation awards. The effect of Statement 123
on net income and earnings per share is immaterial.
(23) SUBSEQUENT EVENT
In February 1998, the Company entered into an Agreement and Plan of Merger with
First Liberty Financial Corporation (FLFC) to exchange each of its outstanding
shares of common stock for 3.51 shares of FLFC common stock subject to
adjustment for stock splits, stock dividends or a combination of stock by FLFC.
The proposed merger will be accounted for as a pooling of interests and is
subject to the approval of various regulatory authorities.
F-27
<PAGE> 108
(24) FINANCIAL INFORMATION OF SOUTHLAND BANK CORPORATION OF GEORGIA (PARENT
ONLY)
Southland Bank Corporation of Georgia's (parent only) balance sheets as of
December 31, 1997 and 1996 and the related statements of income and cash flows
for each year of the three-year period ended December 31, 1997 are as follows:
BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 286,659 $ 152,122
Interest-Bearing Deposits in Banks 14,942 493,276
Investment in Southland Bank 7,297,099 6,940,783
Investment in Coffee County Bank 6,762,349 6,228,462
Investment Securities 2,425 2,425
Equipment, Net of $20,171 of Accumulated Depreciation 20,594 21,917
Goodwill 1,696,356 1,817,338
Income Tax Benefit Receivable -- 217,893
Deferred Income Tax Asset 95,963 84,347
Other 52,437 (132)
------------ ------------
$ 16,228,824 $ 15,958,431
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
OTHER LIABILITIES $ 306,419 $ 257,310
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock 3,524 3,490
Paid-In Capital 5,644,722 5,544,740
Retained Earnings 11,398,046 10,347,185
------------ ------------
17,046,292 15,895,415
Treasury Stock (1,161,364) (88,026)
Unearned Compensation-Restricted Stock (47,082) (44,116)
Unrealized Gain (Loss) on Securities, Net of Tax 84,559 (62,152)
------------ ------------
15,922,405 15,701,121
------------ ------------
$ 16,228,824 $ 15,958,431
============ ============
</TABLE>
F-28
<PAGE> 109
(24) FINANCIAL INFORMATION OF SOUTHLAND BANK CORPORATION OF GEORGIA (PARENT
ONLY) (CONTINUED)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Dividends from Subsidiaries $1,008,012 $ 903,060 $ 639,858
Interest Income 6,715 9,546 1,110
Other 50 -- 4,092
---------- ---------- ----------
1,014,777 912,606 645,060
---------- ---------- ----------
EXPENSES
Interest -- -- 1,010
Depreciation 4,620 4,040 --
Amortization 120,984 120,984 120,984
Salaries and Employee Benefits 60,037 36,188 11,944
Directors' Fees 32,500 32,500 32,500
Legal and Professional 28,060 32,959 14,640
Taxes 25,561 22,674 5,406
Miscellaneous 34,527 48,237 22,125
---------- ---------- ----------
306,289 297,582 208,609
---------- ---------- ----------
Income Before Income Tax Benefits and
Equity in Undistributed Earnings of Subsidiaries 708,488 615,024 436,451
Income Tax Benefits 80,056 89,336 60,562
---------- ---------- ----------
Income Before Equity in Undistributed
Earnings of Subsidiaries 788,544 704,360 497,013
Equity in Undistributed Earnings of Subsidiaries 596,993 1,112,969 1,167,434
---------- ---------- ----------
NET INCOME $1,385,537 $1,817,329 $1,664,447
========== ========== ==========
</TABLE>
F-29
<PAGE> 110
(24) FINANCIAL INFORMATION OF SOUTHLAND BANK CORPORATION OF GEORGIA (PARENT
ONLY) (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,385,537 $ 1,817,329 $ 1,664,447
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities
Loss on Disposal of Assets -- -- 18,567
Deferred Compensation 38,781 36,189 11,944
Amortization of Unearned Compensation 22,050 13,757 13,756
Deferred Income Taxes (11,616) (11,844) (72,503)
Depreciation 4,620 4,040 --
Amortization 120,984 120,984 120,984
Equity in Undistributed Earnings of Subsidiaries (596,993) (1,112,969) (1,167,434)
CHANGE IN
Tax Benefits Receivable/Payable 225,818 (77,491) 11,941
Other (9,008) (119,098) 58,383
----------- ----------- -----------
1,180,173 670,897 660,085
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest-Bearing Deposits in Other Banks 478,335 (276,646) (201,100)
Bank Premises and Equipment (3,297) (25,957) --
Purchase of Assets Held for Sale (41,160) -- --
----------- ----------- -----------
433,878 (302,603) (201,100)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-Term Debt -- -- (50,000)
Dividends Paid (334,676) (346,258) (345,804)
Sale (Purchase) of Treasury Stock (1,073,338) -- 7,500
Issuance of Common Stock 75,000 -- --
Capital Contribution (146,500) -- --
----------- ----------- -----------
(1,479,514) (346,258) (388,304)
----------- ----------- -----------
INCREASE IN CASH 134,537 22,036 70,681
CASH, BEGINNING 152,122 130,086 59,405
----------- ----------- -----------
CASH, ENDING $ 286,659 $ 152,122 $ 130,086
=========== =========== ===========
</TABLE>
F-30
<PAGE> 111
APPENDIX A
<PAGE> 112
AGREEMENT AND PLAN OF MERGER
AMONG
FIRST LIBERTY FINANCIAL CORP.
AND
FIRST LIBERTY BANK, ON THE ONE HAND
AND
SOUTHLAND BANK CORPORATION OF GEORGIA,
SOUTHLAND BANK AND COFFEE COUNTY BANK,
ON THE OTHER HAND
DATED
FEBRUARY 18, 1998
As amended on
May 8, 1998
A-1
<PAGE> 113
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made February 18,
1998, between FIRST LIBERTY FINANCIAL CORP. ("FLFC"), a Georgia corporation and
FIRST LIBERTY BANK ("FLB"), a federal savings bank, on the one hand, and
SOUTHLAND BANK CORPORATION OF GEORGIA ("SBC"), a Georgia corporation, SOUTHLAND
BANK ("Southland"), a state chartered bank organized under the laws of the State
of Georgia, and COFFEE COUNTY BANK ("Coffee"), a state chartered bank organized
under the laws of the State of Georgia, on the other hand, FLFC and SBC shall be
hereinafter collectively referred to as the "Constituent Corporations."
RECITALS
The boards of directors of the Constituent Corporations have determined
that it is desirable and in the best interests of their respective corporations
and shareholders that SBC merge into FLFC (the "Company Merger"). The boards of
directors of FLB, Southland and Coffee have each determined that it is desirable
and in the best interests of each such institution and its sole shareholder that
Southland and Coffee merge into FLB (the "Bank Merger"). The Company Merger and
the Bank Merger shall be hereinafter collectively referred to as the "Mergers";
and
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties hereto agree as follows:
SECTION 1. THE MERGERS AND CLOSING
1.01 MERGERS.
(a) Company Merger Certificate. At or before the Closing, as
defined herein, a duly authorized officer of FLFC will execute the certificate
of merger annexed hereto as Exhibit 1.01(a) (the "Company Merger Certificate"),
pursuant to which, on the terms set forth herein and subject to the conditions
set forth in Section 6 hereof, SBC will merge with and into FLFC, which shall be
the surviving corporation.
(b) Articles of Combination. At or before the Closing, as
defined herein, the duly authorized officers of FLB, Southland and Coffee will
execute the articles of combination annexed hereto as Exhibit 1.01(b) (the
"Articles of Combination"), pursuant to which, on the terms set forth herein and
subject to the conditions set forth in Section 6 hereof, each of Southland and
Coffee will merge with and into FLB, which shall be the surviving bank.
(c) Effects of Mergers. The Company Merger shall have the
effects set forth in the Georgia Business Corporation Code ("GBCC"). Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property and assets, rights, privileges and all debts, liabilities
and obligations of SBC will become the property and assets, rights, privileges
and debts, liabilities and obligations of FLFC as the surviving corporation in
the Company Merger. The Bank Merger shall have the effects set forth in the
Financial Institutions Code of Georgia and applicable federal laws. Without
limiting the generality of the foregoing, and subject thereto, at the effective
time of the Bank Merger, all the property and assets, rights, privileges and all
debts, liabilities and obligations of each of Southland and Coffee will become
the property and assets, rights, privileges and debts, liabilities and
obligations of FLB as the surviving association in the Bank Merger.
1.02 THE CLOSING. The "Closing" of the transactions contemplated
hereby will take place at the principal offices of SBC (or such other place to
which the parties may agree), at 10:00 a.m., Eastern Standard Time, on a
mutually agreeable date as soon as practicable following satisfaction of the
conditions set forth in
A-2
<PAGE> 114
subparagraphs (a), (b) and (d) of subsection 6.01 hereof, or if no date has been
agreed to, on any date specified by any party to the others upon 10 days notice
following satisfaction of such conditions. The date on which the Closing occurs
is herein called the "Closing Date." If all conditions set forth in Section 6
hereof are satisfied or waived by the party entitled to grant such waiver, at
the Closing (a) the Constituent Corporations shall each provide to the other
such proof of satisfaction of the conditions set forth in Section 6 as the party
whose obligations are conditioned upon such satisfaction may reasonably request,
(b) the certificates, letters and opinions required by Section 6 shall be
delivered, (c) the appropriate officers of the parties shall execute, deliver
and acknowledge the Company Merger Certificate and the Articles of Combination
and (d) the parties shall take such further action as is required to consummate
the transactions contemplated by this Agreement, the Company Merger Certificate
and the Articles of Combination. If on any date established for the Closing all
conditions in Section 6 hereof have not been satisfied or waived by the party
entitled to grant such waiver, then such party, on one or more occasions, may
declare a delay of the Closing of such duration, not exceeding 10 business days,
as the declaring party shall select, but no such delay shall extend beyond the
date set forth in subparagraph (c) of subsection 7.01, and no such delay shall
interfere with the right of any party to terminate this Agreement pursuant to
Section 7.
1.03 THE EFFECTIVE DATE AND TIME. Immediately following (or
concurrently with) the Closing, the Company Merger Certificate shall be filed
with and recorded by the Secretary of State of Georgia, and the Articles of
Combination and such other documents and notices as may be required will be
filed and recorded with the Office of Thrift Supervision ("OTS"), and the
Company Merger and the Bank Merger shall be effective at the date and time
specified in the Company Merger Certificate and the Articles of Combination,
respectively. The date on which and the time at which the Company Merger becomes
effective are herein referred to as the "Effective Date" and the "Effective
Time," respectively.
1.04 SURVIVING CORPORATIONS.
(a) Company Merger. The Articles of Incorporation and Bylaws
of FLFC, as in effect immediately prior to the Effective Time, shall remain
unchanged by reason of the Company Merger and shall be the Articles of
Incorporation and bylaws of FLFC as the surviving corporation in the Company
Merger. The directors and officers of FLFC at the Effective Time shall be the
directors and officers of FLFC as the surviving corporation in the Company
Merger until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be. Each
share of FLFC Common Stock, $1.00 par value ("FLFC Common Stock"), issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time. At the Effective Time, all
outstanding shares of SBC Common Stock, other than any such shares as to which
dissenters' rights shall exist, shall be converted as set forth in Section 2.
(b) Bank Merger. The charter documents and Bylaws of FLB, as
in effect immediately prior to the effective time of the Bank Merger shall
remain unchanged by reason of the Bank Merger and shall be the charter documents
and Bylaws of FLB as the surviving entity in the Bank Merger. The directors and
officers of FLB at the effective time of the Bank Merger shall be the directors
and officers of FLB as the surviving corporation in the Bank Merger until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be. At the effective time of the
Bank Merger and by virtue thereof, (i) all shares of capital stock of each of
Southland and Coffee, shall be canceled and (ii) the shares of capital stock of
FLB as the surviving entity in the Bank Merger, issued and outstanding
immediately prior to such effective time shall continue to be issued and
outstanding, and no additional shares shall be issued as a result of the Bank
Merger.
1.05 TAX CONSEQUENCES. It is the intention of the parties hereto
that the Mergers shall constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that
this Agreement shall constitute a "plan of reorganization" for purposes of
Section 368 of the Code.
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1.06 ACCOUNTING TREATMENT. It is the intention of the parties
hereto that the Mergers shall qualify for pooling-of-interests accounting
treatment.
SECTION 2. CONVERSION OF STOCK IN THE COMPANY MERGER
2.01 CONVERSION. Subject to the provisions of this Section 2, at
the Effective Time, by virtue of the Company Merger and without any action on
the part of the holders thereof, the shares of SBC common stock, $50.00 par
value per share ("SBC Common Stock"), shall be converted as follows:
(a) Exchange Ratio. Except for shares of SBC Common Stock held
by SBC as treasury shares (which shall by reason of the Company Merger be
canceled), and subject to the provisions of Section 2.01(b) relating to
fractional shares, each issued and outstanding share of SBC Common Stock shall
be converted into the right to receive 3.51 shares of FLFC Common Stock;
provided that such ratio shall be ratably adjusted to reflect the effects of any
split of FLFC Common Stock, dividend on FLFC Common Stock paid in shares of FLFC
Common Stock, or combination of the outstanding number of shares of FLFC Common
Stock, or any similar recapitalization increasing or decreasing the aggregate
number of shares of FLFC Common Stock outstanding, occurring after the date
hereof but prior to the Closing Date.
(b) Fractional Shares. In lieu of the issuance of fractional
shares of FLFC Common Stock, each shareholder of SBC, upon surrender of his or
her certificate that immediately prior to the Effective Time represented SBC
Common Stock, other than shares of SBC Common Stock held by SBC as treasury
shares (which shall by reason of the Company Merger be canceled), shall receive
a cash payment (without interest) equal to the fair market value at the
Effective Time of any fraction of a share of FLFC Common Stock to which such
holder would be entitled but for this provision. For purposes of calculating
such payment, the fair market value of a fraction of a share of FLFC Common
Stock at the Effective Time shall be such fraction multiplied by the average of
the closing per share trading prices of FLFC Common Stock (as reported in the
Wall Street Journal, corrected for typographical errors) on the twenty (20)
trading days immediately preceding the tenth (10th ) business day prior to the
Closing Date.
(c) Exchange of Certificates. After the Effective Time, each
holder of an outstanding certificate or certificates theretofore representing a
share or shares of SBC Common Stock, other than shares of SBC Common Stock held
by SBC as treasury shares (which shall by reason of the Company Merger be
canceled), upon surrender thereof to the exchange agent selected by FLFC (the
"Exchange Agent"), together with duly executed transmittal materials provided
pursuant to Section 2.01(e) or upon compliance by the holder or holders thereof
with the procedures of the Exchange Agent with respect to lost, stolen or
destroyed certificates, shall be entitled to receive in exchange therefor any
payment due in lieu of fractional shares and a certificate or certificates
representing the number of whole shares of FLFC Common Stock into which such
holder's shares of SBC Common Stock were converted. Until so surrendered, each
outstanding SBC stock certificate shall be deemed for all purposes, other than
as provided below with respect to the payment of dividends or other
distributions (if any) in respect of FLFC Common Stock, to represent the number
of whole shares of FLFC Common Stock into which such holder's SBC Common Stock
shall have been converted. FLFC may, at its option, refuse to pay any dividend
or other distribution to, or refuse to allow voting by, holders of unsurrendered
SBC stock certificates until surrendered; provided, however, that upon the
surrender and exchange of any SBC stock certificates there shall be paid, to the
extent not previously paid, to the record holders of the FLFC stock certificates
issued in exchange therefor the amount, without interest, of accumulated
dividends and distributions, if any, which have become payable with respect to
the number of whole shares of FLFC Common Stock into which the shares of SBC
Common Stock theretofore represented by such certificates shall have been
exchanged. The provisions of this subsection 2.01(c) are intended for the
benefit of the holders of shares of SBC Common Stock and shall be enforceable by
such holders and each such holder's heirs, representatives and successors.
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(d) Deposit. Promptly following the Effective Time, FLFC shall
deposit or cause to be deposited with the Exchange Agent (i) irrevocable
instructions to issue the shares of FLFC Common Stock and (ii) the cash in lieu
of fractional shares to be issued and paid, as the case may be, in exchange for
outstanding shares of SBC Common Stock pursuant to this Section 2.
(e) Transmittal Materials. Promptly after the Effective Time,
FLFC shall send or cause to be sent to each former shareholder of record of SBC
at the Effective Time transmittal materials for use in exchanging certificates
of SBC Common Stock for certificates of FLFC Common Stock.
(f) Dissenters' Rights. Notwithstanding anything in this
section 2.01 to the contrary, no outstanding share of SBC Common Stock shall be
converted into or represent a right to receive any shares of FLFC Common Stock
pursuant to subsection 2.01(a) 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 GBCC (the "Dissenter Provisions") and
has not effectively withdrawn or lost his right to such payment. All such shares
of SBC Common Stock shall represent only the rights granted with respect to such
shares pursuant to the Dissenter Provisions. SBC shall give prompt notice to
FLFC upon receipt by SBC of any written demands for payment of the fair value of
SBC Common Stock and of withdrawals of such demands and any other written
communications provided in accordance with or pursuant to the Dissenter
Provisions (any shareholder duly making such a demand being hereinafter called a
"Dissenting Shareholder"). FLFC shall have the right to participate in all
negotiations and proceedings with respect to any Dissenting Shareholder. SBC
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 Shareholder,
if any, who becomes entitled to payment for his shares of SBC Common Stock
pursuant to the Dissenter Provisions shall receive payment thereof 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
SBC Common Stock shall be canceled. If any holder of shares of SBC Common 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 SBC Common Stock
of such holder shall be converted into a right to receive the consideration set
forth in subsection 2.01(a).
2.02 CLOSING TRANSFER BOOKS. At the Effective Time, the stock
transfer books of SBC shall be closed and no transfer of shares of SBC Common
Stock shall be made thereafter. At the effective time of the Bank Merger, the
stock transfer books of each of Southland and Coffee shall be closed and no
transfer of shares of Southland Common Stock or Coffee Common Stock (as
hereinafter defined in Section 3.02) shall be made thereafter. All shares of
FLFC Common Stock issued, and any fractional share payments paid upon surrender
for exchange of certificates representing shares of SBC Common Stock in
accordance with this Section 2 shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of SBC Common Stock
theretofore represented by such certificates.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SBC, SOUTHLAND AND COFFEE
SBC, Southland and Coffee represent and warrant to FLFC and FLB that,
as of the date of this Agreement and as of the Closing Date, except as set forth
in the Schedule of Exceptions:
3.01 CONSOLIDATED GROUP; ORGANIZATION; QUALIFICATION. "SBC's
consolidated group," as such term is used in this Agreement, consists of SBC,
Southland, Coffee and Southland Financial Group, Inc. ("SFG"). SBC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia, and is a bank holding company within the meaning of the
Bank Holding Company Act of
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1956, as amended (the "Bank Holding Company Act"). Each of Southland and Coffee
is a state banking association, duly organized, validly existing and in good
standing under the laws of the State of Georgia. SFG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. Each member of SBC's consolidated group has all requisite corporate
power and authority to own and lease its property and to carry on its business
as it is currently being conducted, to execute this Agreement and to consummate
the transactions contemplated hereby, and is qualified and in good standing as a
foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on such member's financial condition,
results of operations or business.
3.02 CAPITAL STOCK; OTHER INTERESTS. The authorized capital stock
(i) of SBC consists of 1,000,000 shares of SBC Common Stock, of which 330,702
shares are issued and outstanding and 21,713 shares are held in its treasury;
(ii) of Southland consists of 4,000 shares of common stock, $50.00 par value per
share ("Southland Common Stock"), of which 4,000 shares are issued and
outstanding and no shares are held in its treasury; and (iii) of Coffee consists
of 116,160 shares of common stock, $1.00 par value per share ("Coffee Common
Stock"), of which 116,160 shares are issued and outstanding and no shares are
held in its treasury. All issued and outstanding shares of capital stock of each
member of SBC's consolidated group have been duly authorized and are validly
issued, fully paid and nonassessable, and all of the outstanding shares of
Southland and Coffee are owned by SBC, free and clear of all liens, charges,
security interests, mortgages, pledges and other encumbrances. No member of
SBC's consolidated group has outstanding any stock options or other rights to
acquire any shares of its capital stock or any security convertible into such
shares, or has any obligation or commitment to issue, sell or deliver any of the
foregoing or any shares of its capital stock, except that SBC has outstanding
options to purchase an aggregate of 305 shares of SBC Common Stock as further
set forth in the Schedule of Exceptions. There are no agreements among SBC and
SBC's shareholders or by which SBC is bound with respect to the voting or
transfer of SBC Common Stock or granting registration rights to any holder
thereof. The outstanding capital stock of each member of SBC's consolidated
group has been issued in compliance with all legal requirements and in
compliance with any preemptive or similar rights. Except as set forth in the
Schedule of Exceptions, no member of SBC's consolidated group has a subsidiary
(other than Southland, Coffee and SFG), or direct or indirect ownership interest
exceeding 5% in any firm, corporation, partnership or other entity. During 1997,
SBC effected a repurchase of an aggregate of 17,798 shares of SBC Common Stock.
3.03 CORPORATE AUTHORIZATION; NO CONFLICTS. Subject to the approval
of this Agreement by the shareholders of SBC, Southland and Coffee,
respectively, in accordance with the GBCC and applicable state banking law, all
corporate acts and other proceedings required of each member of SBC's
consolidated group for the due and valid authorization, execution, delivery and
performance of this Agreement and consummation of the Mergers have been validly
taken. Subject to approval by the shareholders of SBC, Southland and Coffee and
to such regulatory approvals as are required by law, this Agreement is the
legal, valid and binding obligation of SBC, Southland and Coffee and is
enforceable against SBC, Southland and Coffee, respectively, in accordance with
the respective terms hereof. With respect to each member of SBC's consolidated
group, neither the execution, delivery or performance of this Agreement, nor the
consummation of the transactions contemplated hereby will (i) violate, conflict
with, or result in a breach of any provision of, (ii) constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, (iii) result in the termination of or accelerate the performance
required by, or (iv) result in the creation of any lien, security interest,
charge or encumbrance upon any of its properties or assets under, any of the
terms, conditions or provisions of its articles of incorporation or association
or by-laws or any material note, bond, mortgage, indenture, deed of trust,
lease, license, agreement or other instrument or obligation to or by which it or
any of its assets is bound; or violate any material order, writ, injunction,
decree, statute, rule or regulation of any governmental body applicable to it or
any of its assets.
3.04 FINANCIAL STATEMENTS AND REPORTS. SBC has delivered to FLFC
true and complete copies of (a) the consolidated balance sheets as of December
31, 1995 and December 31, 1996 of SBC and its
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consolidated subsidiaries, the related consolidated statements of income,
shareholders' equity and cash flows for the respective years then ended, the
related notes thereto, and the report of its independent public accountants with
respect thereto (collectively, the "Financial Statements"), (b) the unaudited
consolidated balance sheets as of September 30, 1997 of SBC and its consolidated
subsidiaries, and the related unaudited statements of income, shareholders'
equity and cash flows for the nine-month period then ended (collectively, the
"Interim Financial Statements") and (c) all reports to the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"), the Federal Deposit
Insurance Corporation ("FDIC") and the Georgia Department of Banking and Finance
for the year ended December 31, 1996, or any subsequent period, of each member
of SBC's consolidated group required to file such reports.
The Financial Statements and, except as indicated in the notes
thereto, the Interim Financial Statements, have been (and all financial
statements delivered to FLFC as required by this Agreement will be) prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
basis consistent with prior periods, and present fairly, in conformity with GAAP
the consolidated results of operations of SBC's consolidated group for the
respective periods covered thereby and the consolidated financial condition of
its consolidated group as of the respective dates thereof. All regulatory
reports referred to above have been filed on the appropriate form and prepared
in all material respects in accordance with such form's instructions and the
applicable rules and regulations of the regulating agency. As of the date of the
latest balance sheet forming part of the Interim Financial Statements (the
"Latest Balance Sheet"), no member of SBC's consolidated group had, nor are any
of any such member's assets subject to, any material liability, commitment,
indebtedness or obligation (of any kind whatsoever, whether absolute, accrued,
contingent, matured or unmatured) which is not reflected and adequately reserved
against in accordance with GAAP. The Financial Statements and Interim Financial
Statements are supported by and consistent with a general ledger and detailed
trial balances of investment securities, loans and commitments, depositors'
accounts and cash balances on deposit with other institutions, copies of which
have been made available to FLFC. The deferred compensation amounts reflected in
the Interim Financial Statements reflect the full liability as of December 31,
1996 of SBC's consolidated group for deferred compensation to employees subject
to deferred compensation or retirement agreements. The Schedule of Exceptions
describes the method by which such deferred compensation liability will be
determined for the year ending December 31, 1997.
3.05 LOAN AND INVESTMENT PORTFOLIOS. All loans, discounts and
financing leases (in which a member of SBC's consolidated group is lessor)
reflected on the Latest Balance Sheet (a) were, at the time and under the
circumstances in which made, made for good, valuable and adequate consideration
in the ordinary course of business of its consolidated group, (b) are evidenced
by genuine notes, agreements or other evidences of indebtedness and (c) to the
extent secured, have been secured by valid liens and security interests which
have been perfected. Accurate lists of all loans, discounts and financing leases
as of the date of the Latest Balance Sheet (or a more recent date), and of the
investment portfolios of each member of SBC's consolidated group as of such
date, have been delivered to FLFC. Except as specifically noted on the loan
schedule attached to the Schedule of Exceptions, no member of SBC's consolidated
group is a party to any written or oral loan agreement, note or borrowing
arrangement, including any loan guaranty, that is a "troubled debt
restructuring" or that was, as of the most recent month-end (i) delinquent by
more than 30 days in the payment of principal or interest, (ii) known by any
member of SBC's consolidated group to be otherwise in material default for more
than 30 days, (iii) classified as "substandard," "doubtful," "loss," "other
assets especially mentioned" or any comparable classification by any member of
SBC's consolidated group or the FDIC, (iv) an obligation of any director,
executive officer or 10% shareholder of any member of SBC's consolidated group
who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215)
or an equivalent state or federal law or regulation, or any person, corporation
or enterprise controlling, controlled by or under common control with any of the
foregoing, or (v) in violation of any law, regulation or rule of any
governmental authority, other than those that are immaterial in amount.
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3.06 ADEQUACY OF ALLOWANCES FOR LOSSES. Each of the allowances for
losses on loans, financing leases and other real estate ("Loan Loss Reserves")
shown on the Latest Balance Sheet is adequate in accordance with applicable
regulatory guidelines and GAAP in all material respects to provide for all
anticipated losses, net of recoveries related to loans previously charged-off.
Each of the Loan Loss Reserves reflected on the books of SBC's consolidated
group at all times from and after the date of the Latest Balance Sheet is
adequate in accordance with applicable regulatory guidelines and GAAP in all
material respects to provide for all anticipated losses, net of recoveries
related to loans previously charged-off.
3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Latest Balance Sheet, SBC has not declared, set aside for payment or paid any
dividend to holders of, or declared or made any distribution on, any shares of
SBC's capital stock except as set forth in the Schedule of Exceptions. Since the
date of the Latest Balance Sheet, there has been no event or condition of any
character (whether actual or threatened) that has had, or can reasonably be
anticipated to have, a material adverse effect on the financial condition,
results of operations or business of SBC's consolidated group, taken as a whole.
Except as may result from the transactions contemplated by this Agreement, no
such member has, since the date of the Latest Balance Sheet and except as set
forth in the Schedule of Exceptions:
(a) borrowed any money or entered into any capital lease or,
except in the ordinary course of business consistent with past practices, (i)
lent any money or pledged any of its credit in connection with any aspect of its
business whether as a guarantor, surety, issuer of a letter of credit or
otherwise, (ii) mortgaged or otherwise subjected to any lien, encumbrance or
other liability any of its assets, (iii) sold, assigned or transferred any of
its assets in excess of $100,000 in the aggregate, or (iv) incurred any material
liability, commitment, indebtedness or obligation (of any kind whatsoever,
whether absolute or contingent);
(b) suffered any material damage, destruction or loss to
immovable or movable property, whether or not covered by insurance;
(c) experienced any material change in asset concentrations as
to customers or industries or in the nature and source of its liabilities or in
the mix of interest-bearing versus non-interest bearing deposits;
(d) received notice or had knowledge or reason to believe that
any material labor unrest exists among any of its employees or that any group,
organization or union has attempted to organize any of its employees;
(e) received notice that one or more substantial customers has
terminated or intends to terminate such customers' relationship with it, with
the result being a material adverse effect on either Southland or Coffee;
(f) failed to operate its business in the ordinary course
consistent with past practices, or failed to use reasonable efforts to preserve
its business organization intact or to preserve the goodwill of its customers
and others with whom it has business relations;
(g) incurred any material loss except for losses adequately
reserved against on the date of this Agreement or on the Latest Balance Sheet
and expenses associated with this transaction, or waived any material right in
connection with any aspect of its business, whether or not in the ordinary
course of business;
(h) forgiven any material debt owed to it, or canceled any of
its claims or paid any of its noncurrent obligations or liabilities;
(i) made any capital expenditure or capital addition or
betterment in excess of $50,000;
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(j) entered into any agreement requiring the payment,
conditionally or otherwise, of any salary, bonus, extra compensation, pension or
severance payment to any of its present or former directors, officers or
employees, except such agreements as are terminable at will without any penalty
or other payment by it or increased (except for normal, periodic increases
consistent with past practices) the compensation (including salaries, fees,
bonuses, profit sharing, incentive, pension, retirement or other similar
payments) of any such person whose annual compensation would, following such
increase, exceed $30,000;
(k) except as required in accordance with GAAP, changed any
accounting practice followed or employed in preparing the Financial Statements
or Interim Financial Statements;
(l) made any loan, given any discount or entered into any
financing lease which has not been (i) made, at the time and under the
circumstances in which made, for good, valuable and adequate consideration in
the ordinary course of business, (ii) evidenced by genuine notes, agreements or
other evidences of indebtedness and (iii) fully reserved against in an amount
sufficient in accordance with applicable regulatory guidelines to provide for
all charge-offs reasonably anticipated in the ordinary course of business after
taking into account all recoveries reasonably anticipated in the ordinary course
of business; or
(m) entered into any agreement, contract or commitment to do
any of the foregoing.
3.08 TAXES. Each member of SBC's consolidated group has timely filed
all federal, state and local income, franchise, excise, real and personal
property, employment and other tax returns, tax information returns and reports
required to be filed, has paid all material taxes, interest payments and
penalties as reflected therein which have become due, has made adequate
provision for the payment of all such taxes accruable for all periods ending on
or before the date of this Agreement (and will make such accruals through the
Closing Date) to any city, county, state, the United States or any other taxing
authority, and is not delinquent in the payment of any material tax or material
governmental charge of any nature. Except as set forth in the Schedule of
Exceptions, the consolidated federal income tax returns of SBC's consolidated
group have not been audited by the Internal Revenue Service since the date of
SBC's inception. No audit or examination is presently being conducted by any
taxing authority nor has any member of SBC's consolidated group received written
notice from any such taxing authority of its intention to conduct any
investigation or audit or to commence any such proceeding; no material unpaid
tax deficiencies or additional liabilities of any sort have been proposed to any
member of SBC's consolidated group by any governmental representative, and no
agreements for extension of time for the assessment of any tax have been entered
into by or on behalf of any member of SBC's consolidated group. Each such member
has withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all tax withholding provisions of applicable federal, state and local laws
(including, without limitation, income, social security and employment tax
withholding for all forms of compensation).
3.09 TITLE TO ASSETS.
(a) On the date of the Latest Balance Sheet, each member of
SBC's consolidated group had and, except with respect to assets disposed of for
adequate consideration in the ordinary course of business since such date, now
has, good and merchantable title to all real property and good and merchantable
title to all other material properties and assets reflected on the Latest
Balance Sheet, and has good and merchantable title to all real property and good
and merchantable title to all other material properties and assets acquired
since the date of the Latest Balance Sheet, in each case free and clear of all
mortgages, liens, pledges, restrictions, security interests, charges and
encumbrances of any nature except for (i) mortgages and encumbrances which
secure indebtedness which is properly reflected in the Latest Balance Sheet or
which secure deposits of public funds as required by law; (ii) liens for taxes
accrued but not yet payable; (iii) liens arising as a matter of law in the
ordinary course of business, provided that the obligations secured by such
liens are not delinquent or are being contested in good faith; (iv) such
imperfections of title and encumbrances, if any, as do not materially detract
from the value or materially interfere with the present use of any of such
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properties or assets or the potential sale of any of such owned properties or
assets; and (v) capital leases and leases, if any, to third parties for fair and
adequate consideration. Each member of SBC's consolidated group owns, or has
valid leasehold interests in, all material properties and assets used in the
conduct of its business. Any real property and other material assets held under
lease by any such member are held under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
of and proposed to be made of such property by such member.
(b) With respect to each lease of any material real property
or a material amount of personal property to which any member of SBC's
consolidated group is a party, except for financing leases in which a member of
such consolidated group is lessor, (i) such lease is in full force and effect in
accordance with its terms; (ii) all rents and other monetary amounts that have
become due and payable thereunder have been paid; (iii) there exists no default,
or event, occurrence, condition or act, which with the giving of notice, the
lapse of time or the happening of any further event, occurrence, condition or
act would become a default under such lease; and (iv) the Mergers will not
constitute a default or a cause for termination or modification of such lease.
(c) No member of SBC's consolidated group has any legal
obligation, absolute or contingent, to any other person to sell or otherwise
dispose of any substantial part of its assets or to sell or dispose of any of
its assets except in the ordinary course of business consistent with past
practices.
3.10 LEGAL MATTERS.
(a) (i) There is no material claim, action, suit, proceeding,
arbitration or investigation pending in any court or before or by any
governmental agency or instrumentality or arbitration panel or otherwise, or
threatened against any member of SBC's consolidated group nor (ii) to the
knowledge of SBC, do any facts or circumstances exist that would be likely to
form the basis for any material claim against any member of SBC's consolidated
group that, if adversely determined, would have a material adverse effect on
SBC's consolidated group.
(b) Each member of SBC's consolidated group has complied in
all material respects with and is not in default in any material respect under
(and has not been charged or threatened with or come under investigation with
respect to any charge concerning any material violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative) or any order, writ,
injunction or decree of any court, agency or instrumentality.
(c) There are no material uncured violations, or violations
with respect to which material refunds or restitution may be required, cited in
any compliance report to any member of SBC's consolidated group as a result of
examination by any bank or bank holding company regulatory authority or, to the
knowledge of each member of SBC's consolidated group, otherwise in existence.
(d) No member of SBC's consolidated group is subject to any
written agreement, memorandum or order with or by any bank or bank holding
company regulatory authority.
(e) To the knowledge of SBC, there is no claim, action, suit,
proceeding, arbitration, or investigation, pending or threatened, in which any
material claim or demand is made or threatened to be made against any member of
SBC's consolidated group or any officer, director, advisory director or employee
of any such member, in each case by reason of any person being or having been an
officer, director, advisory director or employee of any such member, nor do any
facts or circumstances exist that would be likely to form the basis of any such
material claim against any officer, director, advisory director or employee of
any such member.
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3.11 EMPLOYEE BENEFIT PLANS.
(a) Except for the plans listed in the Schedule of Exceptions
(the "ERISA Plans"), no member of SBC's consolidated group sponsors, maintains
or contributes to any employee benefit plan that is subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Each of the ERISA Plans has been maintained and administered in all
material respects in compliance with its terms, the provisions of ERISA and all
other applicable laws, and, where applicable, the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). No ERISA Plan, including any
"party in interest" or "disqualified person" with respect thereto, has engaged
in a nonexempt prohibited transaction under Section 4975 of the Code or Section
502(i) of ERISA. There is no matter relating to any of the ERISA Plans pending
or, to the knowledge of SBC's consolidated group, threatened, nor are there any
facts or circumstances existing that could reasonably be expected to lead to
(other than routine filings such as qualification determination filings)
proceedings before, or administrative actions by, any governmental agency. There
are no actions, suits or claims pending or, to the knowledge of SBC's
consolidated group, threatened (including, without limitation, breach of
fiduciary duty actions, but excluding routine uncontested claims for benefits)
against any of the ERISA Plans or the assets thereof. Each member of SBC's
consolidated group has complied in all material respects with the reporting and
disclosure requirements of ERISA and the Code. None of the ERISA Plans is a
multiemployer plan within the meaning of Section 3(37) of ERISA. A favorable
determination letter has been issued by the Internal Revenue Service with
respect to each ERISA Plan that is intended to be qualified under Section 401(a)
of the Code and the Internal Revenue Service has taken no action to revoke any
such letter and, to the knowledge of SBC's consolidated group, nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification, except that pursuant to statute and administrative rulings
such ERISA Plans have not yet been amended to comply with certain recently
enacted statutes as to which compliance is not yet required. No member of SBC's
consolidated group has sponsored, maintained or made contributions to any plan,
fund or arrangement subject to Title IV of ERISA or the requirements of Section
412 of the Code or providing for medical benefits, insurance coverage or other
similar benefits for any period extending beyond the termination of employment,
except as may be required under the "COBRA" provisions of ERISA and the Code.
(b) Set forth in the Schedule of Exceptions is a true and
complete list of each benefit plan and benefit arrangement of any member of
SBC's consolidated group other than the ERISA Plans. True and complete copies of
all plans (including ERISA Plans) documents and written agreements (including
all amendments and modifications thereof), together with copies of any tax
determination letters, trust agreements, summary plan descriptions, insurance
contracts, investment management agreements and the three most recent annual
reports on form series 5500 with respect to such plan or arrangement have been
made available to FLFC.
(c) All group health plans of any member of SBC's consolidated
group to which Section 4980B(f) of the Code or Section 601 of ERISA applies are
in compliance in all material respects with continuation coverage requirements
of Section 4980B(f) of the Code and Section 601 of ERISA and any prior
violations of such sections have been cured prior to the date hereof.
(d) Each plan, fund or arrangement previously sponsored or
maintained by any member of SBC's consolidated group, or to which any member of
SBC's consolidated group previously made contributions which has been terminated
by any member of SBC's consolidated group was terminated in accordance with
ERISA, the Code and the terms of such plan, fund or arrangement and no event has
occurred and no condition exists that would subject any member of SBC's
consolidated group, FLFC or FLB to any tax, penalty, fine or other liability as
a result of, directly or indirectly, the termination of such plan, fund or
arrangement.
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(e) All contributions required or accrued under the terms of
any plan (including any ERISA Plan) have been made and all insurance premiums
required or accrued under the terms of any plan (including any ERISA Plan) have
been paid as of the date hereof.
(f) With respect to the SBC Profit Sharing Stock Plan (the
"PSSP"), neither the acquisition of securities nor the retention of such
securities constitutes a breach of fiduciary duty within the meaning of Section
404(a) of ERISA. The securities acquired by the PSSP have the status of
"qualifying employer securities" as that term is defined in Section 407(d)(5) of
ERISA.
3.12 INSURANCE POLICIES. Each member of SBC's consolidated group
maintains in force insurance policies and bonds in such amounts and against such
liabilities and hazards as are considered by it to be adequate. An accurate list
of all such insurance policies is attached to the Schedule of Exceptions. No
member of SBC's consolidated group is now liable, nor has any such member
received any notice of any material retroactive premium adjustment. All policies
are valid and enforceable and in full force and effect, and no member of SBC's
consolidated group has received any notice of a material premium increase or
cancellation with respect to any of its insurance policies or bonds. Within the
last three years, no member of SBC's consolidated group has been refused any
basic insurance coverage sought or applied for (other than certain exclusions
for coverage of certain events or circumstances as stated in such polices).
3.13 AGREEMENTS.
(a) No member of SBC's consolidated group is a party to:
(i) any collective bargaining agreement;
(ii) other than the employee benefits and plans,
agreements, arrangements, policies and practices referred to in the Schedule of
Exceptions, and such agreements as are terminable without penalty upon not more
than 30 days notice by the employer, any employment or other agreement or
contract with or commitment to any employee;
(iii) any obligation of guaranty or
indemnification except such indemnification of officers, directors, employees
and agents of SBC's consolidated group as on the date of this Agreement may be
provided in their respective charter documents and by-laws (and no
indemnification of any such officer, director, employee or agent has been
authorized, granted or awarded) except if entered into in the ordinary course of
business with respect to customers of any member of SBC's consolidated group,
letters of credit, guaranties of endorsements and guaranties of signatures;
(iv) any agreement, contract or commitment which
is or if performed will be materially adverse to the financial condition,
results of operations or business of SBC's consolidated group;
(v) any agreement, contract or commitment
containing any covenant limiting the freedom of any member of SBC's consolidated
group (x) to engage in any line of business permitted by regulatory authorities,
(y) to compete with any person in a line of business permitted by applicable
regulatory guidelines to be engaged in by bank holding companies or Georgia
state or national banks, as applicable to Southland and Coffee, or (z) to
fulfill any of its requirements or needs for services or products (including,
for example, contracts with vendors to supply customers with credit insurance);
or
(vi) any written agreement, memorandum, letter,
order or decree, formal or informal, with any federal or state regulatory
agency.
(b) The Schedule of Exceptions contains a list of each
material agreement, contract or commitment (except those entered into in the
ordinary course of business with respect to loans, lines of credit,
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letters of credit, depositor agreements, certificates of deposit and similar
banking activities and equipment maintenance agreements which are not material)
to which any member of SBC's consolidated group is a party or which affects any
such member. To SBC's knowledge, no member of SBC's consolidated group has in
any material respect breached, nor is there any pending or threatened claim that
it has materially breached, any of the terms or conditions of any of such
agreements, contracts or commitments.
3.14 LICENSES, FRANCHISES AND GOVERNMENTAL AUTHORIZATIONS. Each
member of SBC's consolidated group possesses all material licenses, franchises,
permits and other governmental authorizations necessary for the continued
conduct of its business. The deposits of each of Southland and Coffee are
insured by the FDIC to the extent provided by applicable law, and there are no
pending or threatened proceedings to revoke or modify that insurance or for
relief under 12 U.S.C. Section 1818.
3.15 CORPORATE DOCUMENTS. SBC has delivered to FLFC, with respect
to each member of SBC's consolidated group, true and correct copies of its
charter documents and its by-laws, all as amended. All of the foregoing and all
of the corporate minutes and stock transfer records of each member of SBC's
consolidated group are current, complete and correct in all material respects.
3.16 AFFILIATE TRANSACTIONS. The Schedule of Exceptions sets forth
for (i) any director, executive officer or five percent shareholder of any
member of SBC's consolidated group, (ii) any member of the immediate family of
any such persons, or (iii) any corporation, partnership, limited liability
company, trust or other entity in which any of such persons owns any beneficial
interest (other than any publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than
five percent of the stock of which is beneficially owned by any of such
persons), or is a director, officer, trustee, partner or holder of more than
five percent of the outstanding stock thereof or is otherwise an "affiliate" (as
such term is defined in Rule 12b-2 promulgated under the Exchange Act), every
agreement, undertaking, understanding or compensation arrangement of any such
person with any member of SBC's consolidated group (other than normal employment
arrangements) and any interest of any such person in any property, real,
personal or mixed, tangible or intangible, used in or pertaining to the business
of any member of SBC's consolidated group (other than ownership of stock of any
such member).
3.17 BROKER'S OR FINDER'S FEES. Except for The Robinson-Humphrey
Company, Inc. ("Robinson-Humphrey"), no agent, broker, investment banker,
investment or financial advisor or other person acting on behalf of any member
of SBC's consolidated group is entitled to any commission, broker's or finder's
fee from any of the parties hereto in connection with any of the transactions
contemplated by this Agreement.
3.18 ENVIRONMENTAL MATTERS. No member of SBC's consolidated group
owns any property (including other real estate and excluding any property in
which any member of such consolidated group has only a security interest) which
is in material violation of any federal or state law or regulation relating to
the storage, handling, transportation, treatment or disposal of hazardous
substances (as defined in 42 U.S.C. ss. 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 adverse effect on the financial
condition, business, operations or properties of SBC's consolidated group, and
each member of SBC's consolidated group has received all materials, permits,
licenses, or other approvals as may be required of and under applicable federal
and state environmental laws and regulations to conduct their respective
businesses. Each member of SBC's consolidated group 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 potentially responsible party, in connection with any claim or notice
asserted pursuant to 42 U.S.C. ss. 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 a
financial condition or business operations of any member of SBC's consolidated
group. Each member of SBC's consolidated group 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.
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3.19 COMPLIANCE WITH LAWS. Each member of SBC's consolidated group
is in compliance with all applicable laws, rules, regulations, orders, writs,
judgments and decrees the noncompliance with which reasonably could be expected
to have a material adverse effect on the financial condition, results of
operations or business of SBC's consolidated group taken as a whole. There are
no material uncured violations, or violations with respect to which material
refunds or restitution may be required, cited in any compliance report to any
member of SBC's consolidated group as a result of examination by any bank or
bank holding company regulatory authority, except those cited in examination
reports previously submitted to, and reviewed by, FLFC.
3.20 INTELLECTUAL PROPERTY. Each member of SBC's consolidated group
owns or holds valid licenses to use all trademarks, tradenames, service marks
and other intellectual property that are material to the conduct of its
business.
3.21 COMMUNITY REINVESTMENT ACT. Southland and Coffee have each
complied in all material respects with the provisions of the Community
Reinvestment Act ("CRA") and the rules and regulations thereunder, has CRA
ratings of not less than "satisfactory," and has received no material criticism
from regulators with respect to discriminatory lending practices, and has no
knowledge of any conditions or circumstances that are likely to result in CRA
ratings of less than "satisfactory" or material criticism from regulators with
respect to discriminatory lending practices.
3.22 ACCURACY OF STATEMENTS. No warranty or representation made or
to be made by any member of SBC's consolidated group in this Agreement or in any
document furnished or to be furnished by any member of SBC's consolidated group
pursuant to this Agreement contains or will contain, as of the date of this
Agreement, the effective date of the Registration Statement (as defined in
subsection 5.14 hereof) and the Closing Date, an untrue statement of a material
fact or an omission of a material fact necessary to make the statements
contained herein and therein, in light of the circumstances in which they are
made, not misleading.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF FLFC AND FLB
FLFC and FLB represent and warrant to SBC, Southland and
Coffee that as of the date hereof and as of the Closing Date:
4.01 CONSOLIDATED GROUP; ORGANIZATION; QUALIFICATION. "FLFC's
consolidated group," as such term is used in this Agreement, consists of FLFC
and FLB and, in addition includes Liberty Mortgage Corporation, New South
Financial Services, Inc., First Freedom Investments, Inc., First Freedom
Insurance Services, Inc., Green & Gold Investments, Inc., Liberty Properties,
Inc. and Fifteen Bull Street, L.L.C. FLFC is a corporation duly organized and
validly existing under the laws of the State of Georgia and is a savings and
loan holding company within the meaning of the Savings and Loan Holding Company
Act. FLB is a federal savings bank duly organized and validly existing and in
good standing under the laws of the United States of America. FLFC and FLB have
all requisite corporate power and authority to own and lease its property and to
carry on its business as it is currently being conducted and to execute and
deliver this Agreement and to consummate the transactions contemplated hereby,
and is qualified and in good standing as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on its financial condition, results of operations or business.
4.02 CAPITAL STOCK. As of the date of this Agreement, the
authorized capital stock of FLFC consists of 25,000,000 shares of FLFC Common
Stock and 5,000,000 shares of series preferred stock. As of February
10, 1998, 7,748,487 shares of FLFC Common Stock were issued and outstanding,
22,340 shares of FLFC
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Common Stock were held in its treasury and no shares of preferred stock were
issued and outstanding or held in treasury. All issued and outstanding shares of
capital stock of FLFC and FLB have been duly authorized and are validly issued,
fully paid and nonassessable. The outstanding capital stock of FLFC and FLB has
been issued in compliance with all legal requirements and any preemptive or
similar rights. FLFC owns all of the issued and outstanding shares of capital
stock of FLB free and clear of all liens, charges, security interests,
mortgages, pledges and other encumbrances.
4.03 CORPORATE AUTHORIZATION; NO CONFLICTS. Subject to approval of
this Agreement by FLFC as the sole shareholder of FLB, all corporate acts and
other proceedings required of FLFC and FLB for the due and valid authorization,
execution, delivery and performance of this Agreement and consummation of the
Mergers have been validly and appropriately taken. Subject to such regulatory
approvals as are required by law, this Agreement is the legal, valid and binding
obligation of FLFC and FLB, as the case may be, and is enforceable against them
in accordance with the terms hereof. With respect to each of FLFC and FLB,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the transactions contemplated hereby will (i) violate, conflict
with, or result in a breach of any provision of, (ii) constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, (iii) result in the termination of or accelerate the performance
required by, or (iv) result in the creation of any lien, security interest,
charge or encumbrance upon any of its properties or assets under, any of the
terms, conditions or provisions of its articles of incorporation or by-laws (or
comparable documents) or any material note, bond, mortgage, indenture, deed of
trust, lease, license, agreement or other instrument or obligation to or by
which it or any of its assets is bound; or violate any material order, writ,
injunction, decree, statute, rule or regulation of any governmental body
applicable to it or any of its assets.
4.04 FINANCIAL STATEMENTS, REPORTS AND PROXY STATEMENTS.
(a) FLFC has delivered to SBC true and complete copies of (i)
the consolidated balance sheets as of September 30, 1996 and September 30, 1997
of FLFC and its consolidated subsidiaries, the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the respective
years then ended, the related notes thereto, and the report of its independent
public accountants with respect thereto, as presented in FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 filed with the SEC
(collectively, the "FLFC Financial Statements") and (ii) all reports (including
call reports) to the OTS and the Georgia Department of Banking and Finance filed
during FLFC's most recent fiscal year, or any subsequent period, of each member
of FLFC's consolidated group required to file such reports.
(b) The FLFC Financial Statements have been prepared in
conformity with GAAP applied on a basis consistent with prior periods, and
present fairly, in conformity with GAAP, the consolidated results of operations
of FLFC's consolidated group for the respective periods covered thereby and the
consolidated financial condition of its consolidated group as of the respective
dates thereof. All call and other regulatory reports of FLFC's consolidated
group have been filed on the appropriate form and prepared in all material
respects in accordance with such form's instructions and the applicable rules
and regulations of the regulating federal agency. As of the date of the latest
balance sheet forming part of the FLFC Financial Statements (the "FLFC Latest
Balance Sheet"), no member of FLFC's consolidated group had, nor were any of any
of such member's assets subject to, any material liability, commitment,
indebtedness or obligation (of any kind whatsoever, whether absolute, accrued,
contingent, matured or unmatured), which is not reflected and adequately
reserved against in the FLFC Latest Balance Sheet in accordance with GAAP. No
report, including any report filed with the OTS, or other report, proxy
statement or registration statement filed by any member of FLFC's consolidated
group with the SEC since January 1, 1994, and no report made to shareholders of
FLFC since January 1, 1994, as of the respective dates thereof, contained and no
such report, proxy statement, registration statement or report to shareholders
filed or disseminated after the date of this Agreement through the Closing will
contain any untrue statement of a material fact or omitted, or will omit, to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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4.05 LEGALITY OF FLFC SECURITIES. All shares of FLFC Common Stock
to be issued pursuant to the Company Merger have been duly authorized and, when
issued pursuant to this Agreement, will be validly and legally issued, fully
paid and non-assessable, and will be, at the time of their delivery, free and
clear of all liens, charges, security interests, mortgages, pledges and other
encumbrances and any preemptive or similar rights.
4.06 SEC REPORTS. FLFC has previously delivered to SBC an accurate
and complete copy of the following FLFC reports filed with the SEC pursuant to
the Exchange Act: (a) annual reports on Form 10-K for the years ended September
30, 1995, 1996 and 1997 and (b) proxy statements for the years 1995, 1996 and
1997. As of their respective dates, no such report or communication contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. FLFC has timely filed all reports and other documents required to be
filed by it under the Securities Act and the Exchange Act.
4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
FLFC Latest Balance Sheet, there has been no event or condition of any character
(whether actual or threatened) that has had, or can reasonably be anticipated to
have, a material adverse effect on the financial condition, results of
operations or business of FLFC's consolidated group taken as a whole, except for
events or conditions that may affect mortgage servicing rights.
4.08 LEGAL MATTERS.
(a) There are no material actions, suits, proceedings,
arbitrations or investigations pending or, to FLFC's knowledge threatened,
against any member of FLFC's consolidated group which would be required to be
disclosed in a Form 10-K or Form 10-Q pursuant to Item 103 of Regulation S-K of
the SEC's Rules and Regulations that are not so disclosed.
(b) There are no material uncured violations, or violations
with respect to which material refunds or restitution may be required, cited in
any compliance report to any member of FLFC's consolidated group as a result of
examination by any bank or bank holding company regulatory authority.
(c) No member of FLFC's consolidated group is subject to any
written agreement, memorandum or order or decree with or by any bank or bank
holding company regulatory authority.
4.09 RIGHTS AGREEMENT. To the extent necessary, FLFC has taken all
required actions so that the entering into of this Agreement and the
consummation of the Company Merger and the transactions contemplated hereby do
not and will not result in the ability of any person to exercise any rights
under any shareholder rights plan or equivalent "poison pill" arrangement, or
enable or require any such rights to be separated from shares of FLFC Common
Stock to which they are attached or to be triggered or become exercisable.
4.10 ACCURACY OF STATEMENTS. No warranty or representation made or
to be made by any member of FLFC's consolidated group in this Agreement or in
any document furnished or to be furnished by any member of FLFC's consolidated
group pursuant to this Agreement contains or will contain, as of the date of
this Agreement, the effective date of the Registration Statement (as defined in
Subsection 5.14 hereof) and the Closing Date, an untrue statement of a material
fact or an omission of a material fact necessary to make the statements
contained herein and therein, in light of the circumstances in which they are
made, not misleading.
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SECTION 5. COVENANTS AND CONDUCT OF PARTIES PRIOR TO THE EFFECTIVE
DATE. The parties further covenant and agree as follows:
5.01 INVESTIGATIONS; PLANNING. Each member of SBC's consolidated
group shall continue to provide to FLFC and FLB and to their authorized
representatives full access during all reasonable times to its premises,
properties, books and records (including, without limitation, all corporate
minutes and stock transfer records), and to furnish FLFC and FLB and such
representatives with such financial and operating data and other information of
any kind respecting its business and properties as FLFC and FLB shall from time
to time reasonably request. Any investigation shall be conducted in a manner
which does not unreasonably interfere with the operation of the business of
SBC's consolidated group. Each member of SBC's consolidated group agrees to
cooperate with FLFC and FLB in connection with planning for the efficient and
orderly combination of the parties and the operation of FLFC and FLB (and, if
applicable, Southland and Coffee) after consummation of the Company Merger. In
the event of termination of this Agreement prior to the Effective Date, FLFC
shall, except to any extent necessary to assert any rights under this Agreement,
return, without retaining copies thereof, or destroy (and certify to same under
penalty of perjury) all confidential or non-public documents, work papers and
other materials obtained from SBC's consolidated group in connection with the
transactions contemplated hereby and shall keep such information confidential,
not disclose such information to any other person or entity except as may be
required by legal process (including, without limitation, by the OTS), and not
use such information in connection with its business, and shall cause all of its
employees, agents and representatives to keep such information confidential and
not to disclose such information or to use it in connection with its business,
in each case unless and until such information shall come into the public domain
through no fault of FLFC and FLB. FLFC and FLB shall continue to provide SBC's
executive officers with access to their respective executive officers and to
their books, records, offices, counsel and accountants, during normal business
hours and upon reasonable notice, to make such inquiries and inspections thereof
as SBC may reasonably request.
5.02 COOPERATION AND BEST EFFORTS. Each of the parties hereto will
cooperate with the other parties and use its best efforts to (a) procure all
necessary consents and approvals of third parties, (b) complete all necessary
filings, registrations, applications, schedules and certificates, (c) satisfy
all requirements prescribed by law for, and all conditions set forth in this
Agreement to, the consummation of the Mergers and the transactions contemplated
hereby, and (d) effect the transactions contemplated by this Agreement at the
earliest practicable date.
5.03 INFORMATION FOR, AND PREPARATION OF, REGISTRATION STATEMENT
AND PROXY STATEMENT. Each of the parties hereto will cooperate in the
preparation of the Registration Statement referred to in Section 5.14 and a
proxy statement of SBC (the "Proxy Statement") which complies with the
requirements of the Securities Act of 1933 (the "Securities Act"), the Exchange
Act, the rules and regulations promulgated thereunder and other applicable
federal and state laws, for the purpose of submitting this Agreement, and the
transactions contemplated hereby to SBC's shareholders for approval. Each of the
parties will as promptly as practicable after the date hereof furnish all such
data and information relating to it and its subsidiaries as any of the other
parties may reasonably request for the purpose of including such data and
information in the Registration Statement and the Proxy Statement.
5.04 APPROVAL OF AGREEMENT. No approval by FLFC's shareholders is
necessary as respects this Agreement. FLFC, as the sole shareholder of FLB,
shall take all action necessary to effect shareholder approval of this
Agreement.
5.05 PRESS RELEASES. FLFC and SBC will cooperate with each other in
the preparation of any press releases announcing the execution of this Agreement
or the consummation of the transactions contemplated hereby. Without the prior
written consent of the chief executive officer of the other party, no member of
SBC's consolidated group or FLFC's consolidated group will issue any press
release or other written statement
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for general circulation relating to the transactions contemplated hereby, except
as may otherwise be required by law and, if practical, prior notice of such
release is provided to the other parties. FLFC agrees that it will make a press
release with respect to the results of operations of FLFC and its consolidated
group as promptly as practicable following the Closing in accordance with its
past practice with respect to earnings releases to permit the termination of the
limitations set forth in the Shareholder's Commitments on the ability of each
person referred to in Section 5.10 to resell shares of FLFC Common Stock under
pooling-of-interests accounting treatment.
5.06 PRESERVATION OF BUSINESS. To the extent consistent with sound
business practices, each member of SBC's consolidated group will use its best
efforts to preserve the possession and control of all of its assets other than
those consumed or disposed of for value in the ordinary course of business, to
preserve the goodwill of customers and others having business relations with it,
and to do nothing knowingly to impair its ability to keep and preserve its
business as it exists on the date of this Agreement.
5.07 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Each member of
SBC's consolidated group shall conduct its business only in the ordinary course
consistent with past practices, and shall not, without the prior written consent
of the chief executive officer of FLFC or his duly authorized designee:
(a) except for the declaration and payment of regular
dividends (at a quarterly rate of $0.25 per share) during 1997 and 1998 until
the Effective Time in accordance with past practice, declare, set aside,
increase or pay any dividend, or declare or make any distribution on, or
directly or indirectly combine, redeem, reclassify, purchase, or otherwise
acquire, any shares of its capital stock or authorize the creation or issuance
of or issue any additional shares of its capital stock, other than shares of
capital stock issued upon the exercise of options outstanding as of the date
hereof, or any securities or obligations convertible into or exchangeable for
its capital stock, provided that this subparagraph shall not prevent dividends
or distributions from any member of SBC's consolidated group to any other member
of such consolidated group and provided further that FLFC and SBC shall
cooperate in selecting the record date of SBC's dividend for the quarter in
which the Effective Time is to occur to ensure that, with respect to such
quarterly period, the holders of FLFC Common Stock do not receive both a
dividend in respect of their shares of SBC Common Stock and FLFC Common Stock or
fail to receive any dividend, and FLFC and SBC will use their best efforts to
select the Closing Date such that holders of SBC Common Stock qualify for the
dividend in respect to the FLFC Common Stock (rather than the dividend in
respect to the SBC Common Stock) declared in the quarter in which the Effective
Time is to occur;
(b) amend its articles of incorporation or charter documents
or by-laws or adopt or amend any resolution or agreement concerning
indemnification of its directors or officers;
(c) enter into or modify any agreement so as to require the
payment, conditionally or otherwise, of any salary, bonus, extra compensation,
pension or severance payment to any of its present or former directors, officers
or employees except such agreements as are terminable at will without any
penalty or other payment by it, or increase the compensation (including
salaries, fees, bonuses, profit sharing, incentive, pension, retirement or other
similar benefits and payments) of any such person in any manner inconsistent
with its past practices;
(d) except as described in the Schedule of Exceptions or
except in the ordinary course of business consistent with past practices, place
or suffer to exist on any of its assets or properties any mortgage, pledge,
lien, charge or other encumbrance, except those of the character described in
subsection 3.09 hereof, or cancel any material indebtedness owing to it or any
claims which it may have possessed, or waive any right of substantial value or
discharge or satisfy any material noncurrent liability;
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(e) acquire another business or merge or consolidate with
another entity, or sell or otherwise dispose of a material part of its assets
or, except in the ordinary course of business consistent with past practices or
as described in the Schedule of Exceptions;
(f) commit any act that is intended or reasonably may be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Mergers set forth in Section 6 not being satisfied, or in
a violation of any provision of this Agreement, except, in every case, as may be
required by applicable law;
(g) commit or fail to take any act which act or omission is
intended or reasonably may be expected to result in a material breach or
violation of any applicable law, statute, rule, governmental regulation or
order;
(h) fail to maintain its books, accounts and records in the
usual manner on a basis consistent with that heretofore employed;
(i) fail to pay, or to make adequate provision in all material
respects for the payment of, all taxes, interest payments and penalties due and
payable (for all periods up to the Effective Date, including that portion of its
fiscal year to and including the Effective Date) to any city, county, state, the
United States or any other taxing authority except those being contested in good
faith by appropriate proceedings and for which sufficient reserves have been
established;
(j) dispose of investment securities in amounts or in a manner
inconsistent with past practices; or make investments in non-investment grade
securities or which are inconsistent with past investment practices;
(k) enter into any new line of non-banking business;
(l) (i) except as described in the Schedule of Exceptions,
charge off (except as may otherwise be required by law or by regulatory
authorities or by GAAP consistently applied) or sell (except for a price not
materially less than the value thereof) any of its portfolio of loans, discounts
or financing leases, or (ii) except as set forth in the Schedule of Exceptions,
sell any asset held as other real estate or other foreclosed assets for an
amount materially less than 100% of its book value at the date of the Latest
Balance Sheet (provided nothing herein shall preclude the sale by Southland of
the 200 acre tract of farm land currently held by Southland);
(m) make any extension of credit which, when added to all
other extensions of credit to a borrower and its affiliates, would exceed SBC's,
Southland's or Coffee's applicable regulatory lending limits;
(n) take or cause to be taken any action which would
disqualify the Mergers as a "pooling of interests" for accounting purposes or as
a "reorganization" within the meaning of Section 368(a) of the Code;
(o) establish any additional branch bank or office;
(p) make any material changes in the interest rates paid on
its deposits or charged on its loans except on a basis consistent with internal
policies and procedures in accordance with past practice;
(q) make any capital expenditures or capital additions or
betterments in excess of $50,000 in the aggregate;
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(r) fail to maintain Southland's and Coffee's loan loss
reserves in a manner consistent with past practice and in accordance with such
banks' internal policies, FDIC requirements and requirements of the Georgia
Department of Banking and Finance;
(s) make any deferred compensation payments pursuant to
existing deferred compensation or retirement agreements in an aggregate amount
exceeding $50,000 for the 1997 fiscal year and $50,000 for the 1998 fiscal year
(prorated to reflect the number of months or parts thereof of fiscal 1998
expired as of the Closing Date); and
(t) agree or commit to do any of the foregoing.
5.08 ADDITIONAL INFORMATION. SBC will provide FLFC and FLFC will
provide SBC (a) with prompt written notice of any material adverse chance in the
financial condition, results of operations, business or prospects of any member
of its consolidated croup, any material breach by any such member of any of its
warranties, representations or covenants in this Agreement, or any material
action taken or proposed to be taken with respect to any member of its
consolidated group by any regulatory agency and (b) as soon as they become
available, copies of any financial statements, reports and other documents of
the type referred to in subsections 3.04, 4.04 and 4.06 with respect to each
member of its consolidated group.
5.09 SBC SHAREHOLDER APPROVAL. SBC's Board of Directors shall
submit this Agreement to its shareholders for approval in accordance with the
applicable law, together with its recommendation that such approval be given, at
a special meeting of the shareholders of SBC (the "SBC Meeting") duly called and
convened for that purpose as soon as practicable after the effective date of the
Registration Statement. SBC, as the sole shareholder of each of Southland and
Coffee, shall take all action to effect shareholder approval of this Agreement.
The foregoing obligations of SBC and its Board of Directors specified in this
subsection 5.09 are subject to the proviso in the last sentence of section 5.12.
5.10 RESTRICTED FLFC COMMON STOCK. SBC will use its best efforts to
obtain, prior to FLFC's filing of the Registration Statement referred to in
Section 5.14, an agreement from each person who is a director, executive officer
or 10% beneficial owner of securities of SBC (and such other persons who SBC
reasonably believes to be a "affiliate" of SBC for purposes of the federal
securities laws, which persons are listed in the Schedule of Exceptions) who
will receive shares of FLFC Common Stock by virtue of the Company Merger to the
effect that such person (i) will not dispose of any FLFC Common Stock received
pursuant to the Mergers in violation of Rule 145 of the Securities Act or the
rules and regulations of the SEC thereunder or in a manner that would disqualify
the transactions contemplated hereby from pooling of interests accounting
treatment, (ii) will not dispose of any SBC Common Stock prior to the Closing
Date, except as set forth therein and (iii) in the case of directors (subject
only to any fiduciary obligation that such individuals may have to persons other
than SBC, Southland or FLB or their respective shareholders), will agree to vote
all shares as to which they have or share voting power in favor of this
Agreement and the Mergers ("Shareholder's Commitment").
5.11 LOAN POLICY. No member of SBC's consolidated group will make
any loans, or enter into any commitments to make loans, which vary other than in
immaterial respects from its written loan policies, a true and correct copy of
which loan policies has been provided to FLFC, provided that this covenant shall
not prohibit Southland or Coffee from extending or renewing credit or loans in
the ordinary course of business consistent with past lending practices or in
connection with the workout or renegotiation of loans currently in its loan
portfolio.
5.12 NO SOLICITATIONS. Prior to the Effective Time or until the
termination of this Agreement, no member of SBC's consolidated group shall,
without the prior approval of FLFC, directly or indirectly, solicit or initiate
inquiries or proposals with respect to, or, except to the extent determined by
the Board of Directors of SBC in good faith, after consultation with its
financial advisors and its legal counsel, to be required to
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discharge properly the directors' fiduciary duties to SBC's consolidated group
and its shareholders, furnish any information relating to, or participate in any
negotiations or discussions concerning, any Acquisition Transaction (as defined
in Section 7.01) or any other acquisition or purchase of all or a substantial
portion of its assets, or of a substantial equity interest in it or withdraw its
recommendation to the shareholders of SBC of the Mergers or make a
recommendation of any other Acquisition Transaction, or any business combination
with it, other than as contemplated by this Agreement (and in no event will any
such information be supplied except pursuant to a confidentiality agreement in
form and substance as to confidentiality substantially the same as the
confidentiality agreement between SBC and FLFC); and each such member shall
instruct its officers, directors, agents and affiliates to refrain from doing
any of the above, and will notify FLFC immediately if any such inquiries or
proposals are received by it, any such information is requested from it, or any
such negotiations or discussions are sought to be initiated with it or any of
its officers, directors, agents and affiliates; provided, however, that nothing
contained herein shall be deemed to prohibit any officer or director of SBC,
Southland or Coffee from taking any action that the Board of Directors of SBC,
Southland or Coffee, as the case may be, determines, in good faith after
consultation with and receipt of an opinion of counsel, is required by law or is
required to discharge his fiduciary duties to SBC's consolidated group and its
shareholders.
5.13 CONSOLIDATION. Each member of SBC's consolidated group agrees
to cooperate in the consolidation of appropriate operating functions and the
business of such consolidated group with FLFC to be effective on the Effective
Date, provided that the foregoing shall not be deemed to require any action
that, in the opinion of such member's Board of Directors, would adversely affect
its operations if the Mergers were not consummated.
5.14 FLFC REGISTRATION STATEMENT.
(a) FLFC will prepare and file on Form S-4 a registration
statement (the "Registration Statement") under the Securities Act (which will
include the Proxy Statement) complying with all the requirements of the
Securities Act applicable thereto, for the purpose, among other things, of
registering the FLFC Common Stock which will be issued to the holders of SBC
Common Stock pursuant to the Company Merger. FLFC shall use its best efforts to
cause the Registration Statement to become effective as soon as practicable, to
qualify the FLFC Common Stock under the securities or blue sky laws of such
jurisdictions as may be required and to keep the Registration Statement and such
qualifications current and in effect for so long as is necessary to consummate
the transactions contemplated hereby. As a result of the registration of the
FLFC Common Stock pursuant to the Registration Statement, such stock shall be
freely tradeable by the shareholders of SBC except to the extent that the
transfer of any shares of FLFC Common Stock received by shareholders of SBC is
subject to the provisions of Rule 145 under the Securities Act or restricted
under applicable tax or pooling of interests rules.
(b) FLFC will indemnify and hold harmless each member of SBC's
consolidated group and each of their respective directors, officers and other
persons, if any, who control SBC within the meaning of the Securities Act from
and against (including, without limitation, advance, prior to final disposition
of the matter, the expenses of defending) any losses, claims, damages,
liabilities or judgments, joint or several, to which they or any of them may
become subject, insofar as such losses, claims, damages, liabilities, or
judgments (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or in any amendment or supplement thereto, or in any
state application for qualification, permit, exemption or registration as a
broker/dealer, or in any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will advance expenses to or reimburse each such person for any
legal or other expenses reasonably incurred by such person in connection with
investigating or defending any such action or claim to the maximum extent
permitted by the GBCC; provided, however, that FLFC shall not be liable, in any
such case, to the extent that
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any such loss, claim, damage, liability, or judgment (or action in respect
thereof) arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement, or
any such amendment or supplement thereto, or in any such state application, or
in any amendment or supplement thereto, in reliance upon and in conformity with
information furnished to FLFC by or on behalf of any member of SBC's
consolidated group or any officer, director or affiliate of any such member for
use therein.
(c) Promptly after receipt by an indemnified party under
subparagraph (b) above of notice of the commencement of any action such
indemnified party shall, if a claim in respect thereof is to be made against
FLFC under such subparagraph, notify FLFC in writing of the commencement
thereof. In case any such action shall be brought against any indemnified party
and it shall notify FLFC of the commencement thereof, FLFC shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and,
after notice from FLFC to such indemnified party of its election so to assume
the defense thereof, FLFC shall not be liable to such indemnified party under
such subparagraph for any legal expenses of other counsel or any other expenses
subsequently incurred by such indemnified party; provided, however, if FLFC
elects not to assume such defense or if counsel for the indemnified party
advises FLFC in writing that there are material substantive issues which raise
conflicts of interest between FLFC or SBC and the indemnified party, such
indemnified party may retain counsel satisfactory to it and FLFC shall pay all
reasonable fees and expenses of such counsel for the indemnified party promptly
as statements therefor are received. Notwithstanding the foregoing, FLFC shall
not be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by FLFC in respect of such claim unless in the reasonable
judgment of any such indemnified party a conflict of interest exists between
such indemnified party and any other of such indemnified parties in respect to
such claims.
(d) The provisions of Section 5.14(b) and (c) are intended for
the benefit of, and shall be enforceable by, the parties entitled to
indemnification thereunder and each such party's heirs, representatives or
successors.
5.15 APPLICATION TO REGULATORY AUTHORITIES. FLFC shall prepare, as
promptly as practicable, all regulatory applications and filings which are
required to be made with respect to the Mergers.
5.16 BOND FOR LOST CERTIFICATES. Upon receipt of notice from any of
its shareholders that a certificate representing SBC Common Stock has been lost
or destroyed and prior to issuing a new certificate, SBC shall require such
shareholder to post a bond in such amount as is sufficient to support the
shareholder's agreement to indemnify SBC against any claim made by the owner of
such certificate, unless FLFC agrees to the waiver of such bond requirement.
5.17 WITHHOLDING. FLFC shall be entitled to deduct and withhold
from the consideration otherwise payable to any holder of SBC Common Stock after
the Effective Time such amounts as FLFC may be required by law to deduct and
withhold therefrom. All such deductions and withholdings shall be deemed for all
purposes of this Agreement to have been paid to the person with respect to whom
such deduction and withholding was made.
5.18 EXCHANGE LISTING. FLFC shall cause the shares of FLFC Common
Stock to be issued in the Merger to be duly authorized, validly issued, fully
paid and nonassessable, free of any preemptive or similar right and to be
approved for quotation on the Nasdaq Stock Market.
5.19 CONTINUING INDEMNITY; INSURANCE. FLFC covenants and agrees
that:
(a) all rights to indemnification (including, without
limitation, rights to mandatory advancement of expenses) and all limitations of
liability existing in favor of indemnified parties under SBC's
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Articles of Incorporation and By-Laws and in the charter documents and By-Laws
of Southland and Coffee (as the case may be) as in effect as of the date of this
Agreement with respect to matters occurring prior to or at the Effective Time
(an "Indemnified Party") shall survive the Mergers and shall continue in full
force and effect, without any amendment thereto, for a period concurrent with
the applicable statute of limitations; provided, however, that all rights to
indemnification in respect of any claim asserted or made as to which FLFC is
notified in writing within such period shall continue until the final
disposition of such claim. Without limiting the foregoing, in any case in which
approval is required to effectuate any indemnification, the determination of any
such approval shall be made, at the election of the Indemnified Party, by
independent counsel mutually agreed upon between FLFC and the Indemnified Party.
(b) Promptly after receipt by an Indemnified Party of notice
of the commencement of any action, such Indemnified Party shall, if a claim in
respect thereof is to be made against FLFC under such subparagraph, notify FLFC
in writing of the commencement thereof. In case any such action shall be brought
against any Indemnified Party, FLFC shall be entitled to participate therein
and, to the extent that it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such Indemnified Party, and, after notice
from FLFC to such Indemnified Party of its election so to assume the defense
thereof, FLFC shall not be liable to such Indemnified Party under such
subparagraph for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Party; provided, however, if FLFC
elects not to assume such defense or if counsel for the Indemnified Party
advises FLFC in writing that there are material substantive issues which raise
conflicts of interest between FLFC or FLFC and the Indemnified Party, such
Indemnified Party may retain counsel satisfactory to it, and FLFC shall pay all
reasonable fees and expenses of such counsel for the Indemnified Party promptly
as statements therefor are received. Notwithstanding the foregoing, FLFC shall
not be obligated to pay the fees and expenses of more than one counsel for all
Indemnified Parties in respect of such claim unless in the reasonable judgment
of an Indemnified Party a conflict of interest exists between an Indemnified
Party and any other Indemnified Parties in respect to such claims.
(c) FLFC shall use best efforts to cause the persons serving
as officers or directors of SBC, Southland and/or Coffee immediately prior to
the Effective Time to be covered for a period of three (3) years from the
Effective Time by the directors' and officers' liability insurance policy
maintained by SBC, Southland and/or Coffee with respect to acts or omissions
occurring prior to or at the respective effective times which were committed by
such officers and directors in their capacity as such; provided that FLFC may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to such directors
and officers and further provided that the requirements of this Section 5.19(c)
shall not apply if the aggregate premium for such coverage exceeds $20,000.
(d) If FLFC or any of its successors or assigns (i) shall
consolidate with or merge into any corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of FLFC shall assume
the obligations set forth in this Section 5.20.
(e) The provisions of this Section 5.20 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
5.20 EMPLOYEES AND CERTAIN OTHER MATTERS. All employees of SBC,
Southland and Coffee at the Effective Time shall become or remain employees of
Southland or Coffee upon consummation of the Company Merger, and upon
consummation of the Bank Merger all employees of Southland and Coffee at the
effective time of the Bank Merger shall become employees of FLB, except in each
case, those employees as to whom SBC, Southland and Coffee have received prior
notice of an intent to terminate from FLFC. SBC and FLFC shall cooperate with
each other to effect a termination of SBC's employee benefits plans (including
its 401(k) plan or similar profit sharing plan) effective as of the Effective
Time and the rollover of all benefits
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held thereunder, to the extent applicable, to FLFC benefit plans. At the
Effective Time, all persons then employed by SBC, Southland and Coffee who shall
become after the Effective Time employees of FLFC and FLB shall be eligible for
such employee benefits as are generally available to employees of FLB and FLFC
having like tenure, officer status and compensation levels, except all such SBC,
Southland and Coffee employees who are employed at the Effective Time shall be
given full credit for all prior service as employees of SBC, Southland and
Coffee under such benefits and shall not be subject to any waiting periods with
respect to any such benefits.
5.21 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. FLFC covenants to use its best efforts to file in a timely manner
all material required to be filed pursuant to Section 13, 14 or 15(d) of the
Exchange Act, or the rules and regulations promulgated thereunder, so as to
continue the availability of Rule 144 for resales by affiliates of SBC,
Southland and Coffee of the shares of FLFC Common Stock received by them in the
Company Merger. In the event of any proposed sale of such FLFC Common Stock by
any such former shareholder of SBC Common Stock who receives shares of FLFC
Common Stock by reason of the Company Merger, FLFC covenants to use its best
efforts to cooperate with such shareholder so as to enable such sale to be made
in accordance with the requirements of FLFC's transfer agents and the reasonable
requirements of the broker through which such sale is proposed to be executed.
Without limiting the generality of the foregoing, FLFC agrees to furnish, upon
request and at its expense, to the extent it is able, with respect to each such
sale a written statement certifying that FLFC has filed all reports required to
be filed by it under the Exchange Act for a period of at least one year
preceding the sale of the proposed sale, and, in addition, has filed the most
recent annual report required to be filed by it thereunder. Notwithstanding
anything contained in this Section 5.22, FLFC shall not be required to maintain
the registration of the FLFC Common Stock under Section 12 of the Exchange Act
if it shall at any time be entitled to deregister those shares pursuant to the
Exchange Act and the rules and regulations thereunder.
5.22 FLFC CONDUCT OF BUSINESS. From the date hereof through the
Closing, without the prior written consent of the chief executive officer of SBC
or his duly authorized designee, FLFC shall not take or cause to be taken any
action that would disqualify the Mergers as a "pooling of interests" for
accounting purposes or as a 'reorganization" within the meaning of Section
368(a) of the Code.
5.23 TERMINATION OF FISERV AGREEMENT. SBC shall take such action as
is necessary to cause the termination of its agreement (the "FiServ Agreement")
with FiServ Solutions, Inc. dated June 13, 1997, effective as of the Effective
Date.
5.24 COMMUNITY BOARDS. SBC, Southland and Coffee shall use best
efforts to cause the members of the Board of Directors of each of Southland and
Coffee to agree to serve on FLFC community boards; provided that SBC, Southland
and Coffee shall not be required to make any payment to such persons to comply
with this Section 5.24.
5.25 LOAN LOSS RESERVES. Southland and Coffee shall make any
additional Loan Loss Reserve provisions requested by FLFC and FLB; provided that
the effect of such additional provisions shall not be deemed a material adverse
change or effect with respect to SBC's consolidated group for any purpose under
this Agreement.
5.26 ENVIRONMENTAL SURVEYS. SBC shall cause to be conducted at its
expense (i) Phase I environmental inspections of all real estate owned by SBC's
consolidated group and (ii) as to any such property for which the Phase I report
recommends a Phase II inspection, a Phase II environmental inspection.
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SECTION 6. CONDITIONS OF CLOSING
6.01 CONDITIONS OF ALL PARTIES. The obligations of each of the
parties hereto to consummate the Mergers are subject to the satisfaction of the
following conditions at or prior to the Closing:
(a) Shareholder Approval. This Agreement shall have been duly
approved by the shareholders of SBC.
(b) Effective Registration Statement. The Registration
Statement shall have become effective prior to the mailing of the Proxy
Statement, no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall have
been instituted or, to the knowledge of any party, shall be contemplated, and
FLFC shall have received all state securities laws permits and authorizations
necessary to consummate the transactions contemplated hereby.
(c) No Restraining Action. No action or proceeding shall have
been threatened or instituted before a court or other governmental body to
restrain or prohibit the transactions contemplated by this Agreement or to
obtain damages or other relief in connection with the execution of this
Agreement or the consummation of the transactions contemplated hereby; and no
governmental agency shall have given notice to any party hereto to the effect
that consummation of the transactions contemplated by this Agreement would
constitute a violation of any law or that it intends to commence proceedings to
restrain consummation of the Mergers.
(d) Statutory Requirements and Regulatory Approval. All
statutory requirements for the valid consummation of the transactions
contemplated by this Agreement shall have been fulfilled; all appropriate
orders, consents and approvals from all regulatory agencies and other
governmental authorities whose order, consent or approval is required by law for
the consummation of the transactions contemplated by this Agreement shall have
been received; and the terms of all requisite orders, consents and approvals
shall then permit the effectuation of the Mergers without imposing any material
conditions with respect thereto except for any such conditions that are
acceptable to FLFC.
(e) Tax Opinion. FLFC and SBC shall have received the opinion
of Coopers & Lybrand L.L.P., dated as of the Closing Date, in form and substance
reasonably satisfactory to both of them, as to certain tax aspects of the
Mergers, including an opinion that the receipt of FLFC Common Stock by SBC's
shareholders will not be a taxable event to such shareholders.
6.02 ADDITIONAL CONDITIONS OF FLFC. The obligations of FLFC and FLB
to consummate the Company Merger and the Bank Merger are also subject to the
satisfaction of the following additional conditions at or prior to the Closing:
(a) Representations, Warranties and Covenants. The
representations and warranties of SBC, Southland and Coffee contained in this
Agreement shall be true and correct in all material respects, individually and
in the aggregate, on and as of the Closing Date, with the same effect as though
made on and as of such date, except to the extent of changes permitted by the
terms of this Agreement, and each of FLFC and FLB shall have in all material
respects performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by it at or prior to the
Closing. In addition, each of SBC, Southland and Coffee shall have delivered to
FLFC and FLB its certificate dated as of the Closing Date and signed by its
chief executive officer and chief financial officer to the effect that, except
as specified in such certificate, such persons do not know, and have no
reasonable grounds to know, of any material failure or breach of any
representation, warranty or covenant made by it in this Agreement.
(b) No Material Adverse Change. Since November 1, 1997, there
shall not have occurred any adverse change of greater than 5.5% from the
combined net income of Coffee and Southland, taken as a whole, as set forth in
the business plan dated December 19, 1997 previously provided to FLFC and
attached to the Schedule of Exceptions; provided, however, that (i) the
incurrence by SBC of expenses relating to the
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transactions contemplated hereby (including without limitation fees and expenses
of Robinson-Humphrey; SBC's accountants; and Paul, Hastings, Janofsky & Walker
LLP and expenses associated with the environmental surveys described in Section
5.26 hereof), (ii) the payment by SBC's consolidated group of additional
compensation to employees during December 1997, as previously disclosed to FLFC,
(iii) the effect of any increase in Loan Loss Reserves pursuant to Section 5.25
hereof, and (iv) any occurrences which reasonably may be characterized as
non-recurring events or which SBC and FLFC reasonably agree are not likely to
have a material adverse effect on the long-term financial performance of SBC's
consolidated group, are expressly deemed not to constitute a material adverse
change and shall be ignored when calculating the percentage stated above. The
parties agree that (i) the earnings projections set forth in the business plan
described above do not take into account expenses of SBC, and (ii) the
calculation of deviations from such projections shall not take into account
expenses of SBC so long as such expenses have been or will be incurred in the
ordinary course of business consistent with past practice.
(c) Accountants' Letters. FLFC shall have received "comfort"
letters in conformity with SAS No. 72 from Coopers & Lybrand L.L.P., independent
public accountants for FLFC, with respect to the financial, accounting and
statistical data regarding FLFC and FLB set forth in the Registration Statement
and the pro forma financial information set forth therein, and from McNair,
McLemore & Middlebrooks, independent public accountants for SBC, with respect to
the financial, accounting and statistical data regarding SBC set forth in the
Registration Statement, dated, respectively, within five (5) days prior to the
Closing Date, in customary form for transactions of this sort and in substance
satisfactory to FLFC.
(d) Opinion of Counsel. FLFC shall have received from Paul,
Hastings, Janofsky & Walker LLP, general counsel to SBC, an opinion dated as of
the Closing Date, customary in scope and in form and substance satisfactory to
FLFC. In giving such opinion such counsel may rely as to questions of fact upon
certificates of one or more officers of the members of SBC's consolidated group
and governmental officials.
(e) Consequences of Mergers. FLFC shall have received
satisfactory assurances from their independent accountants that the consummation
of the Mergers will not be a taxable event to FLFC and FLB and will qualify for
pooling-of-interests accounting treatment.
(f) Limitation on Dissenting Shareholders. All periods for
notification of demands by Dissenting Shareholders pursuant to the Dissenter
Provisions shall have expired. Neither SBC nor FLFC shall have received
notification of demands from Dissenting Shareholders of SBC who hold an
aggregate of more than 5% of the outstanding SBC Common Stock.
(g) Shareholder's Commitment. A Shareholder's Commitment
substantially in the form specified on Exhibit 6.02(g) hereto (as contemplated
by Section 5.10) shall have been executed by each person who serves as an
executive officer or director of FLFC or who owns 10% or more of the SBC Common
Stock outstanding (and such other persons who are "affiliates" of FLFC for
purposes of the federal securities laws, including, as applicable, those persons
who are listed in the Schedule of Exceptions); and FLFC shall have received from
each such person a written confirmation dated not earlier than five days prior
to the Closing Date to the effect that each representation made in such person's
Shareholder's Commitment otherwise provided to FLFC is true and correct as of
the date of such confirmation and that such person has complied with all of his
or her covenants therein through the date of such confirmation.
(h) Regulatory Action. No adverse regulatory action shall be
pending or threatened against any member of SBC's consolidated group, including
(without limitation) any proposed amendment to any existing agreement,
memorandum, letter, order or decree, formal or informal, between any regulator
and any member of SBC's consolidated group, if such action would or could impose
any material liability on FLFC or interfere in any material respect with the
conduct of the businesses of FLFC's consolidated group following the Mergers.
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(i) Employment/Consulting Agreements. (i) John J. Neely, Jr.
shall have entered into an employment agreement with FLB to serve as Butler
Chairman in the form attached hereto as Exhibit 6.02(i)-A; (ii) Ken B. Lanier
shall have entered into a consulting agreement with FLB in the form attached
hereto as Exhibit 6.02(i)-B; (iii) Gene Haskins shall have entered into an
amendment with FLB to the Officer Compensation Continuation Agreement between
Mr. Haskins and SBC, dated November 15, 1988, in the form attached hereto as
Exhibit 6.02(i)-C; and (iv) Grace Kirksey shall have entered into an employment
agreement with FLB in the form attached hereto as Exhibit 6.02(i)-D.
(j) Resignations of Officers and Directors. All officers and
directors of SBC, Southland, and Coffee shall have delivered to FLFC and FLB
their resignations as officers and directors, effective as of the Closing Date.
(k) Sale of Farmland. The approximately 200 acres of farmland
more particularly described on Exhibit 6.02(k) hereto shall have been sold by
SBC's consolidated group (or SBC's consolidated group shall have entered into a
bona fide agreement to sell such property) and such sale shall have resulted, or
will upon consummation result, in a gain to SBC of at least $200,000.
(l) FiServ Termination Fee. The fee payable by SBC in
connection with the termination of the FiServ Agreement shall not exceed
$1,006,000.
(m) Purchase of Loans. John J. Neely, Jr., Ken B. Lanier,
Edwina Hames and Thomas T. Neely, or their designee or designees, shall have
purchased those Southland loans listed on Exhibit 6.02(m) hereto totaling
approximately $500,000 at a price equal to 85% of each such loan's then
principal balance.
(n) Split Dollar Life Insurance Policies. The split dollar
life insurance policies owned by SBC with respect to Mr. John J. Neely, Jr. and
Mr. Ken Lanier shall have either (i) been transferred to Messrs. Neely and
Lanier and Messrs. Neely and Lanier shall have paid SBC the aggregate amount of
all premiums paid prior to the date thereof, or (ii) been terminated and the
cash value remitted to SBC.
(o) Robinson-Humphrey Fee. The fee payable to
Robinson-Humphrey in connection with the transactions contemplated hereby shall
not exceed $620,000.
(p) Loan Loss Reserve. The consolidated Loan Loss Reserve of
Southland and Coffee shall be at least 1.5% as of the Closing Date, excluding
reserves taken at FLFC's request under Section 5.25 hereof.
(q) Environmental Surveys. The environmental surveys required
by Section 5.26 hereof shall be reasonably satisfactory to FLFC.
6.03 ADDITIONAL CONDITIONS OF SBC, SOUTHLAND AND COFFEE. The
obligations of SBC, Southland and Coffee to consummate the Mergers are also
subject to the satisfaction of the following additional conditions at or prior
to the Closing:
(a) Representations, Warranties and Covenants. The
representations and warranties of FLFC and FLB contained in this Agreement shall
be true and correct in all material respects, individually and in the aggregate,
on the Closing Date, with the same effect as though made on and as of such date,
except to the extent of changes permitted by the terms of this Agreement, and
each of FLFC and FLB shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it at or prior to the Closing. In addition, each
of FLFC and FLB shall have delivered to SBC, Southland and Coffee its
certificate dated as of the Closing Date and signed by its chief executive
officer and chief financial officer to the effect that, except as specified in
such certificate, such
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persons do not know, and have no reasonable grounds to know, of any material
failure or breach of any representation, warranty or covenant made by it in this
Agreement.
(b) Opinion of Counsel. SBC shall have received from Richard
A. Hills, Jr., counsel for FLFC and FLB, an opinion, dated as of the Closing
Date, customary in scope and in form and substance satisfactory to SBC. In
giving such opinion, such counsel may rely as to questions of fact upon
certificates of one or more officers of FLFC or members of FLFC's consolidated
group, and governmental officials.
(c) Opinion of Investment Bankers. SBC shall have received
letters from Robinson-Humphrey dated the date of the mailing of the Proxy
Statement to shareholders of SBC and dated the date of the meeting of the
shareholders of SBC, in each case in form and substance satisfactory to SBC,
confirming such financial advisor's prior opinion to the Board of Directors of
FLFC to the effect that the consideration to be paid in the Company Merger is
fair to its shareholders from a financial point of view.
(d) Employment Agreements. The employment and consulting
agreements referenced in Section 6.02(i) shall have been duly executed and
delivered by FLB.
(e) FLFC Return on Equity. FLFC's "core return on equity" for
the quarter ended immediately prior to the Closing Date for which such
information is then publicly available shall not be less than 14.0%. The
calculation of FLFC's "core return on equity" shall be performed in accordance
with FLFC's past practice for purposes of public disclosure and shall exclude
non-recurring items, including without limitation, the effect of the impairment
of mortgage servicing rights and unrealized gains and losses on securities held
for sale.
(f) FLFC and FLB Board Membership. FLFC shall have obtained
the commitment of its Board of Directors (the "FLFC Board") to take such action,
consistent with its fiduciary duties, as may be necessary to (i) cause the FLFC
Board to be increased by one member at its next meeting after the Effective Date
and to appoint Ken B. Lanier to fill that position for a term that will expire
at the next annual meeting of shareholders of FLFC; and (ii) to nominate Mr.
Lanier for reelection as a director by the shareholders at that meeting. Mr.
Lanier shall have been appointed to the FLB Board of Directors effective as of
the Effective Time.
6.04 WAIVER OF CONDITIONS. Any condition to a party's obligations
hereunder may be waived by that party, other than the conditions specified in
subparagraphs (a), (b) and (d) of subsection 6.01 hereof and the condition
specified in subparagraph (c) of subsection 6.03 hereof. The failure to waive
any condition hereunder shall not be deemed a breach of subsection 5.02 hereof.
SECTION 7. TERMINATION
7.01 TERMINATION. This Agreement may be terminated and the Mergers
contemplated herein abandoned at any time before the Effective Time, whether
before or after approval by the shareholders of SBC:
(a) Mutual Consent. By the mutual consent of the Boards of
Directors of FLFC and SBC.
(b) Breach. By the Board of Directors of either FLFC or SBC in
the event of a material breach by any member of the consolidated group of the
other of them of any representation or warranty contained in this Agreement or
of any covenant contained in this Agreement, which in either case cannot be, or
has not been, cured within 45 days after written notice of such breach is given
to the entity committing such breach, provided that the right to effect such
cure shall not extend beyond the date set forth in subparagraph (c) below.
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(c) Abandonment. By the Board of Directors of either FLFC or
SBC if (i) all conditions to Closing required by Section 6 hereof have not been
met by or waived by FLFC or SBC by July 31, 1998, or (ii) any such condition
cannot be met by July 31, 1998 and has not been waived by each party in whose
favor such condition inures, or (iii) if the Mergers have not been consummated
by August 31, 1998, provided that the failure to consummate the transactions
contemplated hereby is not caused by the party electing to terminate pursuant to
this clause (iii).
(d) Shareholder Vote. By FLFC if this Agreement fails to
receive the requisite vote at any meeting of SBC shareholders called for the
purpose of voting thereon, and by SBC if this Agreement fails to receive the
requisite vote at the meeting of SBC shareholders called by its Board of
Directors for the purpose of voting thereon.
(e) SBC Recommendation. By FLFC if the Board of Directors of
SBC (A) shall withdraw, modify or change its recommendation to its shareholders
of this Agreement or the Mergers or shall have resolved to do any of the
foregoing: (B) shall have recommended to the shareholders of SBC (or in the case
of (iii) approved) any of the following (being referred to herein as an
"Acquisition Transaction") (i) any merger, consolidation, share exchange,
business combination or other similar transaction (other than the transactions
contemplated by this Agreement); (ii) any sale, lease, transfer or other
disposition of all or substantially all of the assets of any member of SBC's
consolidated group; or (iii) any acquisition, by any person or group, of the
beneficial ownership of 15% or more of any class of SBC capital stock; or (C)
shall have made any announcement of any agreement to do any of the foregoing.
(f) Acquisition Transaction. By SBC in the event SBC receives
a written offer with respect to an Acquisition Transaction and the Board of
Directors of SBC determines in good faith, after consultation with its financial
advisors and counsel, that such Acquisition Transaction is more favorable to
SBC's shareholders than the transactions contemplated by this Agreement.
7.02 EFFECT OF TERMINATION; SURVIVAL. Upon termination of this
Agreement pursuant to this Section 7, this Agreement shall be void and of no
effect, and there shall be no liability by reason of this Agreement, or the
termination thereof, on the part of any party or their respective directors,
officers, employees, agents or shareholders.
7.03 TERMINATION FEE. If this Agreement is terminated by FLFC or
SBC pursuant to Section 7.01(e) or (f) or by SBC at such time as (a) all
conditions set forth in Sections 6.01 and 6.03 hereof have been satisfied or
prior to the last date under this Agreement when such conditions could have been
satisfied, and (b) FLFC and FLB are otherwise prepared to close but for SBC's
failure to close, then SBC shall pay or cause to be paid to FLFC upon demand a
fee of $150,000 and shall reimburse FLFC for 100% of the direct cost and
expenses (including, but not limited to, fees and expenses of legal counsel,
accountants, investment banking fees, printing and mailing costs) incurred by
FLFC in negotiating and carrying out the purposes of this Agreement, but not
more than $150,000. If this Agreement is terminated by FLFC at such time as (i)
all conditions set forth in Sections 6.01 and 6.02 hereof have been satisfied or
prior to the last date under this Agreement when such conditions could have been
satisfied and (ii) SBC, Southland and Coffee are otherwise prepared to close but
for FLFC's failure to close, then FLFC shall pay or cause to be paid to SBC upon
demand a fee of $150,000 and shall reimburse SBC for 100% of the direct cost and
expenses (including, but not limited to, fees and expenses of legal counsel,
accountants, investment banking fees, printing and mailing costs) incurred by
SBC in negotiating and carrying out the purposes of this Agreement, but not more
than $150,000.
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SECTION 8. MISCELLANEOUS
8.01 NOTICES. Any notice, communication, request, reply, advice or
disclosure (hereinafter severally and collectively "notice") required or
permitted to be given or made by any party to another in connection with this
Agreement or the transactions herein contemplated must be in writing and may be
given or served by depositing the same in the United States mail, postage
prepaid and registered or certified with return receipt requested, or by
delivering the same to the address of the person or entity to be notified, or by
sending the same by a national commercial courier service (such as Airborne
Express, Federal Express, Emery Air Freight, Network Courier, Purolator or the
like) for next-day delivery provided such delivery is confirmed in writing by
such courier. Notice deposited in the mail in the manner hereinabove described
shall be effective 48 hours after such deposit, and notice delivered in person
or by commercial courier shall be effective at the time of delivery. A party
delivering notice shall endeavor to obtain a receipt therefor. For purposes of
notice, the addresses of the parties shall, until changed as hereinafter
provided, be as follows:
If to FLFC or FLB:
First Liberty Financial Corp.
201 Second Street
Macon, Georgia 31297
Attn: Mr. Robert F. Hatcher
With copies to:
First Liberty Financial Corp.
6491 Peachtree Industrial Boulevard
Atlanta, Georgia 30360
Attn: Mr. Richard A. Hills, Jr.
If to SBC, Southland or Coffee:
Southland Bank Corporation of Georgia
102 North Peterson Avenue
Douglas, Georgia 31533
Attn: Mr. Ken Lanier
With copies to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, Suite 2400
Atlanta, Georgia 30308
Attn: Elizabeth H. Noe, Esq.
8.02 WAIVER. The failure by any party to enforce any of its rights
hereunder shall not be deemed to be a waiver of such rights, unless such waiver
is an express written waiver which has been signed by the waiving party. Waiver
of any one breach shall not be deemed to be a waiver of any other breach of the
same or any other provision hereof.
8.03 EXPENSES. Except as otherwise provided herein, regardless of
whether the Mergers are consummated, all expenses incurred in connection with
this Agreement and the transactions contemplated hereby and thereby shall be
borne by the party incurring them.
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8.04 HEADINGS. The headings in this Agreement have been included
solely for reference and shall not be considered in the interpretation or
construction of this Agreement.
8.05 ANNEXES, EXHIBITS AND SCHEDULES. The annexes, exhibits and
schedules to this Agreement are incorporated herein by this reference and
expressly made a part hereof.
8.06 INTEGRATED AGREEMENT. This Agreement, the exhibits and
schedules hereto and all other documents and instruments delivered in accordance
with the terms hereof constitute the entire understanding and agreement among
the parties hereto with respect to the subject matter hereof, and there are no
agreements, understanding, restrictions, representations or warranties among the
parties other than those set forth herein or therein, all prior agreements and
understandings being superseded hereby.
8.07 CHOICE OF LAW. The validity of this Agreement, the
construction of its terms and the determination of the rights and duties of the
parties hereto in accordance therewith shall be governed by and construed in
accordance with the laws of the United States and those of the State of Georgia
applicable to contracts made and to be performed wholly within such State.
8.08 PARTIES IN INTEREST. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns
except that this Agreement may not be transferred or assigned by any member of
either consolidated group without the prior written consent of the other parties
hereto, including any transfer or assignment by operation of law. Nothing in
this Agreement is intended or shall be construed to confer upon or to give any
person other than the parties hereto any rights or remedies under or by reason
of this Agreement, except as expressly provided for herein.
8.09 AMENDMENT. The parties may, by mutual agreement of their
respective Boards of Directors, amend, modify or supplement this Agreement, or
any exhibit or schedule to it, in such manner as may be agreed upon by the
parties in writing, at any time before or after approval of this Agreement and
the transactions contemplated hereby by the shareholders of the parties hereto.
This Agreement and any exhibit or schedule to this Agreement may be amended at
any time and, as amended, restated by the chief executive officers of the
respective parties (or their respective designees) without the necessity for
approval by their respective Boards of Directors or shareholders, to correct
typographical errors or to change erroneous references or cross references, or
in any other manner which is not material to the substance of the transactions
contemplated hereby.
8.10 COUNTERPARTS. This Agreement may be executed by the parties in
any number of counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same document.
8.11 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES; COVENANTS.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant hereto shall survive the Effective Time. Each
party hereby agrees that its sole right and remedy with respect to any breach of
a representation or warranty or covenant by the other party shall be not to
close the transactions described herein if such breach results in the
nonsatisfaction of a condition set forth in Section 6 hereof; provided, however,
that the foregoing shall not be deemed to be a waiver of any claim for an
intentional breach of a representation, warranty or covenant or for fraud except
if such breach is required by law or by any bank or bank holding company
regulatory authority; it being understood that a disclosure in a closing
certificate provided in accordance with subparagraph (a) of subsection 6.02 or
subparagraph (a) of subsection 6.03 hereof concerning an inaccuracy of a
representation or warranty shall not of itself be deemed to be an intentional
breach of such representation or warranty. The covenants of the parties set
forth herein shall survive the Effective Time in accordance with their terms
and, in the absence of a specified survival term, for the applicable statute of
limitations.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
FIRST LIBERTY FINANCIAL CORP.
By: /s/ Robert F. Hatcher
----------------------------------------
Name: Robert F. Hatcher
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
FIRST LIBERTY BANK
By: /s/ Robert F. Hatcher
----------------------------------------
Name: Robert F. Hatcher
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
SOUTHLAND BANK CORPORATION OF GEORGIA
By: /s/ Ken B. Lanier
----------------------------------------
Name: Ken B. Lanier
----------------------------------------
Title: President
---------------------------------------
SOUTHLAND BANK
By: /s/ John J. Neely, Jr.
----------------------------------------
Name: John J. Neely, Jr.
----------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
COFFEE COUNTY BANK
By: /s/ Ken B. Lanier
----------------------------------------
Name: Ken B. Lanier
----------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
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APPENDIX B
<PAGE> 145
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
(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;
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(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 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.
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(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.
(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.
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(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(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 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
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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:
(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.
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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 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
April 20, 1998
To: First Liberty Financial Corp. and Southland Bank Corporation of Georgia
Pursuant to your request, this letter summarizes our opinion regarding the
following tax matters: (1) the qualification of the Proposed Mergers, described
herein, as tax-free reorganizations for Federal income tax purposes; (2) the
Federal income tax consequences to the stockholders of Southland Bank
Corporation of Georgia as a result of the Proposed Mergers; and (3) the Federal
income tax consequences of owning First Liberty Financial Corp. Common Stock. In
rendering the opinion set forth below, we have relied upon the representations
given by First Liberty Financial Corp. management. If any of the representations
are incorrect in whole or in part such inaccuracies may have a material effect
upon our opinion expressed in this letter.
Our opinion is based on the relevant provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations thereunder, and the
judicial and administrative interpretations thereof. There are no assurances
that the conclusions reached herein will be accepted by the Internal Revenue
Service ("IRS") or judicial authorities if challenged. Any legislative,
regulatory, or administrative changes, or judicial decisions subsequent to the
date of this opinion may have an impact on the validity of our conclusions.
Unless you specifically request otherwise, we will not update our opinion for
changes to the law, regulations, or the judicial and administrative
interpretations thereof beyond the date of this letter.
UNDERSTANDING OF TRANSACTION
It is our understanding that First Liberty Financial Corp. ("FLFC"), First
Liberty Bank ("FLB"), Southland Bank Corporation of Georgia ("SBC"), Southland
Bank ("Southland Bank"), and Coffee County Bank ("Coffee Bank") have entered
into an Agreement and Plan of Merger dated February 18, 1998, ("the Agreement"),
which will enable FLB to expand its operations and presence in Douglas, Roberta,
and Butler, Georgia. FLFC owns all of the issued and outstanding shares of
capital stock of FLB. SBC, a bank holding company, owns all the issued and
outstanding shares of capital stock of both Southland Bank and Coffee Bank. SBC
has only one class of stock outstanding. In accordance with applicable law, FLFC
will enter into a transaction whereby (i) SBC will be reorganized and merged
into FLFC and the separate existence of SBC shall thereupon cease (the "Company
Merger"); and (ii) both Southland Bank and Coffee Bank will be merged with and
into FLB and the separate existence of both Southland Bank and Coffee Bank shall
thereupon cease (the "Bank Merger"). (The Company Merger and the Bank Merger
hereinafter are referred to together as the "Proposed Mergers.")
On the date of the merger (the "Effective Date"), each outstanding
share of SBC Common Stock ("SBC Stock") will be converted into the right to
receive from FLFC the consideration described herein. Each issued and
outstanding share of SBC Stock (other than treasury shares or shares held by
dissenting stockholders) as of the Effective Date, will be converted into and
exchanged for the right to receive 3.51 shares of FLFC Common Stock ("FLFC
Stock"). Each fractional share of FLFC Stock resulting from the surrender of SBC
Stock on the Effective Date will be exchanged for the right to receive a cash
payment from FLFC. Such cash payment will be equal to the fair market value of
any fractional share of FLFC Stock which the SBC stockholder would have
otherwise been entitled to receive. For purposes of calculating this cash
payment, the fair market value of a fractional share of FLFC Stock at the
Effective Date shall be such fraction multiplied by the average of the reported
closing per share trading price of FLFC Stock for the twenty (20) trading days
immediately preceding the tenth (10th) business day prior to the closing date of
the Proposed Mergers.
Any and all shares of SBC Stock held as treasury shares by SBC will be canceled
and retired on the Effective Date, and no consideration will be paid for such
shares.
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Any dissenting stockholders of SBC are entitled to exercise their rights under
Article 13 of the Georgia Business Corporation Code in lieu of receiving the
consideration described above.
In addition, it is our understanding that there is no plan or intention on the
part of the stockholders of SBC to sell, exchange, or otherwise dispose of a
number of shares of the FLFC Stock after the Proposed Mergers that would reduce
the aggregate ownership (by former holders of SBC Stock) of FLFC Stock to a
number of shares having a value, as of the Effective Date, of less than fifty
percent of the value of all the formerly outstanding SBC Stock as determined
immediately prior to the Effective Date. Furthermore, it is 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 Mergers.
SUMMARY OF OPINION OF TAX CONSEQUENCES
Our analysis of the Proposed Mergers was intended to allow us to express
opinions on the following tax matters:
(1) the qualification of the Proposed Mergers as
tax-free reorganizations pursuant to Internal Revenue Code
Sections ("Code ss.") 368(a)(1)(A) and (a)(1)(D);
(2) the extent to which the holders of SBC Stock will be
required for Federal income tax purposes to recognize taxable
income as a result of the Proposed Mergers; and
(3) the Federal income tax consequences of owning FLFC
Stock issued in the Proposed Mergers.
The following summarizes the conclusions that we have reached:
(1) It is our opinion that the Proposed Mergers qualify
as tax-free reorganizations pursuant to Code ss.ss.
368(a)(1)(A) and (a)(1)(D).
(2) It is our opinion that (i) the stockholders of SBC
who, pursuant to the plan of merger, exchange their stock in
SBC solely for FLFC Stock will recognize no gain or loss and
(ii) any stockholders of SBC who dissent and exchange their
stock in SBC for cash only will recognize gain or loss equal
to the difference between the total cash received and such
stockholder's basis in his or her SBC 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 a 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.
TAX-FREE REORGANIZATION
In general, Code ss. 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 Company
Merger and Bank Merger qualify as tax-free reorganizations and
meet all of the requirements of Code ss. 354, the SBC
stockholders and the Southland Bank and Coffee Bank
stockholder (i.e., SBC) will recognize no gain or loss, except
as described in the section of this letter entitled "Tax
Consequences to SBC Stockholders." Code ss. 368 and
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the Treasury Regulations promulgated thereunder provide the
definitions of tax-free reorganizations.
Statutory Merger or Consolidation
Code ss. 368 describes several types of corporate
reorganizations which are afforded tax-free treatment. Among
the types of transactions defined in Code ss. 368 is a
statutory merger or consolidation ("A" Reorganization). See
Code ss. 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 Treasury 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. ss.") 1.368-2(b)(1).
Plan of Reorganization
An "A" Reorganization must meet a certain additional
requirements explicitly contained in Code ss. 354. See Code
ss. 354(a)(1). 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 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. ss.
1.368-2(g).
Although not statutorily required, it is advisable that FLFC have a
written plan of reorganization, formally adopted by its corporate
board of directors, and including all material details of the Proposed
Mergers. It is our understanding that FLFC does have such a written
plan; thus, the requirement of a plan of reorganization will be met.
Party to a Reorganization
Code ss. 354 refers to a corporation as a "party to a reorganization."
The term "party to a reorganization" is defined in Code ss. 368(b) to
include, (1) any corporation resulting from a reorganization, and (2)
both corporations, in the case of a reorganization resulting from the
acquisition by one corporation of the stock or properties of another
corporation.
Accordingly, in the Company Merger, the term "party to a
reorganization" includes both FLFC and SBC as they are parties to the
Company Merger. In the Bank Merger, the term "party to a
reorganization" includes FLB, Southland Bank, and Coffee Bank as they
are parties to the Bank Merger.
Solely for Stock or Securities
Code ss. 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
that is a party to the reorganization. Both the FLFC Stock used to
effect the Company Merger and the FLB Stock used to effect the Bank
Merger qualify as stock pursuant to Code ss. 354, as discussed in the
section of this letter titled "Continuity of Proprietary Interest."
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Under Code ss. 354, the term "solely" limits tax-free exchange
treatment to the exchange of stock or securities for other stock or
securities. In the Company Merger, this "solely" stock for stock
exchange requirement is not met because SBC stockholders who are
entitled to fractional shares of FLFC Stock will receive cash in lieu
of those fractional shares. Thus, to the extent SBC stockholders
receive cash in exchange for their SBC Stock, such stockholders will
recognize taxable income equal to the amount of such cash received.
In the Bank Merger, the "solely" stock for stock exchange requirement
is also not met because both Southland Bank and Coffee Bank will be
exchanging assets for a deemed exchange of FLB Stock. However, tax-free
exchange treatment of Code ss. 354 will still apply if one corporation
transfers "substantially all" of its assets to another corporation, and
if any stock, securities, or property received by such transferor, as
well as the other properties retained by the transferor, are
distributed in pursuance of the plan of reorganization. See Code ss.
354(b). In the Bank Merger, the term "solely" will be met because both
Southland Bank and Coffee Bank will transfer all of their assets to FLB
pursuant to a plan of reorganization, and then both Southland Bank and
Coffee Bank will cease their existence as a matter of law. Thus, the
Bank Merger will qualify for tax-free exchange treatment. See Code
ss.ss. 354(b), 361(a), and 368(a)(1)(D).
Other Requirements and Doctrines
In addition to the formal statutory and regulatory requirements
discussed above, all acquisitive reorganizations must meet certain
judicial requirements as adopted in the Regulations, as well as certain
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. ss.ss. 1.368-2(a), 1.368-1(d), and 1.368-2(g), respectively.
The relevant judicial concept embodied in case law 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. ss.
1.368-2(a), provides that the former stockholders of the target
corporation retain a significant equity participation in the combined
corporation following the transaction.
As interpreted by the courts, the continuity of proprietary interest
requirement focuses primarily on the character of the consideration
received in the acquisition by the former stockholders 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 requirement of consideration received by
the target stockholders with respect to satisfying the continuity of
proprietary interest requirement, the Internal Revenue Service ("IRS")
and courts have interpreted the continuity of interest doctrine as
embodying a disposition limitation. That is, stockholders 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 stockholders, the
continuity of proprietary interest requirement raises two fundamental
issues. These issues relate to (1) the forms of consideration which
carry sufficient indicia of ownership to be "counted" as providing a
continuing interest and (2) the amount of the total consideration which
must consist of such forms of consideration.
With respect to the form of the consideration, it is clear that stock
of the acquiring corporation is considered sufficient indicia of
ownership to be "counted" as providing a continuing interest in the
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acquired business. In the Company Merger, because FLFC will issue FLFC
Stock as consideration to the SBC stockholders, there will be
sufficient indicia of ownership to be "counted" as providing the
necessary continuity of interest.
With respect to the Bank Merger, the courts and the IRS have ruled that
if the stockholders of the transferor corporation already own all of
the stock in the acquiring corporation, the acquiring corporation will
be deemed to have issued stock without an actual distribution of the
acquiring corporation's stock. See Revenue Ruling ("Rev. Rul.") 70-240,
1970-1 C.B. 81; Commissioner v. Morgan, 288 F.2d 676 (3d Cir. 1960).
Accordingly, since after the Company Merger FLFC will own all of the
stock in both of the transferor corporations (i.e., Southland Bank and
Coffee Bank) and since FLFC owns all of the stock of the acquiring
corporation (i.e., FLB), there will be a deemed distribution of the
acquiring corporation's stock in the Bank Merger which will be
sufficient indicia of ownership to be "counted" as providing the
necessary continuity of interest.
No definitive guidelines exist in current tax law as to the threshold
percentage of equity consideration to total consideration required 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 regarding the tax consequences of corporate
reorganizations, the IRS has announced that with respect to the
"continuity of interest" requirement of Reg. ss.1.368-1(b), at least
fifty percent of the total equity value of the target corporation must
be acquired for consideration in the form of equity. See Revenue
Procedure ("Rev. Proc.") 77-37, 1977-2 C.B. 568, ss. 3.02. However, it
should be noted that the courts have often been more lenient than the
guidance provided in Rev. Proc. 77-37. For example, Nelson v.
Helvering, 296 U.S. 374 (1935), is often cited for the proposition that
continuity of proprietary interest is satisfied where thirty-eight
percent of the value of the total consideration is in the form of
stock. In one extreme case, the Court of Appeals for the Sixth Circuit
held that continuity of interest as low as twenty-five percent was
sufficient. See Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936). On
the other hand, the continuity of interest requirement has been held
not to have been satisfied where only sixteen percent of the total
consideration was paid in the form of stock. See Kass v. Commissioner,
60 T.C. 218 (1973).
It is our understanding that each share of SBC Stock issued and
outstanding (other than shares held by dissenting stockholders) will be
converted in to and exchanged for the right to receive FLFC Stock. In
other words, substantially all of the merger consideration (other than
cash used to settle dissenters' claims and fractional shares) will be
FLFC Stock. Furthermore, FLFC's management has represented that the
fair market value of all of the FLFC stock used as consideration in the
Company Merger is expected to equal or exceed the total cash
consideration used. As a result, the Company Merger will satisfy the
requirement that equity consideration represent a "substantial portion"
of the total consideration, measured by value.
In the Bank Merger, the total consideration received (or deemed
received) by the target corporations (i.e., Southland Bank and Coffee
Bank) will consist only of FLB Stock. See Rev. Rul. 70-240 and
Commissioner v. Morgan. Because the total consideration received
consists only of this "deemed" exchange of equity, the Bank Merger will
also satisfy the requirement that equity consideration represent a
"substantial portion" of the total consideration measured by value.
No Preconceived Plan for Disposition of New Shares The continuity of
proprietary interest requirement will not be met if the target
corporation's stockholders 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 stockholders 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 ss. 368, thereby causing the entire
transaction to be taxable to all parties. However, because it is our
understanding that there is no plan or intention
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on the part of the stockholders of SBC to sell, exchange, or otherwise
dispose of a number of shares of the FLFC Stock after the Proposed
Mergers that would reduce the aggregate ownership (by former holders of
SBC Stock) of FLFC Stock to a number of shares having a value, as of
the Effective Date, of less than fifty percent of the value of all the
formerly outstanding SBC Stock as determined immediately prior to the
Effective Date, the continuity of interest requirement is not violated.
Proposed Regulations Proposed Regulations regarding the requirements
under the continuity of interest doctrine have been promulgated by the
Treasury that serve to relax the continuity of proprietary interest
requirements. See Proposed Regulations ("Prop. Reg.") ss. 1.368-1(e).
However, these Proposed Regulations do not become binding until they
are published as final regulations in the Federal Register. Moreover,
the Proposed Regulations do not apply to any transaction occurring
pursuant to a written agreement which is binding on or before the date
the Proposed Regulations become final regulations.
In summary, the Proposed Mergers 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 Mergers for disposing their
stock.
Continuity of Business Enterprise
The second major judicial requirement applicable to "A" reorganizations
adopted in the Treasury 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 significant 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. ss. 1.368-1(d)(2) and (3).
With respect to the Company Merger, FLFC will continue to conduct SBC's
historic line of business, i.e., it will continue to be a holding
company for a financial institution. With respect to the Bank Merger,
FLB will continue to conduct the historic lines of business of both
Southland Bank and Coffee Bank, i.e., FLB will continue to be a
financial institution. Accordingly, the continuity of business
enterprise test for the Proposed Mergers is satisfied.
Business Purpose
As a form of reorganization described in Code ss. 368, an "A"
Reorganization must be undertaken in pursuit of a genuine business
purpose in order 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 or
corporate purpose, is not a plan of reorganization." See Reg. ss.
1.368-1(c).
With respect to the Proposed Mergers, FLFC management has represented
that, in accordance with applicable corporate laws, FLFC is primarily
merging with SBC, and FLB is primarily merging with Southland Bank and
Coffee Bank to expand banking operations and presence in south Georgia,
specifically, Douglas, Roberta, and Butler, Georgia. Based on these
representations, the requisite business purpose test is satisfied.
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Step Transaction Doctrine
The final test to be satisfied by corporations attempting to structure
a tax-free reorganization is the step transaction doctrine. This
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 a sale by former target stockholders of newly acquired stock
of the acquiror takes place shortly after the merger of the target
into the acquiror. 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 there is no plan or
intention on the part of any holder of SBC Stock to dispose of a
number of shares of the FLFC Stock after the Company Merger that would
reduce the aggregate ownership (by former holders of SBC Stock) of
FLFC Stock to a number of shares having a value, as of the Effective
Date, of less than fifty percent of the value of all the formerly
outstanding SBC Stock as determined immediately prior to the Effective
Date. Finally, FLFC management is not aware of any other current
and/or future transactions or events that will be applied to
invalidate or recharacterize the Proposed Mergers' "A" Reorganization
status under Code ss. 368(a)(1)(A).
Non-Divisive "D" Reorganization
In certain circumstances, a reorganization may qualify as both an "A"
Reorganization and a reorganization described under Code ss.
368(a)(1)(D) ("D" Reorganization). In such a transaction, it is
possible that gain may be recognized for Federal income tax purposes.
A "D" Reorganization requires that one corporation ("the transferor")
transfer all of part of its assets to another "controlled" corporation
("the transferee"), and that the transferor then distribute stock or
securities of the controlled corporation either in a non-divisive Code
ss. 354 transaction or in a "divisive" Code ss. 355 transaction. The
present discussion focuses on the qualification of the Bank Merger as
a non-divisive "D" Reorganization.
The "control" requirement of Code ss. 368(a)(1)(D) is satisfied if,
immediately after the transfer, the transferee corporation (i.e., FLB)
is controlled by the transferor(s) (i.e., Southland Bank and Coffee
Bank) or by one or more of its stockholders (i.e., the combined entity
after the Company Merger, including persons who were stockholders
immediately before the transfer). For purposes of non-divisive "D"
Reorganizations, control is defined in the same manner as under Code
ss. 304(c), i.e., fifty percent of the voting stock or fifty percent
of the fair market value of all classes of stock (applying modified
Code ss. 318 attribution rules). See Code ss. 368(a)(2)(H). In the
present case, the control requirement is met because immediately after
the Bank Merger, FLFC controls one hundred percent of FLB.
The Bank Merger will qualify as non-divisive "D" Reorganization only
if (i) FLB, the transferee corporation, acquires "substantially all"
of the assets of both Southland Bank and Coffee Bank, the transferor
corporations; and (ii) both Southland Bank and Coffee Bank, the
transferors, distribute any retained assets, as well as the stock,
securities, and other consideration, if any, received from the
transferee, pursuant to the plan of reorganization. See Code ss.
354(b)(1). Because both Southland Bank and Coffee Bank will be merged
with and into FLB, and the separate existence of both Southland Bank
and Coffee Bank will thereupon cease, both requirements of a
non-divisive "D" Reorganization will be satisfied.
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Thus, it appears that the Bank Merger qualifies as a non-divisive "D"
Reorganization, as well as an "A" Reorganization. As a result, it is
necessary to determine if any gain might result through application of
the rules of tax-free reorganizations concerning assumption of
liabilities.
Generally, in most types of reorganizations, the assumption of the
transferor's liabilities by the acquiring corporation in connection
with the reorganization exchange will not constitute other property
(boot) to the transferor as long as there is no tax avoidance purpose.
See Code ss. 357(a). Code ss. 357(c) provides an exception to Code ss.
357(a) which is applicable to exchanges involved in "D"
Reorganizations. See Code ss. 357(c)(1). This exception provides that
the transferor in a "D" Reorganization must recognize gain if the sum
of the amount of the liabilities assumed by the transferee, plus the
amount of the liabilities to which the property transferred is
subject, exceeds the total of the transferor's adjusted basis in the
property transferred.
By its terms, Code ss. 357(c) does not apply to any type of
reorganization except a "D" Reorganization. The IRS, however, has
taken the position that ss. 357(c) is also applicable to a
reorganization that qualifies as both an "A" and "D" Reorganization.
See Rev. Rul. 75-161, 1975-1 C.B. 114.
In the present case, the management of both Southland Bank and Coffee
Bank has represented that the sum of the amount of their respective
liabilities assumed by FLB, plus the amount of the liabilities to
which their respective property is subject, does not exceed the total
of their respective adjusted bases in the property transferred. As a
result, no gain should result in the Bank Merger pursuant to Code ss.
357(c).
Conclusion
Because the Proposed Mergers will be effected in accordance with
applicable Georgia state law and will satisfy the regulatory and
judicial doctrines, as discussed above, the Proposed Mergers qualify
as tax-free reorganizations described in Code ss. 368 pursuant to the
controlling statutory requirements of the Code and Regulations
promulgated thereunder. Please note that any legislative, regulatory,
or administrative changes, or judicial decisions subsequent to the
date of this opinion may have an impact on the validity of our
conclusions. Unless you specifically request otherwise, we will not
update our opinion for changes to the law, regulations, or the
judicial and administrative interpretations thereof.
TAX CONSEQUENCES TO SBC STOCKHOLDERS
General Rule of Taxation
Under the general rule of Code ss. 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 which is a party to the reorganization. Thus,
stockholders 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 ss. 356.
Generally, under Code ss. 356, receiving money or other property in an
otherwise tax-free exchange will cause the recognition of gain equal
to the lesser of (a) the value of the money or other property received
or (b) the realized gain, measured by the excess of (x) the value of
the money or other property received over (y) the stockholder's basis
in his or her shares being exchanged.
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However, under Code ss. 356(c), no loss may be recognized on any money
or other property received if a stockholder receives any stock or
securities of a party to the reorganization. Only a stockholder who
receives no stock or securities of a party to a reorganization may
recognize any loss which is realized.
SBC Stockholders Who Receive FLFC Stock Only
An SBC stockholder who receives only FLFC Stock for his or her shares
of SBC Stock will recognize no gain or loss under the general rules of
Code ss. 354(a)(1).
SBC Stockholders Who Receive Cash Only
An SBC dissenting stockholder who receives only cash for his or her
shares of SBC Stock, will recognize gain or loss for Federal income
tax purposes measured by the difference, if any, between the total
cash received for the SBC Stock and such stockholder's basis in the
SBC Stock. See Code ss. 1001(a). Any gain or loss recognized will be
characterized for Federal income tax purposes as capital gain or loss
if the SBC Stock was held as a capital asset.
Basis of FLFC Stock
Code ss. 358(a)(1) provides that, where a stockholder 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 ss. 358(a)(2).
Accordingly, the basis of the FLFC stock received by an SBC
stockholder will be equal to such stockholder's basis in the SBC Stock
surrendered, decreased by the amount of any cash received and
increased by the amount of any gain recognized on the exchange.
Holding Period
The holding period of FLFC Stock received by an SBC stockholder will
include the holding period for the SBC Stock exchanged because the
basis of the FLFC Stock received is determined in whole or in part by
the basis of the SBC Stock exchanged. See Code ss. 1223(1).
OWNERSHIP OF FLFC STOCK ISSUED IN THE EXCHANGE
Dividends on the FLFC Stock
Code ss. 301 prescribes the treatment of nonliquidating distributions
of cash or other property to stockholders with respect to their stock.
"Property" refers to all items of economic benefit to stockholders
other than the corporation's own stock and stock rights. See Code ss.
317(a). Under Code ss. 301(c)(1), a ss. 301 distribution will be
included in the FLFC stockholder's gross income to the extent that it
constitutes a "dividend," as defined in Code ss. 316. Code ss. 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 ss.
301 distribution exceeds E&P, it will be treated under ss. 301(c)(2)
as a tax-free return of the stockholder's capital to the extent of the
stockholder's adjusted basis. An amount in excess of a stockholder's
adjusted basis in FLFC Stock will be treated under Code ss. 301(c)(3)
as a gain from a sale or exchange of property. The character of such
gain will be capital if the FLFC Stock is a capital asset in the
stockholder's hands. See Code ss.ss. 1221 and 1222.
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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 or loss will be a capital gain or loss if the
FLFC Stock was held as a capital asset. See Code ss.ss. 1221 and 1222.
Information Reporting and Backup Withholding Requirement
FLFC will be required to file information returns with the IRS with
respect to payments of dividends on the FLFC Stock. See Code ss. 6042.
Holders who fail to provide FLFC with their proper taxpayer
identification numbers may become subject to thirty-one percent
"backup withholding" on the payment of dividends unless certain
requirements are met. Backup withholding does not constitute an
additional tax and may be credited against the holder's regular
Federal income tax liability. See Code ss. 3406.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
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APPENDIX D
<PAGE> 163
THE ROBINSON-HUMPHREY COMPANY, LLC
Atlanta Financial Center
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
(404) 266-6000
May 12, 1998
Board of Directors
Southland Bank Corporation of Georgia
102 North Peterson Avenue
Douglas, Georgia 31533
Dear Sirs:
We understand that Southland Bank Corporation of Georgia ("the
Company") has entered into an agreement whereby the Company will receive 5.265
shares of common stock in First Liberty Financial Corp. ("First Liberty") for
each of the Company's common shares and options outstanding ("the Proposed
Transaction"). The terms and conditions of the Proposed Transaction are set
forth in more detail in Agreement and Plan of Merger (the "Agreement").
We have been requested by the Company to render our opinion with
respect to the fairness, from a financial point of view, to the Company of the
consideration to be received in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the
Agreement, (2) publicly available information concerning the Company and First
Liberty which we believe to be relevant to our inquiry, (3) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to us by the Company, (4) financial and operating
information with respect to the business, operations and prospects of First
Liberty furnished to us by First Liberty, (5) a comparison of the historical
financial results and present financial conditions of the Company with those of
other companies which we deemed relevant, (6) a comparison of the historical
financial results, present financial condition and market trading history of
First Liberty with those of other companies which we deemed relevant, and (7) a
comparison of the financial terms of the Proposed Transaction with the terms of
certain other recent transactions which we deemed relevant. In addition, we have
had discussions with the management teams of the Company and First Liberty
concerning each company's business, operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts/projections of
the Company and of First Liberty, we have assumed that such
forecasts/projections have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company and
of the management of First Liberty as to the future financial performance of the
Company and First Liberty respectively. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
or of First Liberty and have not made nor obtained any evaluations or appraisals
of the assets or liabilities of the Company or of First Liberty. Our opinion is
necessarily based upon market, economic and other conditions as they exist on,
and can be evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain
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liabilities arising out of the rendering of this opinion. In the ordinary course
of our business, we actively trade in the equity securities of the First Liberty
for our own account and for the accounts of our customers and, accordingly, may
at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the consideration to be
received in the Proposed Transaction is fair to the Company.
Very truly yours,
/S/ The Robinson-Humphrey Company, LLC
THE ROBINSON-HUMPHREY COMPANY, LLC
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