<PAGE>
FILED PURSUANT TO
RULE 424 (b) (3)
FILE NO. 333-82661
North Fulton Bancshares, Inc.
11650 Alpharetta Highway
Roswell, Georgia 30076
(770) 664-1990
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 31, 1999
To The Shareholders of North Fulton Bancshares, Inc.:
A Special Meeting of Shareholders (the "Meeting") of North Fulton
Bancshares, Inc., a Georgia bank holding company ("North Fulton"), will be held
at the main office of North Fulton, located at 11650 Alpharetta Highway,
Roswell, Georgia, on August 31, 1999, at 8:00 a.m., Eastern Time, for the
following purpose:
1. Merger. To consider and vote upon a proposal to approve the Agreement
and Plan of Reorganization, dated April 6, 1999, by and between North
Fulton and Premier Bancshares, Inc., a Georgia bank holding company
("Premier"), pursuant to which (i) North Fulton will merge with and into
Premier, with Premier as the surviving corporation and (ii) each share of
North Fulton common stock then outstanding will be converted into the right
to receive 0.8749 shares of Premier common stock, plus cash in lieu of any
fractional share interest. A copy of the merger agreement is attached to
the accompanying proxy statement/prospectus as Appendix A.
2. Other Business. To transact such other business as may properly come
before the Meeting, including adjourning the Meeting to permit, if
necessary, further solicitation of proxies.
Only shareholders of record at the close of business on July 21, 1999, are
entitled to receive notice of and to vote at the Meeting. The merger requires
the approval of the holders of at least a majority of the outstanding shares of
North Fulton common stock.
North Fulton shareholders are entitled to dissent from the merger and obtain
payment of the fair value of their shares in cash by complying with the
applicable provisions of Article 13 of the Georgia Business Corporation Code, a
copy of which is attached as Appendix B to the accompanying proxy
statement/prospectus.
The Board of Directors unanimously recommends that holders of North Fulton
common stock vote "FOR" the merger.
You are cordially invited to attend the Meeting in person. However, whether
or not you plan to attend, we urge you to sign, date and return the enclosed
proxy card as promptly as possible. You may revoke your proxy by delivering to
the Secretary of North Fulton a written revocation or a duly executed proxy
card bearing a later date or by electing to vote in person at the Meeting.
By Order of the Board of Directors
Grant R. Essex
President and Chief Executive
Officer
Roswell, Georgia
August 3, 1999
<PAGE>
Proxy Statement of Prospectus of
North Fulton Bancshares, Inc. Premier Bancshares, Inc.
For the Special For 2,037,743 Shares
Meeting of of Common Stock
Shareholders
Trading Symbol: NYSE-PMB
Merger Proposed--Your Vote Is Very Important
----------------
The Boards of Directors of North This proxy statement/prospectus
Fulton and Premier have agreed on a provides you with detailed
merger of North Fulton and Premier. information about the proposed
Premier will be the surviving merger. We encourage you to read
corporation in the merger. this entire document carefully. You
can also obtain other information
If the merger is completed, you about Premier from documents filed
will receive 0.8749 shares of by Premier with the Securities and
Premier common stock for each share Exchange Commission.
of North Fulton common stock you
own. On July 30, 1999, the closing The merger cannot be completed
price of Premier common stock was unless the shareholders of North
$17.75, making the value of the Fulton approve it. North Fulton has
shares of Premier common stock to be scheduled a special meeting of its
received by North Fulton shareholders to vote on the merger.
shareholders equal to $15.53 per
share. The date, time, and place of the
special meeting of shareholders is
On July 28, 1999, Premier entered as follows:
into an Agreement and Plan of
Reorganization with BB&T August 31, 1999, 8:00 a.m.
Corporation, pursuant to which Main Office, North Fulton
Premier will be merged with and into 11650 Alpharetta Highway
BB&T. As a result, each share of Roswell, Georgia 30076
Premier common stock, including
shares of Premier common stock you
will receive as North Fulton
shareholders, will be converted into
the right to receive 0.5155 shares
of BB&T common stock.
See "Risk Factors" beginning on page 6 for a discussion of certain factors
that you should consider before approving the merger.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Premier common stock to be issued in the
merger or determined if this proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated August 3, 1999 and was first mailed
to shareholders of North Fulton on August 3, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................................... 1
RISK FACTORS............................................................... 7
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................... 8
Premier Market Prices.................................................... 8
North Fulton Market Prices............................................... 8
Dividends................................................................ 9
Shareholders of Record................................................... 9
THE NORTH FULTON SHAREHOLDERS' MEETING..................................... 10
General.................................................................. 10
Record Date, Voting Rights and Vote Required............................. 10
Voting and Revocation of Proxies......................................... 10
Solicitation of Proxies.................................................. 11
Recommendation of the North Fulton Board of Directors.................... 11
THE MERGER................................................................. 12
General.................................................................. 12
Background of and Reasons for the Merger................................. 12
Premier's Reasons for the Merger......................................... 13
Opinion of North Fulton's Financial Advisor.............................. 13
Exchange Ratio........................................................... 17
Treatment of North Fulton Stock Options.................................. 17
Exchange of North Fulton Common Stock Certificates....................... 18
Effective Time of the Merger............................................. 18
Conditions to the Merger................................................. 19
Conduct of North Fulton's and Premier's Business Prior to the Effective
Time of the Merger...................................................... 19
Waiver, Amendment and Termination of the Merger Agreement................ 20
Directors and Executive Officers Following the Merger.................... 21
Interests of Certain Persons in the Merger............................... 21
Separation Agreement..................................................... 22
Rights of Dissenting Shareholders........................................ 22
Regulatory Approvals..................................................... 23
Material Federal Income Tax Consequences of the Merger................... 24
Accounting Treatment..................................................... 25
Restrictions on Resales by Affiliates.................................... 25
Description of Premier Common Stock...................................... 26
Certain Differences in Rights of Shareholders............................ 26
BUSINESS OF PREMIER........................................................ 30
General.................................................................. 30
Subsidiary............................................................... 30
Acquisitions............................................................. 30
BUSINESS OF NORTH FULTON................................................... 32
General.................................................................. 32
Market Area and Competition.............................................. 32
Lending Services......................................................... 32
Investments.............................................................. 34
Deposits................................................................. 34
WHERE YOU CAN FIND MORE INFORMATION........................................ 57
</TABLE>
i
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<TABLE>
<S> <C>
Employees................................................................ 36
Facilities............................................................... 36
Legal Proceedings........................................................ 36
NORTH FULTON MANAGEMENT'S DISCUSSION AND ANALYSIS.......................... 37
General.................................................................. 37
Forward Looking Statement................................................ 37
Year 2000 Considerations................................................. 37
Financial Condition--March 31, 1999 vs. December 31, 1998................ 38
Results of Operations--March 31, 1999 vs. March 31, 1998................. 38
Financial Condition--1998 vs. 1997....................................... 39
Results of Operations--1998 vs. 1997..................................... 39
Investment Securities.................................................... 41
Carrying Value of Investments............................................ 42
Loans.................................................................... 42
Provision and Allowance for Loan Losses.................................. 43
Asset Quality............................................................ 44
Deposits................................................................. 44
Asset-Liability Management............................................... 44
Liquidity................................................................ 46
Capital Resources and Dividends.......................................... 47
Provision for Income Taxes............................................... 47
Impact of Inflation and Changing Prices.................................. 47
Recent Accounting Pronouncements......................................... 48
NORTH FULTON SECURITY OWNERSHIP............................................ 49
REGULATORY CONSIDERATIONS.................................................. 50
General.................................................................. 50
Payment of Dividends..................................................... 51
Capital Adequacy......................................................... 52
Support of Subsidiary Institutions....................................... 53
Prompt Corrective Action................................................. 53
FDIC Insurance Assessments............................................... 55
Safety and Soundness Standards........................................... 56
Community Reinvestment Act............................................... 56
EXPERTS.................................................................... 57
OPINIONS................................................................... 57
APPENDIX A: AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN PREMIER
BANCSHARES, INC. AND NORTH FULTON BANCSHARES, INC......................... A-1
APPENDIX B: DISSENTERS' RIGHTS PROVISIONS OF THE GEORGIA BUSINESS
CORPORATION CODE.......................................................... B-1
APPENDIX C: OPINION OF BROWN, BURKE CAPITAL PARTNERS, INC. ................ C-1
</TABLE>
ii
<PAGE>
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows Premier to "incorporate by
reference" certain information into this proxy statement/prospectus, which
means that Premier can disclose important information to you by referring you
to another document filed separately with the Securities and Exchange
Commission. The information incorporated by reference is considered part of
this proxy statement/prospectus, except for any information superseded by
information contained directly in this proxy statement/prospectus or in later
filed documents incorporated by reference in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
listed below that Premier has previously filed with the Securities and Exchange
Commission. These documents contain important information about Premier and its
business.
Premier Securities and Exchange Commission Filings (File No. 001-12625)
<TABLE>
<S> <C>
Annual Report on Form 10-K For the fiscal year ended December 31,
1998
Quarterly Reports on Form 10-Q For the fiscal quarter ended March 31,
1999
Current Reports on Form 8-K Dated April 6, 1999, April 20, 1999,
May 27, 1999 and August 3, 1999
Registration Statements on Form 8-A/A Dated May 27, 1999 (for Common Stock);
Dated May 27, 1999 (for Preferred
Securities of Premier Capital Trust I)
</TABLE>
Premier also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission between the date of this
proxy statement/prospectus and the completion of the merger or the termination
of the merger agreement. These include periodic reports, such as annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
as well as proxy statements.
For your convenience, we have enclosed a copy of Premier's Current Report on
Form 8-K dated August 3, 1999 relating to the Agreement and Plan of
Reorganization dated July 28, 1999 between Premier and BB&T Corporation.
Premier has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Premier, and North Fulton has
supplied all such information relating to North Fulton.
iii
<PAGE>
If you are a shareholder, you can obtain any of the documents incorporated
by reference through Premier, the Securities and Exchange Commission or the
Securities and Exchange Commission's Internet web site as described above.
Documents incorporated by reference are available from Premier without charge,
excluding all exhibits except those that Premier has specifically incorporated
by reference in this proxy statement/prospectus. Shareholders may obtain
documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from Premier at the following
address:
Barbara J. Burtt Corporate Secretary Premier Bancshares, Inc. 2180 Atlanta
Plaza 950 East Paces Ferry Road Atlanta, Georgia 30326 (404) 814-3090
To receive documents before North Fulton's special shareholders' meeting,
please request them from us by August 23, 1999.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Premier and North Fulton have not
authorized anyone to provide you with information that differs from that which
this proxy statement/prospectus contains. This proxy statement/prospectus is
dated August 3, 1999. You should not assume that the information contained in
this proxy statement/prospectus is accurate as of any date other than that
date. Neither mailing this proxy statement/prospectus to shareholders nor
issuing Premier common stock in the merger creates any implication to the
contrary.
iv
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we refer you. See "Where You Can
Find More Information."
The Parties (Pages 30 and 32)
Premier Bancshares, Inc.
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, Georgia 30326
(404) 814-3090
Premier is incorporated in Georgia and is a Georgia-based bank holding
company. Premier provides banking-related services through its subsidiary
primarily in the metropolitan Atlanta area. However, Premier has significant
operations in other areas of Georgia and has a presence in other states in the
Southeast. As of March 31, 1999, Premier's total assets were approximately
$1.5 billion, deposits were approximately $1.2 billion, and shareholders'
equity was approximately $137 million.
The section of this proxy statement/prospectus under the caption "Where You
Can Find More Information" refers you to places where you can find more
information about Premier.
North Fulton Bancshares, Inc.
11650 Alpharetta Highway
Roswell, Georgia 30076
(770) 664-1990
North Fulton is incorporated in Georgia and is a Georgia-based bank holding
company. North Fulton owns Milton National Bank, a commercial bank serving
customers in Roswell, Georgia, and also operates in Atlanta through its
division, The Buckhead Bank. As of March 31, 1999, North Fulton's total assets
were approximately $192 million, deposits were approximately $158 million, and
shareholders' equity was approximately $9.8 million.
The Merger (Page 12)
North Fulton will merge with Premier. Premier will be the surviving
corporation in the merger. Milton National Bank will become a wholly owned
subsidiary of Premier as a result of the merger. The merger requires the
approval of the holders of at least a majority of the outstanding North Fulton
common stock. If North Fulton obtains this approval, Premier currently expects
to complete the merger in August, 1999.
Premier has attached the merger agreement as Appendix A to this proxy
statement/prospectus. Premier encourages you to read the merger agreement in
its entirety, because it is the legal document that governs the merger.
Exchange Ratio (Page 17)
If the merger is completed, you will receive 0.8749 shares of Premier common
stock for each share of North Fulton common stock you own, plus cash instead of
any fractional share. On July 30, 1999, the closing price of Premier common
stock was $17.75, making the value of shares of Premier common stock to be
received by North Fulton shareholders in the merger equal to $15.53 per share
of North Fulton common stock. Because the market price of Premier common stock
fluctuates, you will not know when you vote what the shares will be worth when
issued in the merger.
Exchange Ratio Fair to North Fulton Shareholders According to Investment Bank
(Page 13)
Brown, Burke Capital Partners, Inc. has given an opinion to the North Fulton
Board of Directors that, as of the date of this proxy statement/prospectus, the
exchange ratio in the merger is fair from a financial point of view to North
Fulton shareholders. The full text of this opinion is attached as Appendix C to
this proxy statement/ prospectus. Premier encourages you to read this opinion
carefully. If the merger is completed, Brown Burke will be paid approximately
$319,000 in exchange for its advice and for providing its fairness opinion,
based on recent market prices of the Premier common stock.
1
<PAGE>
Treatment of North Fulton Stock Options (Page 17)
The merger agreement provides that Premier will assume the obligations of
North Fulton under its stock option and other stock-based plans. Stock options
to purchase North Fulton common stock which are outstanding at the effective
time of the merger will be converted into and become rights with respect to
Premier common stock. The exercise price and number of shares subject to each
option will be adjusted to reflect the exchange ratio.
No Federal Income Tax on Shares Received in the Merger (Page 24)
North Fulton shareholders generally will not recognize gain or loss for
federal income tax purposes for the shares of Premier common stock they receive
in the merger. Premier's attorneys have issued a legal opinion to this effect,
which is included as an exhibit to the Registration Statement filed with the
Securities and Exchange Commission for the shares to be issued in the merger.
North Fulton shareholders will be taxed on cash received instead of any
fractional share. Tax matters are complicated, and tax results may vary among
shareholders. Premier and North Fulton urge you to contact your own tax advisor
to understand fully how the merger will affect you.
Majority Shareholder Vote Required (Page 10)
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of North Fulton common stock.
Your failure to vote will have the effect of a vote against approval of the
merger agreement. The directors and executive officers of North Fulton together
own approximately 55.61% of the shares entitled to be cast at the meeting, and
North Fulton expects them to vote their shares in favor of the merger.
The merger does not require the approval of Premier's shareholders.
Meeting to be held August 31, 1999 (Page 10)
North Fulton will hold a special shareholders' meeting at 8:00 a.m. on
Tuesday, August 31, 1999, at the main office of North Fulton, 11650 Alpharetta
Highway, Roswell, Georgia. At the meeting, you will be able to vote on the
merger agreement and conduct any other business that properly arises.
Record Date and Voting (Page 10)
If you owned shares of North Fulton common stock at the close of business on
July 21, 1999, the record date, you are entitled to vote on the merger
agreement and any other matters considered at the meeting.
On the record date, there were 1,830,021 shares of North Fulton common stock
outstanding. You will have one vote at the meeting for each share of North
Fulton common stock you owned on the record date.
North Fulton Board Recommends Shareholder Approval (Page 11)
The North Fulton Board of Directors believes that the merger is in the best
interests of North Fulton and its shareholders and unanimously recommends that
the shareholders vote "FOR" approval of the merger agreement.
Interests of Persons in the Merger That Are Different From Yours (Page 21)
When considering the recommendation of the North Fulton Board of Directors,
you should be aware that some North Fulton directors and officers have
interests in the merger that differ from the interests of other North Fulton
shareholders. In particular, they hold outstanding options or other rights to
receive stock under North Fulton's existing stock plans. These options or
rights will be converted into stock options or rights to acquire Premier common
stock after the merger.
Also, one director of North Fulton will be appointed to the Board of
Directors of Premier and will earn directors' fees which may be used to receive
Premier common stock under the Directors' Deferred Stock Unit Plan that Premier
maintains.
Also, Premier will grant Grant R. Essex, the President and Chief Executive
Officer of North Fulton, a Separation agreement in connection with the merger.
This separation agreement entitles Mr. Essex to receive severance payments
totaling $480,000 over an agreed upon period if Premier terminates his
employment within one year following the effective date of the merger. In
return for these severance payments, Mr. Essex has agreed to be bound by
restrictive covenants regarding non-
2
<PAGE>
disclosure of confidential information, non-solicitation of employees or
customers and non-competition with Premier.
The North Fulton Board was aware of these and other interests and considered
them before approving and adopting the merger agreement.
Regulatory Approvals Required (Page 23)
Premier and North Fulton cannot complete the merger unless they obtain the
approval of the Board of Governors of the Federal Reserve System and the
Georgia Department of Banking and Finance. Premier and North Fulton have filed
all of the required applications or notices with these regulatory authorities.
Although Premier and North Fulton believe the regulatory approvals will be
received in a timely manner, they cannot be certain when or if they will obtain
them.
Premier Anticipates Using Pooling-of-Interests Accounting Treatment (Page 25)
Premier anticipates accounting for the merger as a pooling of interests.
This means that North Fulton and Premier will be treated for accounting and
financial reporting purposes as if they had always been combined. By accounting
for the merger as a pooling of interests, Premier will avoid creating any
goodwill relating to the transaction and thus avoid charges to future earnings
as a result of amortizing the goodwill.
Dissenters' Appraisal Rights (Page 22)
Georgia law permits you to dissent from the merger and to have the fair
value of your stock appraised by a court and paid to you in cash. To do this,
you must follow certain procedures, including the filing of certain notices and
refraining from voting your shares in favor of the merger.
If you dissent from the merger, your shares of North Fulton common stock
will not be exchanged for shares of Premier common stock in the merger, and
your only right will be to receive the appraised value of your shares in cash.
We have attached a copy of the provisions of Georgia law which govern the
exercise of dissenters' rights as Appendix B to this document.
Reasons for the Merger (Page 13)
Before deciding to approve and recommend the merger, North Fulton's Board of
Directors considered the financial condition and prospects of North Fulton,
information about Premier, the financial terms of the merger, the likelihood of
receiving regulatory approval of the merger, the federal income tax
consequences of the merger, the advice of North Fulton's Board of Directors'
legal and financial advisors and other factors. North Fulton's Board of
Directors has decided that the merger is advisable and is in North Fulton's and
its shareholders' best interests.
Comparative Per Share Market Price Information (Page 8)
Shares of Premier common stock are now quoted on the New York Stock
Exchange. Shares of North Fulton are not quoted on any established market.
The following table presents some information relating to recent sales of
Premier and North Fulton common stock.
<TABLE>
<CAPTION>
Premier North Fulton
Common Stock Common Stock
- ----------------------------- --------------------
<S> <C>
$20.00 at April 6, $9.28 at October 30,
1999 (prior to announcement). 1998 (prior to
$17.75 at July 30, announcement).
1999. $9.28 at October 30,
1998.
</TABLE>
Merger of Premier with BB&T Corporation (Page 31)
On July 28, 1999, Premier entered into an Agreement and Plan of
Reorganization with BB&T Corporation, pursuant to which Premier will be merged
with and into BB&T. As a result, each share of Premier common stock, including
shares of Premier common stock you will receive as North Fulton shareholders,
will be converted into the right to receive 0.5155 shares of BB&T common stock.
3
<PAGE>
Comparative Historical and Pro Forma Financial Share Data
Summarized below are per share information for Premier and North Fulton on
an historical, pro forma combined and equivalent basis. You should read this
information in conjunction with Premier and North Fulton historical financial
statements and the related notes. See "Where You Can Find More Information."
The pro forma information gives effect to the merger accounted for as a
pooling of interests, and assumes that Premier issues 0.8749 shares of Premier
common stock for each outstanding share of North Fulton common stock. North
Fulton pro forma equivalent share amounts are calculated by multiplying the pro
forma combined basic and diluted net income per common share, pro forma
combined cash dividends per common share and pro forma combined shareholders'
book value per common share by the exchange ratio of 0.8749 shares of Premier
common stock so that the per share amounts equate to the respective values for
one share of North Fulton common stock. You should not rely on the pro forma
information as being indicative of the historical results that would have
resulted if Premier and North Fulton had been combined or the future results
Premier will experience after the merger, nor should you rely on the three-
month information as being indicative of results Premier or North Fulton expect
for the entire year.
<TABLE>
<CAPTION>
At and For the
Three Months
Ended At and For the Year
March 31, Ended December 31,
-------------- --------------------
1999 1998 1997 1996
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net Income per common share
Basic
Premier historical....................... $ 0.22 $ 0.80 $ 0.73 $ 0.53
North Fulton historical.................. 0.22 0.77 0.38 0.40
Pro forma combined....................... 0.22 0.81 0.71 0.53
North Fulton pro forma equivalent........ 0.19 0.71 0.62 0.47
Diluted
Premier historical....................... 0.22 0.78 0.71 0.52
North Fulton historical.................. 0.19 0.69 0.35 0.37
Pro forma combined....................... 0.22 0.79 0.69 0.52
North Fulton pro forma equivalent........ 0.19 0.69 0.60 0.45
Cash dividends declared per common share
Premier historical....................... $ 0.09 $ 0.31 $ 0.15 $ 0.17
North Fulton historical.................. 0.05 0.02 -- --
Pro forma combined....................... 0.09 0.30 0.14 0.17
North Fulton pro forma equivalent........ 0.08 0.26 0.12 0.14
Book value per common share
Premier historical....................... $ 5.26 $ 5.23 $ 4.72 $ 5.19
North Fulton historical.................. 5.31 5.21 4.51 4.05
Pro forma combined....................... 5.31 5.28 4.74 5.09
North Fulton pro forma equivalent........ 4.64 4.62 4.15 4.45
</TABLE>
4
<PAGE>
Selected Consolidated Financial Data
Premier and North Fulton are providing the following information to help you
analyze the financial aspects of the merger. Premier and North Fulton derived
this information from audited financial statements for 1994 through 1998 and
unaudited financial statements for the three months ended March 31, 1999 and
1998. This information is only a summary, and you should read it in conjunction
with both of our historical financial statements and related notes. See "Where
You Can Find More Information" and "Index to North Fulton Financial
Statements." You should not rely on the three-month information as being
indicative of results expected for the entire year.
Premier--Historical Financial Information
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
At and For the
Three Months
Ended March 31, At and For the Years Ended December 31,
--------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income..... $ 15,418 $ 14,108 $ 60,151 $ 55,039 $ 45,396 $ 39,389 $ 32,018
Net income.............. 5,776 5,689 20,914 18,737 13,657 11,348 6,694
Diluted earnings per
share.................. 0.22 0.22 0.78 0.71 0.52 0.44 0.28
Cash dividends declared
per share.............. 0.09 0.13 0.31 0.15 0.17 0.06 0.03
Book value per share.... 5.26 4.81 5.23 4.72 5.19 3.73 3.18
Total assets............ $1,510,890 $1,312,292 $1,520,618 $1,280,499 $1,115,290 $937,078 $763,524
North Fulton--Historical Financial Information
(Dollars in thousands, except for per share amounts)
<CAPTION>
At and For the
Three Months
Ended March 31, At and For the Years Ended December 31,
--------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income..... $ 1,761 $ 1,650 $ 7,040 $ 5,420 $ 3,819 $ 3,008 $ 1,669
Net income.............. 407 315 1,417 676 650 503 79
Diluted earnings per
share.................. 0.19 0.16 0.69 0.35 0.37 0.30 0.05
Cash dividends paid per
share.................. -- -- 0.02 -- -- -- --
Book value per share.... 5.31 4.66 5.21 4.51 4.05 3.29 3.14
Total assets............ 191,910 145,568 173,550 140,683 110,310 75,379 51,806
</TABLE>
5
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this proxy statement/ prospectus, we urge you to consider the following
factors before deciding how to vote at the North Fulton shareholders' meeting.
Changes in interest rates could have an adverse effect on Premier's income.
Premier's profitability depends to a large extent upon its net interest
income. Net interest income is the difference between interest income on
interest-earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. Premier's net
interest income will be adversely affected if market interest rates change such
that the interest Premier pays on deposits and borrowings increases faster than
the interest Premier earns on loans and investments.
Premier's profitability will depend on its ability to originate residential
mortgage loans.
The market for residential mortgages is highly volatile and an increase in
interest rates could materially and adversely affect interest income, non-
interest income and the growth of Premier's residential mortgage operations. In
addition, Premier has derived a substantial portion of its other income from
gains on the sale of mortgage loans and mortgage production fees consisting of
proceeds from the sale of servicing rights, loan origination fees and discount
points. Due to the cyclical nature of residential mortgage originations,
Premier may not be able to sustain recent levels of gains on the sale of
mortgage loans and mortgage production fees.
Premier could experience significant difficulties and complications in
connection with its rapid growth.
Premier has grown significantly over the last two years and may seek to
continue to grow by acquiring other financial institutions and branches.
However, the market for acquisitions is highly competitive. Premier may not be
as successful in the future as it has been in the past in identifying
acquisition candidates, integrating acquired institutions or preventing deposit
erosion at acquired institutions or branches.
Premier may encounter unforeseen expenses, as well as difficulties and
complications in integrating expanded operations and new employees without
disruption to overall operations. In addition, such rapid growth may adversely
affect Premier's operating results because of many factors, including start-up
costs, diversion of management time and resources, asset quality and required
operating adjustments. Premier may not successfully integrate or achieve the
anticipated benefits of its growth or expanded operations.
Losing key personnel will negatively affect Premier.
Competition for personnel is stronger in the banking industry than other
industries, and Premier may not be able to attract or retain the personnel it
requires to compete successfully. Premier currently depends heavily on the
services of its Chairman and Chief Executive Officer, Darrell D. Pittard, and a
number of other members of its senior management team. Losing Mr. Pittard's
services or those of other members of senior management could affect Premier in
a material and adverse way. Premier's success will also depend on attracting
and retaining additional qualified management personnel.
Banking legislation that limits Premier's growth and activities will decrease
the return to our investors.
Current and future legislation and the policies of federal and state
regulatory authorities will affect Premier's future operations. Banking
legislation and regulations may limit Premier's growth and the return to
investors by restricting certain of Premier's activities.
In addition, legislation may change present capital requirements, which
could restrict Premier's activities and require Premier to maintain additional
capital. Premier cannot predict what changes, if any, federal and
6
<PAGE>
state agencies will make to existing federal and state legislation and
regulations or the effect that such changes may have on Premier's business. See
"Supervision and Regulation."
Premier's results of operations could be adversely affected due to significant
competition.
Premier may not be able to compete effectively in its markets, which could
adversely affect Premier's results of operations. The banking and financial
services industry in the Atlanta metropolitan area generally, and in Premier's
market areas specifically, is highly competitive. Premier competes for loans,
deposits and customers with various bank and non-bank financial service
providers, many of which are larger in terms of total assets and
capitalization, have greater access to capital markets and offer a broader
array of financial services than Premier. Competition with such institutions
may cause us to increase our deposit rates or decrease our interest rate spread
on loans we originate.
Year 2000 data processing problems could interrupt and hurt our operations.
Premier's operations are dependent on computers and computer systems,
whether maintained internally or by a third party. Systems not properly
recognizing the Year 2000 could produce faulty data or cause a system to fail.
Such failures may include, among other things, the inability to process and
underwrite loan applications, to credit deposits and debit withdrawals from
customer accounts, to credit loan payments or track delinquencies, to reconcile
and record daily activity properly or to engage in similar normal banking
activities. Additionally, if our commercial customers are not Year 2000
compliant and suffer adverse effects on their operations as a result, their
ability to meet their obligations to Premier may be adversely affected.
Premier, its third party providers or its customers may not be successful in
making all necessary changes to avoid computer system failures related to the
Year 2000.
7
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Premier Market Prices
The Premier common stock has been listed on the New York Stock Exchange
under the symbol "PMB" since June 1, 1999, and was listed on the American Stock
Exchange under the symbol "PMB" from January 1997 to May 31, 1999. From
January, 1995, the Premier common stock was listed on the NASDAQ Small Cap
Market under the symbol "FABC." The following table sets forth, for the
indicated periods, the high and low sales prices for the Premier common stock
as reported by the New York Stock Exchange, American Stock Exchange and the
NASDAQ Small Cap Market for 1997 and 1998 and for each of the quarters in 1999.
<TABLE>
<CAPTION>
Sales Price
-------------
Calendar Period High Low
- --------------- ------ ------
<S> <C> <C>
1997
First Quarter.................................................... $ 9.47 $ 7.84
Second Quarter................................................... 11.67 9.25
Third Quarter.................................................... 14.00 10.08
Fourth Quarter................................................... 17.92 13.08
1998
First Quarter.................................................... $29.38 $17.08
Second Quarter................................................... 29.50 22.62
Third Quarter.................................................... 28.75 20.00
Fourth Quarter................................................... 27.69 16.38
1999
First Quarter.................................................... $25.31 $19.00
Second Quarter................................................... 21.50 15.83
Third Quarter (through July 30, 1999)............................ 19.88 17.63
</TABLE>
On July 30, 1999, the most recent practical date on which the Premier common
stock was traded prior to the mailing of this document, the last reported sales
price of Premier common stock as reported on the New York Stock Exchange was
$17.75 per share. At the close of trading on April 6, 1999, the last full
trading day prior to the public announcement of the merger, the last reported
sales price of Premier common stock as reported on the American Stock Exchange
was $20.00 per share.
North Fulton Market Prices
The North Fulton common stock is not listed for quotation on the New York
Stock Exchange or on any other stock exchange. The price of the North Fulton
common stock in the last known transaction, which occurred on October 30, 1998,
was $9.28 per share. The price of North Fulton common stock in the last known
transaction prior to April 6, 1999, the date the merger was publicly announced,
was $9.28 per share and occurred on October 30, 1998. Based on transactions of
which North Fulton's management is aware, sales of North Fulton common stock
during 1997 were in a price range of $5.35 to $6.75 per share. Sales of North
Fulton common stock during 1998 were in a price range of $6.75 to $9.28 per
share. No sales of North Fulton common stock have occurred during 1999 prior to
July 30. We can give you no assurance that these stated price ranges represent
the actual market value of North Fulton common stock.
8
<PAGE>
Dividends
The holders of Premier common stock are entitled to receive cash dividends
when and if Premier's board of directors declares them. Premier declared the
following dividends to its shareholders in each of the last two years and for
the first and second quarters of 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First Quarter................................................. 0.09 0.13 0.05
Second Quarter................................................ 0.09 0.05 0.04
Third Quarter................................................. N/A 0.05 0.04
Fourth Quarter................................................ N/A 0.08 0.02
</TABLE>
The future declaration and payment of dividends will depend upon the
earnings of Premier's subsidiaries, business conditions, operating results,
capital and reserve requirements and the board of directors' consideration of
other relevant factors.
North Fulton paid the following dividends to its shareholders in each of the
last two years and in the first quarter of 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First Quarter................................................. .05 0.02 --
Second Quarter................................................ -- -- --
Third Quarter................................................. N/A -- --
Fourth Quarter................................................ N/A -- --
</TABLE>
Premier and North Fulton are legal entities separate and distinct from their
subsidiaries, and their revenues depend in significant part on dividends their
subsidiaries pay them, which subsidiaries are subject to legal restrictions on
the amount of dividends they may pay. See "Regulatory Considerations--Payment
of Dividends."
Shareholders of Record
As of the record date for North Fulton's special shareholders' meeting,
there were 2,429 holders of record of Premier common stock, and approximately
194 holders of record of North Fulton common stock.
9
<PAGE>
THE NORTH FULTON SHAREHOLDERS' MEETING
General
North Fulton is providing this document to its shareholders as of the record
date of July 21, 1999, along with a proxy sheet. The board of directors of
North Fulton is soliciting proxies for use at a special meeting of shareholders
of North Fulton to be held on Tuesday, August 31, 1999 at 8:00 a..m., Eastern
Time, at the main office of North Fulton, located at 11650 Alpharetta Highway,
Roswell, Georgia. At the meeting, North Fulton shareholders will vote upon a
proposal to approve the merger agreement, dated as of April 6, 1999, and under
which North Fulton would merge with and into Premier. Proxies may be voted on
other matters as may properly come before the meeting at the discretion of the
proxy holders. The North Fulton board of directors knows of no other matters
except those incidental to the conduct of the meeting. The merger agreement is
attached as Appendix A to this document.
North Fulton requests that holders of North Fulton common stock complete,
date and sign the accompanying proxy sheet and return it promptly to North
Fulton in the enclosed postage prepaid envelope.
Record Date, Voting Rights and Vote Required
Only North Fulton shareholders on the record date are entitled to receive
notice of and to vote at the meeting. On the record date, there were 1,830,021
shares of North Fulton common stock outstanding, held by approximately 194
holders of record. Each share of North Fulton common stock is entitled to one
vote on each matter submitted at the meeting.
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of North Fulton common stock.
Failure of North Fulton shareholders to vote their shares will have the same
effect as a vote "AGAINST" the merger agreement.
Approval of any other matters that shareholders consider at the meeting
requires the presence of a quorum and that the votes in favor of the matter
constitute a majority of the shares represented at the meeting and entitled to
vote. Presence in person or by proxy of a majority of the outstanding shares of
North Fulton common stock entitled to vote at the meeting will constitute a
quorum.
As of the record date, the directors and executive officers of North Fulton
and their affiliates beneficially owned a total of 1,110,566 shares, or 55.61%,
of the issued and outstanding shares of North Fulton common stock, excluding
shares that may be acquired pursuant to the exercise of stock options. As of
the record date, the directors and executive officers of Premier and their
affiliates and Premier and its subsidiaries beneficially owned a total of less
than 1% of the outstanding shares of North Fulton common stock.
Voting and Revocation of Proxies
The shares of North Fulton common stock represented by properly completed
proxies received at or before the time for the meeting will be voted as
directed by the shareholders unless revoked as described below. If no
instructions are given, executed proxies will be voted "FOR" approval of the
merger agreement. Executed proxies marked "FOR" approval of the merger
agreement and executed but unmarked proxies will be voted in the discretion of
the persons named in the proxy sheet as to any proposed adjournment of the
meeting. Proxies which are voted "AGAINST" approval of the merger agreement
will not be voted in favor of any motion to adjourn the meeting to solicit more
votes in favor of the merger.
Shares held in street name that have been designated by brokers on proxy
sheets as not voted with respect to a proposal will not be counted as votes
cast on the proposal. Shares with respect to which proxies have been marked as
abstentions also will not be counted as votes cast on the proposal. Shares with
respect to which proxies have been marked as not voted and abstentions,
however, will be treated as shares present for purposes of determining whether
a quorum is present.
10
<PAGE>
The proposal to adopt the merger agreement is a "non-discretionary" item,
meaning that brokerage firms may not vote shares in their discretion on behalf
of a client if the client has not furnished voting instructions. Because the
holders of a majority of the outstanding shares of North Fulton common stock
must approve the proposal adopting the merger agreement, abstentions and broker
shares which are not voted will have the same effect as a vote against the
merger at the meeting.
If any other matters are properly presented at the meeting and voted upon,
the proxies solicited by this proxy statement/prospectus will be voted on such
matters at the discretion of the proxy holders. The North Fulton board of
directors is not aware of any other business to be presented at the meeting
other than matters incidental to the conduct of the meeting.
A shareholder's attendance at the meeting will not automatically revoke his
or her proxy. A shareholder may, however, revoke a proxy at any time before its
exercise by filing a written notice of revocation with, or by delivering a duly
executed proxy bearing a later date to, the Secretary of North Fulton at North
Fulton's principal executive offices before the meeting, or by attending the
meeting and voting in person. A shareholder's proxy will not be revoked by his
or her death or incapacity unless, before the shares are voted, the Secretary
of North Fulton, or other person authorized to tabulate the votes, receives
notice of the death or incapacity.
Because holders of a majority of the outstanding shares of North Fulton
common stock must approve the merger agreement, abstentions and broker shares
which are not voted will have the same effect as negative votes. Accordingly,
the North Fulton board of directors urges North Fulton's shareholders to
complete, date and sign the accompanying proxy sheet and return it promptly in
the enclosed postage prepaid envelope.
Solicitation of Proxies
Directors, officers and employees of North Fulton or its subsidiary may
solicit proxies personally or by telephone or facsimile. None of these people
will receive any special compensation for solicitation activities. North Fulton
will arrange with brokerage firms and other custodians, nominees and
fiduciaries to forward proxy solicitation materials to the beneficial owners of
stock such persons hold, and North Fulton will reimburse these record holders
for their reasonable out-of-pocket expenses.
Recommendation of the North Fulton Board of Directors
The North Fulton board of directors has unanimously adopted the merger
agreement and believes that the proposed transaction is fair to and in the best
interests of North Fulton and its shareholders. The North Fulton board of
directors unanimously recommends that North Fulton's shareholders vote "FOR"
approval of the merger agreement. See "The Merger--Background of, and Reasons
for, the Merger."
Shareholders should not send in stock certificates with their proxy cards.
See "The Merger--Exchange of North Fulton Common Stock Certificates."
11
<PAGE>
THE MERGER
The following information describes the material aspects of the merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the appendices attached to this proxy statement/prospectus,
including the merger agreement, which is Appendix A and the terms of which are
incorporated by reference. All shareholders are urged to read the appendices in
their entirety.
General
In the merger, North Fulton will be merged with and into Premier, and
Premier will be the surviving corporation. Shareholders of North Fulton will
receive shares of the common stock of Premier in exchange for their shares of
North Fulton common stock. Upon completion of the merger, Milton National Bank,
the wholly owned subsidiary of North Fulton, will become a wholly-owned
subsidiary of Premier.
Background of and Reasons for the Merger
Background of the Merger. During the fourth quarter of 1998, the executive
committee of the North Fulton board of directors began to discuss whether it
would be in the best interests of North Fulton to combine with a larger
institution. On December 9, 1998, North Fulton entered into an engagement
letter with Brown, Burke Capital Partners, Inc. for Brown Burke to identify
possible acquirers and to assist North Fulton in its negotiations with them.
Brown Burke proceeded to prepare a confidential memorandum to assist parties
who had expressed an interest in affiliating with North Fulton in making their
own evaluation of North Fulton. The confidential memorandum was approved by the
North Fulton executive committee on January 4, 1999 and was furnished to six
potential acquirers. Certain of the potential acquirers, including Premier,
returned indications of interest to Brown Burke during the period from January
28 to March 1, 1999.
On March 1, 1999, North Fulton's executive committee met with a
representative of Brown Burke to discuss the proposals received from potential
acquirers. After reviewing the analysis prepared by Brown Burke and discussing
the relative merits of the proposals, the North Fulton executive committee
authorized Brown Burke to continue negotiations with Premier.
Thereafter, North Fulton, through Brown Burke, and Premier negotiated
various terms of the proposed transaction, including price. On March 17, 1999,
North Fulton and Premier executed a letter of intent relating to the proposed
transaction.
From March 17, 1999 through March 31, 1999, North Fulton and Premier
conducted due diligence investigations of each other. North Fulton and Premier
also proceeded to negotiate the definitive merger agreement.
On March 31, 1999, at a special meeting of the board of directors of North
Fulton, counsel to North Fulton reviewed the proposed merger agreement and
other aspects of the transaction with the Board, and Brown Burke gave its oral
opinion that the offer from Premier was fair to the shareholders of North
Fulton from a financial point of view. Following the presentations and
subsequent discussion, the North Fulton board authorized its chairman or any
member of its executive committee to execute the definitive merger agreement
substantially in the form presented to the board of directors, with such
changes, other than to the exchange ratio, as North Fulton's executive
committee approved.
Following the March 31, 1999 North Fulton board meeting, North Fulton and
Premier continued to negotiate certain aspects of the definitive merger
agreement. On April 6, 1999, North Fulton and Premier executed the merger
agreement and issued a joint press release announcing the merger.
12
<PAGE>
North Fulton's Reasons for the Merger. North Fulton's board of directors has
unanimously approved the merger agreement and has determined that the merger is
in the best interests of North Fulton and its shareholders. The terms of the
merger were the result of arms-length negotiations between representatives of
North Fulton and representatives of Premier. Without assigning any relative or
specific weights to the factors, the board of directors of North Fulton
considered the following material factors:
. the value of the consideration to be received by North Fulton
shareholders relative to the book value and earnings per share of North
Fulton common stock;
. selected information concerning the financial condition, results of
operations and business prospects of Premier;
. the financial terms of recent business combinations in the financial
services industry and a comparison of the multiples of selected
combinations with the terms of the proposed transaction with Premier;
. the alternatives to the merger, including remaining an independent
institution;
. the competitive and regulatory environment for financial institutions
generally, including increasing technology demands;
. the fact that the merger will enable North Fulton shareholders to
exchange their shares of North Fulton common stock, in a tax-free
transaction, for shares of common stock of a larger company, the stock
of which is more widely held and more actively traded; and
. Brown Burke's opinion that the consideration to be received by North
Fulton shareholders as a result of the merger is fair from a financial
point of view.
Each director of North Fulton has also agreed to vote his shares of North
Fulton common stock in favor of the merger.
The North Fulton board of directors recommends that North Fulton
shareholders vote FOR approval of the merger agreement.
Premier's Reasons for the Merger
One of Premier's announced acquisition objectives is to build a statewide
franchise in Georgia with an emphasis on customer service, value and personal
attention. Premier management believes that North Fulton is a well-run
organization that stresses customer service and loyalty, and that by acquiring
it, Premier will have a substantial presence in north Fulton County as well as
an expanded presence in the metropolitan Atlanta area, a major step toward
achieving Premier's goal.
Opinion of North Fulton's Financial Advisor
North Fulton has retained Brown, Burke Capital Partners, Inc. to act as its
financial advisor in connection with the merger. Representatives of Brown Burke
participated in a meeting of the North Fulton Board held on March 31, 1999. At
that meeting, based on Premier's draft of a definitive merger agreement to
purchase North Fulton, Brown Burke rendered its oral opinion that conversion of
each share of North Fulton common stock into the right to receive 0.8749 shares
of Premier common stock and the additional terms to be provided by the merger
agreement were fair to the shareholders and optionholders of North Fulton.
Brown Burke has also rendered a written opinion to the North Fulton board of
directors that, on the date of this proxy statement/prospectus, the terms of
the merger agreement were fair to the North Fulton shareholders.
The full text of Brown Burke's written opinion is attached as Appendix C to
this proxy statement/prospectus and is incorporated by reference. The following
description of the opinion is qualified in its entirety by reference to
Appendix C. North Fulton shareholders are urged to read the opinion in its
entirety for a description of the procedures followed, assumptions made,
matters considered and qualifications and limitations on the review undertaken
by Brown Burke.
13
<PAGE>
Brown Burke's opinion is directed to the North Fulton board of directors
only and is directed only to the terms of the merger agreement and does not
constitute a recommendation to any North Fulton shareholder regarding how such
shareholder should vote at the special meeting.
In arriving at its written opinion, Brown Burke, among other things:
. analyzed certain audited and unaudited financial statements and other
information of North Fulton and Premier;
. reviewed and discussed with appropriate management personnel of North
Fulton and Premier the past and current business activities and
financial results and the business and financial outlook of North Fulton
and Premier;
. reviewed the historical price and trading activity of the common stock
of Premier;
. compared selected financial and stock market data relating to Premier
with similar data of other publicly held banking institutions considered
to be potential alternative affiliation candidates to Premier for North
Fulton;
. performed an analysis comparing the pro forma consequences of the merger
to North Fulton shareholders with respect to earnings per share, book
value per share and dividends per share represented by the Premier
common stock they will receive in the merger to those same measures
represented by the North Fulton common stock they currently hold;
. reviewed the prices paid in certain comparable acquisition transactions
of community banking institutions and the multiples of earnings and book
value and the level of deposit base premium received by the selling
institutions;
. reviewed the merger agreement and certain related documents;
. considered the financial implications of selected other strategic
alternatives available to North Fulton; and
. performed other analyses as Brown Burke deemed appropriate.
In conducting its analysis and arriving at its opinion, Brown Burke assumed
and relied upon, without independent verification, the accuracy and
completeness of the information it reviewed for the purposes of the opinion.
Brown Burke also relied upon the management of North Fulton with respect to the
reasonableness and feasibility of the financial forecast and the assumptions
and bases underlying such forecast provided to it. North Fulton instructed
Brown Burke that, for the purposes of its opinion, Brown Burke should assume
that this forecast will be realized in the amounts and in the time periods
currently estimated by the management of North Fulton. Brown Burke also
assumed, with North Fulton's consent, that the aggregate allowances for loan
losses for each of North Fulton and Premier are adequate to cover their loan
losses. Brown Burke is not an expert in the evaluation of allowances for loan
losses and has not reviewed any individual credit files. Brown Burke did not
make, nor was it furnished with, independent valuations or appraisals of the
assets or liabilities of either North Fulton or Premier or any of their
subsidiaries. Brown Burke did not, and was not asked to, express any opinion
about what the value of Premier common stock actually will be when issued to
the holders of North Fulton common stock pursuant to the merger or the price at
which Premier common stock will trade subsequent to the merger. Moreover, North
Fulton has informed Brown Burke, and Brown Burke has assumed, that the merger
will be recorded utilizing pooling of interests accounting under generally
accepted accounting principles.
Neither North Fulton nor the North Fulton Board imposed any limitations on
the scope of Brown Burke's investigation or the procedures Brown Burke was to
follow in rendering its opinion. As part of its procedures, Brown Burke
solicited regional bank holding companies and other financial institutions for
their indications of acquisition interest in North Fulton. The opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Brown Burke as of, the date of its analysis.
14
<PAGE>
In arriving at the fairness of the consideration to be received by the
shareholders and optionholders of North Fulton, Brown Burke developed an
opinion of the value of North Fulton common stock should the institution remain
independent and analyzed this value in light of the premium represented by the
terms of the merger agreement. In connection with rendering its opinion to the
North Fulton Board, Brown Burke also reviewed a variety of generally-recognized
valuation methodologies and merger analyses and performed those it believed
most appropriate for developing its opinion.
The preparation of a fairness opinion involves various determinations of the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances. Therefore, a fairness opinion
is not readily susceptible to summary description. In arriving at its fairness
opinion, Brown Burke did not attribute any particular weight to any analysis or
factor it considered, but rather made qualitative judgments about the
significance and relevancy of each analysis and factor. None of the analyses
performed by Brown Burke was assigned a greater significance by Brown Burke
than any other. Accordingly, Brown Burke believes that one must consider its
analyses as a whole and that a review of selected portions of the analyses and
the factors, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying its opinion and any
conclusions it reached. In its analyses, Brown Burke made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond North Fulton's and Premier's
control. Any estimates Brown Burke's analyses contain are not necessarily
indicative of actual values or predictive of future results or values that may
be significantly more or less favorable than these estimates. Estimates of
values of companies are not appraisals nor necessarily reflect the prices at
which companies or their securities actually may be sold. In addition, as
described above, Brown Burke's opinion and presentation to the North Fulton
board of directors was one of many factors the North Fulton board of directors
took into consideration in making its determination to approve the merger
agreement.
The following is a brief summary of analyses Brown Burke performed in
connection with the updated opinion as of July 2, 1999:
Summary of Proposal. Brown Burke reviewed the terms of the proposed
transaction as reflected in the merger agreement, including the calculation of
the exchange ratio. Based upon the recent price of Premier common stock of
$18.00, an exchange ratio of 0.8749 shares of Premier common stock per share of
North Fulton common stock would provide North Fulton shareholders a per share
value of $15.75 or a total transaction value of $34.4 million.
Brown Burke also calculated the market price performance of Premier's common
stock for the three-year and one-year periods ended July 2, 1999 in comparison
to the market price performance for an index of regional bank holding companies
similar to Premier. This index of regional bank holding companies similar to
Premier, or peer index, is comprised of ten depository financial institutions
located in the Southeast. Brown Burke noted that Premier's stock price
increased by 138% for the three-year period and declined by 36% for the one-
year period. The peer index increased by 57% for the three-year period and
declined by 22% for the one-year period. Brown Burke noted that Premier was
trading below its 52 week high as was the majority of small- and mid-cap banks.
Brown Burke also noted that Premier's market value divided by analysts'
consensus of forecasted 1999 net income was 21.4 and was above the Southeastern
median of 15.4 due to the attractiveness of its Atlanta franchise.
Indicated Value of North Fulton as an Independent Bank. Brown Burke
undertook an analysis addressing the range of potential values which would be
implied if North Fulton remained an independent bank. Brown Burke computed this
range of values based on a discounted cash flow analysis, relying on
projections extrapolated from North Fulton's 1999 budget and its historical
performance. In this analysis methodology, Brown Burke assumed shareholders
received, in addition to the projected dividend stream, a terminal valuation at
December 31, 2002 based upon a two times multiple of December 31, 2002 stated
book value and a 11 times multiple of earnings for such year. These amounts
were discounted at rates ranging from 12% to 16% and indicated net present
values to North Fulton shareholders between $23.4 million and $27.0 million.
15
<PAGE>
Per Share Merger Consequences Analysis. Based upon an exchange ratio of
0.8749 shares of Premier common stock for each share of North Fulton common
stock and using the earnings estimates for North Fulton prepared by North
Fulton management, and earnings estimates for Premier prepared by independent
securities analysts, Brown Burke compared the estimated 1999 and 2000 fully
diluted earnings per share of North Fulton common stock on a stand-alone basis
to the equivalent pro forma earnings per share of Premier common stock which
would be received in the merger. Brown Burke concluded that the merger would
result in an earnings decrease of 14.1% in 1999 and a decrease of 5.0% in 2000
for North Fulton shareholders in the combined company.
Brown Burke also analyzed the impact of the merger on the amount of fully
diluted book value represented by a share of North Fulton common stock. Brown
Burke assumed consummation of the merger as of September 30, 1999 and utilized
the above-described earnings estimates for North Fulton and Premier. Brown
Burke concluded that the merger would result in a decrease of 12.6% in fully-
diluted book value on an equivalent per share basis for North Fulton
shareholders projected as of September 30, 1999.
Finally, Brown Burke compared the amount of dividends expected to be paid on
a share of North Fulton common stock before the merger to the level expected to
be paid on a pro forma basis reflecting the merger. Brown Burke assumed that
10% of future earnings would be paid out in the form of dividends to common
shareholders. Brown Burke concluded that the merger would result in an increase
of 203.2% in 1999 in dividends per share for North Fulton shareholders.
Analysis of Selected Other Bank Mergers Involving Southeastern Community
Banks. Brown Burke reviewed 11 mergers involving community banks and bank
holding companies announced since January 1, 1998 in which the seller:
. had a return on average assets between .75% and 1.25%;
. had assets less than $1 billion; and
. had equity/assets less than 10%.
Brown Burke noted in particular the prices paid in these mergers as a
multiple of earnings and book values and the transaction premiums paid in
excess of tangible book value as a percentage of core deposits. Brown Burke
also reviewed other data in connection with each of these mergers, including
the amount of total assets, the capital level, and the return on equity and the
return on assets of the acquired institutions. Brown Burke then compared this
data to that of North Fulton and to the value North Fulton shareholders will
receive in the merger.
This comparison yielded a range of transaction values as multiples of latest
twelve-months earnings per share from a low of 11.9 times to a high of 30.5
times, with a median value of 21.4 times. The North Fulton multiple of trailing
earnings was 22.7 times. The calculations yielded a range of transaction values
as multiples of book value per share from a low of 1.44 times to a high of 3.72
times, with a median value of 2.96 times. The North Fulton multiple of December
31, 1998 book value was 3.18 times. Finally, the calculations yielded a range
of deposit base premiums paid from a low of 4.7% to a high of 34.2%, with a
median value of 19.6%. The equivalent premium on North Fulton deposits
represented by the terms of the merger agreement was 18.9%.
No company or transaction used in the above analyses is identical to North
Fulton, Premier, or the merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in the operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which North
Fulton and Premier are being compared. Mathematical analysis is not, in itself,
a meaningful method of comparing company data.
In connection with its opinion, Brown Burke confirmed the appropriateness of
relying on the analyses used to render its March 31, 1999 oral opinion by
updating certain of its analyses and reviewing the assumptions on which the
analyses were based and the factors considered in connection with the opinion.
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Brown Burke is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for estate, tax, corporate and other purposes. North Fulton has paid
Brown Burke a fee of $60,000 in connection with its engagement. Upon
consummation of the merger, Brown Burke will receive an additional fee
comprised of:
. 0.9% of the aggregate market value of the consideration North Fulton
shareholders and optionholders will receive up to $37 million, plus
. 5% of the aggregate market value of the consideration North Fulton
shareholders and optionholders will receive in excess of $37 million.
Based upon an assumed market price and value of a share of Premier common stock
at the effective time of the merger of $18.00 (the closing price of Premier
common stock on July 2, 1999), this additional fee would be approximately
$259,000. No compensation payable to Brown Burke is contingent on the
conclusions reached in its opinion. North Fulton has also agreed to reimburse
Brown Burke for reasonable out-of-pocket-expenses and to indemnify Brown Burke
and other related persons against various liabilities relating to or arising
out of its engagement.
Since 1997, as well as presently, Brown Burke has represented Premier in
various merger transactions and has provided general financial advisory
services to Premier, which was disclosed to North Fulton prior to Brown Burke's
engagement.
Exchange Ratio
At the effective time of the merger, North Fulton will merge with and into
Premier, and Premier will be the surviving corporation in the merger. In the
merger, each share of North Fulton common stock outstanding at the effective
time will be converted into the right to receive Premier common stock at the
exchange ratio of 0.8749 shares of Premier common stock for each share of North
Fulton common stock.
North Fulton shareholders should be aware that the actual market value of a
share of Premier common stock at the effective time of the merger, and at the
time certificates for those shares are delivered following surrender and
exchange of certificates for shares of North Fulton common stock, may be more
or less than the value of the shares as of the date of this document or the
date of the North Fulton shareholders' meeting. North Fulton shareholders are
urged to obtain information on the market value of Premier common stock that is
more recent than that which this document provides. See "Comparative Market
Prices and Dividends."
No fractional shares of Premier common stock will be issued in the merger.
Premier will pay holders of North Fulton common stock otherwise entitled to a
fractional share an amount in cash. The amount in cash will be determined by
multiplying the fractional part of a share of Premier common stock by the
closing price of Premier common stock on the last trading day before the
effective time of the merger.
Treatment of North Fulton Stock Options
The merger agreement provides that all rights with respect to North Fulton
common stock pursuant to stock options or stock appreciation rights granted
under North Fulton's stock option and other stock-based compensation plans
which are outstanding at the effective time of the merger, whether or not then
exercisable, will convert into and will become rights with respect to Premier
common stock. Premier will assume these options in accordance with the terms of
the plan under which they were issued and the agreement by which they were
evidenced. After the effective time, those options will become options to
purchase Premier common stock, with the exercise price and number of shares of
Premier common stock adjusted to reflect the exchange ratio. Premier may, at
its election, substitute, as of the effective date of the merger, stock options
under the Premier Bancshares, Inc. 1997 Stock Option Plan, as amended, for all
or a part of the stock options granted by North Fulton, subject to the
conditions contained in the merger agreement.
The executive officers and directors of North Fulton held in the aggregate
exercisable options to purchase 155,144 shares of North Fulton common stock as
of the date of this document.
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Exchange of North Fulton Common Stock Certificates
At the effective time, by virtue of the merger and without any action on the
part of North Fulton or North Fulton shareholders, each share of North Fulton
common stock issued and outstanding immediately before the effective time will
convert into and will represent the right to receive, upon surrender of the
certificate representing shares of North Fulton common stock as described
below, whole shares of Premier common stock and cash in lieu of any fractional
share interest. Promptly after the effective time, Premier will cause its
exchange agent to deliver or mail to each North Fulton shareholder a
transmittal letter and instructions for use in surrendering certificates that,
immediately before the effective time, represented shares of North Fulton
common stock. Upon surrender of these certificates or other satisfactory
evidence of ownership and delivery of a duly executed transmittal letter,
completed in accordance with its instructions, and any other documents as may
be reasonably requested, Premier's exchange agent will transfer promptly the
merger consideration to the persons entitled to receive it.
North Fulton shareholders should not send in their stock certificates until
they receive transmittal forms and instructions.
Until surrendered as described above, each outstanding certificate
representing shares of North Fulton common stock will be deemed upon the
effective time for all purposes to represent only the right to receive the
merger consideration. Premier will pay no interest on the merger consideration
upon the surrender of the certificate or certificates representing shares of
North Fulton common stock. With respect to any certificate for North Fulton
common stock that has been lost or destroyed, Premier will pay the merger
consideration attributable to the certificate upon receiving a surety bond or
other adequate indemnity as required in accordance with Premier's standard
policy and evidence reasonably satisfactory to Premier of ownership of the
shares in question. After the effective time, no transfer of the shares of
North Fulton common stock outstanding immediately before the effective time
will be made on Premier's stock transfer books.
Premier will pay any dividends or other distributions with respect to North
Fulton common stock that North Fulton has declared or made before the effective
time, but which remain unpaid as of the effective time, in accordance with the
terms of the merger agreement. To the extent permitted by law, former
shareholders of record of North Fulton will be entitled to vote after the
effective time at any meeting of Premier shareholders the number of whole
shares of Premier common stock into which their respective shares of North
Fulton common stock are converted, regardless of whether the holders have
exchanged their certificates representing North Fulton common stock for
certificates representing Premier common stock. Whenever Premier declares a
dividend or other distribution on the Premier common stock, the record date for
which is at or after the effective time, the declaration will include all
shares of North Fulton common stock, which represent the right to receive
Premier common stock. North Fulton shareholders will only receive the dividend
or other distribution, however, after they surrender their North Fulton
certificate(s) for exchange as described above. Upon surrendering their
North Fulton certificate(s), both the Premier common stock certificate and any
undelivered dividends and cash payments payable under the merger agreement,
without interest, will be delivered and paid with respect to each share of
North Fulton common stock the certificate(s) represent.
Effective Time of the Merger
The effective time will occur at the time and date specified in the articles
of merger to be filed by Premier with the Secretary of State of Georgia.
Premier and North Fulton currently anticipate that the filing of the articles
of merger will take place as soon as practicable following the date on which
the merger agreement is approved by the North Fulton shareholders and all other
conditions to the respective obligations of Premier and North Fulton to
complete the merger have been satisfied. If the North Fulton shareholders
approve the merger at the special shareholders' meeting, we currently
anticipate that the filing of the articles of merger and the effective time
will occur by August 31, 1999.
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Conditions to the Merger
Premier and North Fulton's obligations to complete the merger are subject to
satisfaction or, if permissible, waiver of the following conditions at or
before the effective time:
. the approval of the merger agreement by the holders of at least a
majority of the outstanding shares of North Fulton common stock;
. regulatory approval from the Board of Governors of the Federal Reserve
System and the Georgia Department of Banking and Finance and the
expiration of all applicable waiting periods associated with these
approvals, without any conditions or restrictions that would, in the
reasonable judgment of either party, so materially and adversely impact
the economic or business benefits of the merger as to render inadvisable
the consummation of the merger;
. the receipt by both parties of all necessary consents required for
consummation of the merger or for the preventing of any default under
any contract of either party, which, if not obtained, would be
reasonably likely to have a material adverse effect on the party;
. the absence of any action by any court or governmental authority of
competent jurisdiction restricting, prohibiting or making illegal the
consummation of the merger and the other transactions contemplated by
the merger agreement;
. the receipt by both parties of a written opinion from Womble Carlyle
Sandridge & Rice, PLLC, counsel to Premier, that the merger qualifies
for federal income tax treatment as a reorganization under Section
368(a) of the Internal Revenue Code, with the effects described under
"--Federal Income Tax Consequences of the Merger," including, among
others, that the exchange of North Fulton common stock for Premier
common stock will not give rise to recognition of gain or loss to North
Fulton shareholders, except to the extent of any cash received;
. approval for listing on the New York Stock Exchange of the shares of
Premier common stock to be issued in the merger;
. receipt of a letter from Ernst & Young LLP and Porter Keadle Moore, LLP
dated as of the effective time of the merger, regarding the
appropriateness of pooling of interests accounting treatment; and
. the conversion by all of the holders of the Series A Convertible
Subordinated Debentures issued by North Fulton of their debentures into
shares of North Fulton common stock so that following conversion, no
indebtedness shall remain owing to the holders under the debentures.
Consummation of the merger is also subject to the satisfaction or waiver of
various other conditions specified in the merger agreement which are customary
in transactions of this nature. These conditions include, among others: the
delivery by Premier and North Fulton of opinions of their respective counsel
and certificates executed by their respective duly authorized officers as to
the satisfaction of various conditions and obligations in the merger agreement,
the accuracy of various representations and warranties made by them, and their
compliance in all material respects with their agreements and covenants.
Conduct of North Fulton's and Premier's Business Prior to the Effective Time of
the Merger
North Fulton and Premier have each generally agreed to operate their
business only in the usual, regular and ordinary course, and to preserve intact
their business organizations and assets and maintain their rights and
franchises. Each has also agreed to take no action which would materially
adversely affect the ability of either party to obtain any consents required
for the merger or which would adversely affect the ability of either party to
perform its covenants and agreements under the merger agreement.
In addition, the merger agreement includes certain other restrictions
applicable to the conduct of the business of North Fulton prior to consummation
of the merger, as described below. North Fulton has agreed not to take various
actions relating to the operation of its business pending consummation of the
merger without
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Premier's prior written consent, which Premier has agreed it shall not
unreasonably withhold. The actions North Fulton has agreed not to take are in
the general categories of:
. amending the Articles of Incorporation, Bylaws, or other governing
instruments of North Fulton or its subsidiary;
. incurring additional indebtedness;
. acquiring any of its outstanding shares or making distributions,
including the payment of dividends, with respect to its outstanding
shares;
. issuing additional securities of North Fulton or rights or options to
acquire such securities;
. reclassifying any of North Fulton's capital stock or selling or
encumbering its assets;
. acquiring or investing in other entities;
. increasing employees' salaries and benefits or accelerating the vesting
of any stock-based compensation or employee benefits or entering into or
amending any employment contracts;
. adopting any new employee benefit plans or amending existing plans;
. changing accounting methods or practices;
. beginning or settling litigation;
. entering into or terminating material contracts; or
. defaulting under North Fulton's Series A Convertible Debentures or
modifying, altering or amending them.
In addition, North Fulton has agreed not to solicit, directly or
indirectly, any acquisition proposal from any other person or entity. North
Fulton also has agreed not to negotiate with respect to any acquisition
proposal, provide nonpublic information to any party making an acquisition
proposal, or enter into any agreement with respect to any acquisition
proposal, except in compliance with the fiduciary obligations of its board of
directors. In addition, North Fulton has agreed to cause its advisors and
other representatives not to engage in any of the foregoing activities.
Waiver, Amendment and Termination of the Merger Agreement
Prior to the effective time of the merger, and to the extent permitted by
law, any provision of the merger agreement generally may be waived by the
party benefited by the provision or amended by a written agreement between
Premier and North Fulton and approved by their respective boards of directors;
provided, however, that after approval by the North Fulton shareholders, no
amendment that, pursuant to the Georgia Business Corporation Code, requires
further approval of the North Fulton shareholders, including decreasing the
consideration to be received by North Fulton shareholders, may be made without
the shareholders' further approval.
The board of directors of either party may terminate the merger agreement,
and abandon the merger, at any time prior to the effective time of the merger,
either before or after approval by North Fulton shareholders, under selected
circumstances, including:
. final denial of any required consent of any regulatory authority, if the
denial is nonappealable or was not appealed within the time limit for
appeal;
. the failure of the holders of the requisite number of shares of North
Fulton common stock to approve the merger agreement;
. in the event of any inaccuracy in any representation or warranty by the
other party that meets certain
standards specified in the merger agreement and that cannot be or has
not been cured within 30 days
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after the giving of written notice to the breaching party, provided the
terminating party is not in material breach of any representation,
warranty, covenant, or agreement included in the merger agreement;
. in the event of a breach by the other party of any covenant or agreement
included in the merger agreement that cannot be cured within 30 days
after giving notice to the breaching party, provided the terminating
party is not in material breach of any representation, warranty,
covenant, or agreement included in the merger agreement;
. if the merger is not consummated by November 30, 1999, but only if the
failure to consummate the merger by such date has not been caused by the
terminating party's breach of the merger agreement.
In addition, the boards of directors may terminate the merger agreement and
abandon the merger by mutual consent. If the merger agreement is terminated,
the parties will have no further obligations, except with respect to selected
provisions, including those providing for payment of expenses and restricting
disclosure of confidential information. Further, termination generally will not
relieve the parties from the consequences of any uncured willful breach of the
merger agreement giving rise to the termination.
Directors and Executive Officers Following the Merger
The merger agreement provides that the officers and directors of Premier
after the effective time of the merger will consist of the officers and
directors of Premier before the merger, provided, however, that Premier must
select one of the current directors of North Fulton to serve on the board of
directors of Premier from and after the effective time of the merger.
Interests of Certain Persons in the Merger
Certain members of North Fulton's management have certain interests in the
merger that are in addition to their interests as shareholders of North Fulton
generally. The North Fulton board of directors was aware of these factors and
considered them, among other matters, in approving the merger agreement.
The merger agreement provides that, after the effective time of the merger,
Premier will provide certain employee benefits to officers and employees of
North Fulton and its subsidiary who, at or after the effective time, become
officers or employees of Premier or its subsidiaries. These employee benefits
will be under employee benefit plans, the terms and conditions of which, taken
as a whole, are substantially similar to those employee benefits Premier and
its subsidiaries currently provide to their similarly-situated officers and
employees. For purposes of participation under these employee benefit plans,
service with North Fulton or its subsidiary prior to the effective time of the
merger will be treated as service with Premier or its subsidiaries.
The merger agreement further provides that Premier will honor all
employment, severance, consulting and other compensation contracts North Fulton
previously disclosed to Premier between North Fulton or its subsidiary and any
current or former director, officer or employee. Premier will also honor all
provisions for vested amounts earned or accrued through the effective time
under North Fulton's benefit plans.
As described above, under "--Treatment of North Fulton Stock Options," the
merger agreement also provides that all rights with respect to North Fulton
common stock pursuant to stock options or stock appreciation rights granted
under North Fulton's stock option and other stock-based compensation plans
which are outstanding at the effective time, will be converted into and will
become rights with respect to Premier common stock. Premier will assume each of
these options in accordance with its terms.
The merger agreement also provides that each member of North Fulton's board
of directors will be entitled to receive a severance payment from Premier in
the amount of $25,000 in exchange for a one year non-competition/non-
solicitation agreement from the director, in a form as Premier may reasonably
request. The one year non-competition/non-solicitation period will begin on the
date the director no longer serves on the board of directors of Milton National
Bank, Premier or any of Premier's other subsidiaries.
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As of the record date, the directors and executive officers of North Fulton
owned 100 shares of Premier common stock.
Separation Agreement
In addition to the above, the merger agreement also provides that Milton
National Bank and Grant R. Essex will enter into a separation agreement at the
effective time of the merger. This separation agreement will provide that if
Mr. Essex's employment is terminated within one year after the effective time
of the merger for any reason, other than termination "for cause," he will be
entitled to receive a payment of $240,000. This payment is in exchange for
agreements from Mr. Essex providing that he will not for a period of two years
following his termination:
. disclose any confidential information relating to Milton National Bank,
Premier or Premier Bank;
. hire or attempt to hire any officer, director or employee of Milton
National Bank, Premier or Premier Bank;
. solicit for a competitive business any customers of Milton National Bank
with whom Mr. Essex had material personal contact at any time during the
last two years of his employment; and
. compete with Milton National Bank as an officer, director, significant
shareholder, employee or independent contractor, by working for or
engaging in a competitive business in the Georgia counties of Cobb,
Fulton, Forsyth and Gwinnett.
The separation agreement also provides that Mr Essex will be entitled to
receive an additional payment of $240,000 on the first anniversary date of his
termination provided that he is not in breach of the restrictive covenants
discussed above.
Rights of Dissenting Shareholders
Pursuant to the provisions of the Georgia Business Corporation Code, if the
merger is consummated, any shareholder of record of North Fulton who objects to
the merger and who fully complies with Sections 14-2-1301 through 14-2-1332 of
the Georgia Business Corporation Code will be entitled to demand and receive
payment in cash of an amount equal to the fair value of all, but not less than
all, of his or her shares of North Fulton common stock. A shareholder may
assert dissenters' rights as to fewer than the shares registered in his or her
name only if he or she dissents with respect to all shares beneficially owned
by any one beneficial owner and notifies North Fulton in writing of the name
and address of each person on whose behalf he or she asserts dissenters'
rights. For the purpose of determining the amount to be received in connection
with the exercise of statutory dissenters' rights, the fair value of a
dissenting shareholder's North Fulton common stock equals the value of the
shares immediately before the effective date of the merger, excluding any
appreciation or depreciation in anticipation of the merger.
Any shareholder of North Fulton desiring to receive payment of the fair
value of his or her North Fulton common stock in accordance with the
requirements of the dissenters' rights provisions of Georgia law must:
. deliver to North Fulton prior to the shareholder vote on the merger
agreement, a written notice of his or her intent to demand payment for
his or her shares if the merger is consummated;
. not vote his or her shares in favor of the merger agreement; and
. demand payment and deposit the stock certificates representing North
Fulton common stock in accordance with the terms of a notice which will
be sent to the shareholder by Premier no later than 10 days after the
merger is consummated.
A written notice of intent to dissent with respect to the merger should be
sent to: North Fulton Bancshares, Inc., 11650 Alpharetta Highway, Roswell,
Georgia 30076, Attention: President. A vote against the merger
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agreement alone will not satisfy the requirements for the separate written
notice of intent to dissent to the merger, the separate written demand for
payment of the fair value of shares of North Fulton common stock or the deposit
of the stock certificates. Rather, a dissenting shareholder must separately
comply with all of those conditions.
Within 10 days after the later of the effective date or receipt of a payment
demand by a shareholder who deposits his or her stock certificates in
accordance with the North Fulton dissenters' notice sent to those shareholders
who notified North Fulton of their intent to dissent, Premier must offer to pay
to each dissenting shareholder the amount Premier estimates to be the fair
value of the dissenting shareholder's shares, plus accrued interest. Premier's
offer must be accompanied by:
. North Fulton's balance sheet as of the end of a fiscal year ended not
more than 16 months before the date of making an offer, 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;
. an explanation of how the interest was calculated;
. a statement of the dissenting shareholder's right to demand payment of a
different amount under Section 14-2-1327 of the Georgia Business
Corporation Code; and
. a copy of the dissenters' rights provisions of the Georgia Business
Corporation Code.
If the dissenting shareholder accepts Premier's offer, by written notice to
Premier within 30 days after Premier's offer, or is deemed to have accepted the
offer by failing to respond to Premier's offer, Premier must make payment to
the dissenting shareholder for his or her shares within 60 days after the
making of the offer or the effective date, whichever is later. Upon payment of
the agreed value, the dissenting shareholder will cease to have any interest in
his or her shares of North Fulton common stock.
If within 30 days after Premier offers payment for the shares of a
dissenting shareholder, the dissenting shareholder does not accept the estimate
of fair value of his or her shares and interest due on that fair value and
demands payment of his or her own estimate of the fair value of the shares and
interest due, then Premier, within 60 days after receiving the payment demand
of a different amount from a dissenting shareholder, must file an action in a
court of competent jurisdiction in Fulton County, Georgia, requesting that the
fair value of the dissenting shareholder's shares be found and determined.
Premier must make all dissenting shareholders whose demands remain unsettled
parties to the proceeding. If Premier does not begin the proceeding within the
60-day period, it shall be required to pay each dissenting shareholder whose
demand remains unsettled the amount demanded by the dissenting shareholder.
This discussion of dissenters' rights under Georgia law is not a complete
statement of the provisions of the Georgia Business Corporation Code relating
to statutory dissenters' rights. You are urged to read the entire dissenters'
rights provisions of the Georgia Business Corporation Code, which have been
included as Appendix B to this proxy statement/prospectus.
Regulatory Approvals
The merger may not proceed in the absence of the requisite regulatory
approvals. It is possible that regulatory approvals may not be obtained or
obtained timely. It is also possible that any approval may be accompanied by a
conditional requirement which causes the approval to fail to satisfy the
conditions included in the merger agreement. Premier has submitted applications
for the approvals described below to the appropriate regulatory agencies.
Premier and North Fulton are not aware of any material governmental
approvals or actions that are required for consummation of the merger, except
as described below. Should any other approval or action be required, we
presently contemplate that we would seek such approval or action.
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The merger is subject to approval by the Board of Governors of the Federal
Reserve System under Section 3 of the Bank Holding Company Act of 1956. The
Federal Reserve will not approve the merger if it finds that the transaction
will result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize the business of banking in any geographic area. In addition, the
Federal Reserve will not approve the merger if it finds that the effect of the
merger may be to lessen competition substantially or to tend to create a
monopoly or would in any other manner be in restraint of trade, unless it finds
that the anti-competitive effects of the merger are clearly outweighed by the
public interest and the probable effect of the merger in meeting the
convenience and needs of the communities to be served. The Federal Reserve will
also take into consideration the financial condition, managerial resources and
future prospects of Premier, its subsidiaries and those of North Fulton.
Finally, the Federal Reserve will consider the compliance records of Premier's
subsidiaries under the Community Reinvestment Act.
The Bank Holding Company Act provides for the publication of notice and
comment on the merger application and authorizes the Federal Reserve to permit
interested parties to intervene in the proceedings. If an interested party is
permitted to intervene, the intervention could delay the regulatory approvals
required for consummation of the merger. Section 11 of the Bank Holding Company
Act imposes a waiting period which prohibits the consummation of the merger, in
ordinary circumstances, for a period ranging from 15-30 days following the
Federal Reserve's approval of the merger. During this period, the United States
Department of Justice may challenge the consummation of the merger on anti-
trust grounds.
Premier and North Fulton are also required to obtain the approval of the
Georgia Department of Banking and Finance under the provisions of the Financial
Institutions Code of Georgia before completing the merger. In its evaluation of
the merger, the Georgia Department will take into account considerations
similar to those applied by the Federal Reserve. The Georgia Department's
review of the application does not include an evaluation of the proposed
transaction from the financial perspective of the individual shareholders of
North Fulton. You should not construe the approval by the Georgia Department to
be a recommendation that North Fulton shareholders vote to approve the merger.
Each shareholder should evaluate the proposed merger to determine the personal
financial impact of the completion of the proposed merger. If you are not
knowledgeable in such matters, you are advised to obtain the assistance of
competent professionals in evaluating all aspects of the proposed merger,
including any determination that the completion of the proposed transaction is
in the best financial interest of the shareholder.
Material Federal Income Tax Consequences of the Merger
The following is a summary of the material anticipated federal income tax
consequences of the merger. This summary is based on the federal income tax
laws now in effect and as currently interpreted. This summary does not take
into account possible changes in such laws or interpretations, including
amendments to applicable statutes or regulations or changes in judicial or
administrative rulings, some of which may have retroactive effect. This summary
does not address all aspects of the possible federal income tax consequences of
the merger and is not intended as tax advice to any person.
In particular, this summary does not address the federal income tax
consequences of the merger to North Fulton shareholders in light of their
particular circumstances or status. For example, this summary does not address
the federal income taxation of the merger to North Fulton shareholders who are
foreign persons, tax-exempt entities, dealers in securities, insurance
companies or corporations, among others. Nor does this summary address any
consequences of the merger under any state, local, estate or foreign tax laws,
or the tax treatment of options or other rights to purchase shares of North
Fulton common stock that are or have been received as compensation. You are
urged to consult your own tax advisor as to the specific tax consequences of
the merger to you, including tax return reporting requirements, the application
and effect of federal, foreign, state, local and other tax laws, and the
implications of any proposed changes in the tax laws.
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In connection with the filing of the registration statement of which this
document is a part, Womble Carlyle Sandridge & Rice, PLLC delivered a tax
opinion to Premier and North Fulton. The following discussion summarizes the
material income tax consequences of the merger to the shareholders of Premier
and North Fulton. This discussion is qualified in its entirety by reference to
the tax opinion, which is included as an exhibit to the registration statement.
In connection with the tax opinion, Womble Carlyle Sandridge & Rice, PLLC has
relied upon such factual assumptions as are customary in similar tax opinions
and representations made by Premier and North Fulton in the merger agreement.
Based upon the merger agreement, the factual assumptions and representations
made by Premier and North Fulton, Womble Carlyle Sandridge & Rice, PLLC is of
the opinion that:
. The merger will be a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
. The shareholders of North Fulton will recognize no gain or loss upon the
exchange of their North Fulton common stock solely for shares of Premier
common stock, except for the recognition of gain as a result of the
receipt by the North Fulton shareholders of cash in lieu of fractional
shares.
. Cash that a dissenting North Fulton shareholder receives will be treated
as having been received as a distribution in redemption of his or her
North Fulton common stock. A dissenting shareholder will realize and
recognize gain or loss in an amount equal to the difference between the
amount of cash received and the adjusted basis of the North Fulton
common stock surrendered. North Fulton shareholders electing to exercise
dissenters' rights should consult their own tax advisors for tax
treatment for their particular circumstances.
. Neither Premier nor North Fulton will recognize income, gain or loss as
a consequence of the merger.
. The aggregate tax basis of the Premier common stock that North Fulton
shareholders receive pursuant to the merger will be the same tax basis
as their shares of North Fulton common stock being exchanged, decreased
by any portion of the tax basis allocated to fractional shares of
Premier common stock that Premier treats as redeemed.
. The holding period of the shares of Premier common stock that North
Fulton shareholders receive will include the holding period of the
shares of North Fulton common stock being exchanged, provided that the
North Fulton common stock is held as a capital asset on the date of the
consummation of the merger.
Accounting Treatment
It is anticipated that the merger will be accounted for as a pooling-of-
interests transaction under generally accepted accounting principles. Under
this accounting method, North Fulton shareholders will be deemed to have
combined their existing voting common stock interest with that of holders of
Premier common stock by exchanging their shares for shares of Premier common
stock. Accordingly, the book value of the assets, liabilities and shareholders'
equity of North Fulton, as reported on its consolidated balance sheet, will
carry over to Premier's consolidated balance sheet, and no goodwill will be
created. Premier will be able to include in its consolidated income the
consolidated income of North Fulton for the entire fiscal year in which the
merger occurs. Premier, however, will reflect some of its expenses incurred to
effect the merger as current charges against income rather than adjustments to
its balance sheet. If the merger does not qualify for pooling-of-interests
accounting treatment, Premier may, in its discretion, terminate the
transaction.
Restrictions on Resales by Affiliates
All shares of Premier common stock issuable in the merger will be registered
under the Securities Act of 1933 and will be freely transferable, except for
shares received by "persons" who are deemed to be "affiliates" of North Fulton.
At the effective time, affiliates may resell their Premier common stock (a)
only in transactions registered under the Securities Act of 1933 or permitted
by the resale provisions of Rule 145 under
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the Securities Act or as otherwise permitted by the Securities Act and (b)
following the satisfaction of the requirements of the Securities and Exchange
Commission's Accounting Series Release Nos. 130 and 135 relating to publication
of financial results of the post-merger combined operations of Premier and
North Fulton. Affiliates generally include individuals or entities that
directly, or indirectly through one or more intermediaries, control, are
controlled by or are under common control with North Fulton, and include
directors and certain executive officers of North Fulton. The restrictions on
resales by an affiliate extend also to certain related parties of the
affiliate, including spouses, relatives and spouse's relatives who in each case
have the same home as the affiliate.
The merger agreement requires North Fulton to cause each of its affiliates
to deliver to Premier a written agreement to the effect generally that the
affiliate will not offer or otherwise dispose of any shares of Premier common
stock issued to that affiliate in the merger, except in compliance with (a) the
Securities Act and the rules and regulations issued under the Securities Act
and (b) the requirements of the accounting releases described above.
Description of Premier Common Stock
Premier is currently authorized to issue 60,000,000 shares of Premier common
stock, of which 26,190,090 shares were issued and outstanding as of July 30,
1999. Holders of Premier common stock are entitled to receive such dividends as
Premier's board of directors may declare out of funds legally available.
Premier's ability to pay dividends is affected by its subsidiaries' ability to
pay dividends, which is limited by applicable regulatory requirements and
capital guidelines. At March 31, 1999, under these requirements and guidelines,
Premier's combined subsidiaries had approximately $15.6 million, respectively,
of undivided profits legally available for the payment of dividends without
regulatory approval. See "Regulatory Considerations--Payment of Dividends."
Certain Differences in Rights of Shareholders
General. Prior to the merger, North Fulton's shareholders' rights will be
governed by the Georgia Business Corporation Code and North Fulton's Articles
of Incorporation and Bylaws. As a result of the merger, North Fulton
shareholders will become Premier shareholders and their rights will be governed
by the Georgia Business Corporation Code and Premier's Articles of
Incorporation and Bylaws. Because of differences between North Fulton's
Articles of Incorporation and Bylaws and Premier's Articles of Incorporation
and Bylaws, the current rights of North Fulton shareholders will change after
the merger. The following is a summary of the material differences in the
rights of shareholders of Premier and North Fulton. This summary is not
intended to be a complete discussion of the Georgia Business Corporation Code
and the Articles of Incorporation and Bylaws of Premier and North Fulton.
Authorized Capital Stock. Premier is currently authorized to issue
60,000,000 shares of common stock, $1.00 par value, of which 26,190,090 shares
were outstanding as of July 30, 1999. No other class of common stock is
currently authorized. The board of directors of Premier may issue additional
shares of Premier's common stock up to the maximum amount permitted by the
Articles of Incorporation, without further action by the Premier shareholders,
unless applicable law requires shareholder action. Premier's Articles of
Incorporation provide that no shareholders of Premier will have any preemptive
rights to subscribe for or to purchase any shares or other securities Premier
issues.
Premier's Articles of Incorporation provide for the issuance of up to
2,000,000 shares of preferred stock by the board of directors of Premier
without further shareholder action. Premier's board of directors may issue
preferred stock in one or more series, and the board may determine the rights,
preferences, privileges and restrictions, including dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, amounts payable
upon liquidation and number of shares constituting any series or the
designation of the series. Premier has designated a series of non-voting
preferred stock, $60.00 par value per share. Premier's preferred stock pays a
dividend of 8% of its par value each year from current earnings or undivided
profits, and is
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cumulative but subordinate to the rights of trade creditors. If at any time
Premier is in default in the payment of the dividends on its preferred stock
and until such time as the default is cured, the holders of Premier's preferred
stock will be entitled to one vote for each share of Premier's preferred stock
along with the holders of Premier's common stock on all matters coming before
the shareholders at all regular and called Premier shareholder meetings.
Beginning on January 1, 2000, Premier has the right to redeem up to 20% of its
originally issued preferred stock each year at a redemption price of $60.00 per
share, plus all accrued and unpaid dividends. The holder of any preferred stock
that remains issued and outstanding after May 20, 2004 may require Premier to
redeem such preferred stock at a redemption price of $60.00 per share, plus all
accrued and unpaid dividends. There are currently 40,770 shares of Premier's
preferred stock issued and outstanding.
North Fulton is authorized to issue 10,000,000 shares of North Fulton's
common stock, no par value, of which 1,828,821 shares were issued and
outstanding as of July 21, 1999. North Fulton's board of directors has not
authorized any other class of capital stock. North Fulton's board of directors
may issue additional shares of common stock up to the maximum amount permitted
by North Fulton's Articles of Incorporation, without further action by North
Fulton's shareholders, unless applicable law requires shareholder action. North
Fulton's Articles of Incorporation do not provide North Fulton's shareholders
with preemptive rights to purchase or subscribe to any unissued authorized
shares of North Fulton's common stock.
Removal of Directors. Premier's Bylaws provide that a director may be
removed from office, at a meeting the purpose for which was disclosed in the
notice to shareholders,
. without cause, only upon the affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of Premier's common
stock; and
. with cause, only upon the affirmative vote of the holders of a majority
of the issued and outstanding shares of Premier's common stock.
The term "cause" means the adjudication of the director as incompetent by a
court having jurisdiction in the matter; the conviction of the director of a
felony; the failure of the director to accept office either in writing or by
attendance at no less than one of the first two meetings of the board of
directors following his or her election; or the failure of the director to
attend regular meetings of the board of directors for six consecutive meetings
without having been excused by the board of directors.
Pursuant to North Fulton's Articles of Incorporation, a director may be
removed from office, at a meeting the purpose for which was disclosed in the
notice to shareholders,
. without cause, by the affirmative vote of the holders of two-thirds of
the issued and outstanding shares of North Fulton's common stock, or
. with cause, by the affirmative vote of the holders of a majority of the
issued and outstanding shares of North Fulton's common stock.
The term "cause" means the conviction of the director of a felony; the
request or demand of any bank regulatory authority that the director be
removed; or the determination by at least two-thirds of the Board of Directors,
excluding the director to be removed, that the director's conduct has been
inimical to the best interests of North Fulton.
Limitation on Director Liability. Premier's Articles of Incorporation
provide that no director of Premier will be personally liable to Premier or its
shareholders for monetary damages for a breach of the duty of care or other
duty as a director, provided that this elimination of liability will not
eliminate or limit the liability of a director
. for an appropriation in violation of his or her duties of any business
opportunity of Premier;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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. for the types of liability described in section 14-2-832 of the Georgia
Business Corporation Code; or
. for any transaction in which the director received an improper personal
benefit.
Section 14-2-832 of the Georgia Business Corporation Code provides that a
director who votes for or assents to a distribution made in violation of
section 14-2-640 of the Georgia Business Corporation Code or the articles of
incorporation is personally liable to the corporation for the amount of the
distribution that exceeds what could have been distributed without violating
section 14-2-640 of the Georgia Business Corporations Code or the articles of
incorporation. However, for the director to be liable for such amount, the
corporation must establish that the director did not perform his or her duties
in a manner the director believed in good faith to be in the best interests of
the corporation and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances. Section 14-2-640 of the
Georgia Business Corporation Code describes specific situations when a
corporation is not permitted to make distributions.
North Fulton's Articles of Incorporation provide that no director of North
Fulton will be personally liable to North Fulton or its shareholders for
monetary damages for a breach of any duty as a director, except for liability
for
. any appropriation in violation of his or her duties of any business
opportunity of North Fulton;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. the types of liability set forth in section 14-2-832 of the Georgia
Business Corporation Code; or
. any transaction from which the director derived an improper material
tangible personal benefit.
Indemnification. Premier's Bylaws provide that Premier may indemnify or
obligate itself to indemnify an individual made a party to a proceeding because
he or she is or was a director, officer, employee or agent of Premier. Premier
may indemnify these individuals for reasonable expenses, judgments, fines,
penalties and amounts paid in settlement that are incurred in connection with
the proceeding if the individual acted in a manner he or she believed in good
faith to be in or not opposed to the best interests of Premier and, in the case
of any criminal proceeding, he or she had no reasonable cause to believe his or
her conduct was unlawful. To the extent that a director, officer, employee or
agent of Premier has been successful, on the merits or otherwise, in defending
any proceeding to which he or she was a party, or in defending any claim, issue
or matter in the proceeding, because he or she is or was a director, officer,
employee or agent of Premier, Premier will indemnify the director, employee or
agent against reasonable expenses he or she incurred in connection with the
proceeding.
North Fulton's Bylaws provide that North Fulton will indemnify or obligate
itself to indemnify an individual made a party to a proceeding because he or
she is or was a director, officer, employee or agent of North Fulton or was
serving at the request of North Fulton as a director, officer or employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. North Fulton may indemnify these individuals for reasonable
expenses, judgments, fines, penalties and amounts paid in settlement (including
attorneys' fees), that are incurred in connection with the proceeding if the
individual acted in a manner he or she believed in good faith to be in the best
interests of North Fulton and, in the case of any criminal proceeding, he or
she had no reasonable cause to believe his or her conduct was unlawful. The
termination of a proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent will not, of itself, determine
whether the director, officer, employee or agent met the standard of conduct
described above. Indemnification in connection with a proceeding by or in the
right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
Mergers, Consolidations, and Sales of Assets. Neither Premier's Articles of
Incorporation or Bylaws provide for specific approval requirements for mergers,
consolidations and sales of assets. As a result, the provisions of the Georgia
Business Corporation Code govern the approval of these transactions. The
Georgia
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Business Corporation Code generally provides that approval of these
transactions requires a recommendation by the board of directors to the
shareholders and approval by the shareholders by a majority of all the votes
entitled to be cast by all shares entitled to vote on the transaction.
North Fulton's Articles of Incorporation require the affirmative vote of the
holders of at least two-thirds of the issued and outstanding shares of North
Fulton's common stock entitled to vote on the transaction to approve any merger
or share exchange with or into any other corporation or any sale, lease,
exchange or other disposition of all or substantially all of North Fulton's
assets to any other corporation, person or other entity if, as of the record
date for determining which shareholders are eligible to vote on the
transaction, the other corporation, person or entity which is a party to such
transaction owns, directly or indirectly, five percent (5%) or more of North
Fulton's issued and outstanding shares entitled to vote. However, this
shareholder vote will not be necessary if:
. two-thirds of North Fulton's directors sign a memorandum of
understanding before the other party to the transaction acquires 5% of
North Fulton's issued and outstanding common stock;
. two-thirds of North Fulton's directors approve the transaction after the
other party to the transaction has acquired 5% of North Fulton's issued
and outstanding common stock; or
. North Fulton and its subsidiaries own a majority of the outstanding
shares of all classes of stock entitled to vote of the other party to
the transaction.
North Fulton's Articles of Incorporation also provide that when evaluating
another party's offer to make a tender offer or exchange offer for any equity
security of North Fulton, to merge or consolidate any other corporation with
North Fulton or to purchase or otherwise acquire all or substantially all of
North Fulton's assets, the board of directors will, in determining what is in
North Fulton's best interests, give due consideration to all relevant factors.
The Articles of Incorporation include the following as factors the board of
directors may consider, without limitation:
. the short-term and long-term social and economic effects on the
constituents of North Fulton and its subsidiaries and on the communities
which they serve; and
. the consideration the other party is offering in relation to North
Fulton's then-current value in a freely-negotiated transaction and in
relation to the board's estimate of North Fulton's future value as an
independent entity.
Number of Directors. Premier's Bylaws state that its board of directors will
consist of not less than four nor more than 19 directors. The board of
directors or the shareholders may fix or change the number of directors from
time to time within this range. The Premier board of directors presently is
fixed at 15 members.
North Fulton's Bylaws state that its board of directors will consist of not
less than five nor more than 18 directors. The board of directors or
shareholders will determine the number of directors from time to time by
resolution. North Fulton's board of directors presently consists of 15 members.
Dividends. Premier's Articles of Incorporation provide that subject to the
provisions of section 14-2-640 of the Georgia Business Corporation Code, the
board of directors will have the power to distribute a portion of Premier's
assets, in cash or in property, to Premier shareholders out of Premier's
capital surplus. As explained above, section 14-2-640 of the Georgia Business
Corporation Code establishes certain situations where a corporation may not
make distributions to its shareholders.
Neither North Fulton's Bylaws nor Articles of Incorporation address how or
when North Fulton may pay dividends to shareholders.
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BUSINESS OF PREMIER
General
Premier is a bank holding company headquartered in Atlanta, Georgia. Premier
conducts operations primarily in the metropolitan Atlanta area. However,
Premier also has significant operations in other areas of Georgia, as well as a
limited presence in Alabama, Florida, North Carolina, South Carolina and
Tennessee. Premier operates primarily through its commercial bank subsidiary,
Premier Bank. The principal asset of Premier is all of the issued and
outstanding shares of common stock of Premier Bank.
Subsidiary
Premier Bank currently operates through 21 commercial banking offices in
Georgia. Premier Bank is a Georgia chartered commercial bank that provides a
wide range of banking services in its local markets for retail and commercial
customers, including small and mid-size businesses, public agencies and local
governments and individuals. In addition, Premier Lending Corporation, a wholly
owned subsidiary of Premier Bank, operates a total of 15 offices throughout the
Southeast. Premier Lending is a Georgia corporation that operates primarily as
a mortgage banker and acts as an intermediary between purchasers of residential
real estate or homeowners refinancing their residences and correspondent or
institutional investors seeking to purchase mortgage loan investments.
Acquisitions
Premier's profitability and market share have increased through both
internal growth and acquisitions of other financial institutions located in
Georgia.
On June 23, 1997, Premier completed its merger with Central and Southern
Holding Company, a Georgia corporation that served as the holding company for
The Central and Southern Bank of Georgia and The Central and Southern Bank of
North Georgia, FSB, in a transaction that was accounted for as a pooling of
interests. Effective April 24, 1998, The Central and Southern Bank of North
Georgia, FSB was merged into Premier Bank; and effective March 19, 1999, The
Central and Southern Bank of Georgia was merged into Premier Bank.
On December 12, 1997, Premier completed the acquisition of Citizens Gwinnett
Bankshares, Inc., a Georgia corporation that served as the holding company for
Citizens Bank of Gwinnett, in a transaction accounted for as a pooling of
interests. Effective March 27, 1998, Citizens Bank of Gwinnett was merged into
Premier Bank.
On June 9, 1998, Premier completed the acquisition of Lanier Bank & Trust
Company, a Georgia chartered commercial bank, and the merger of Lanier Bank &
Trust Company into Premier Bank. This transaction was accounted for as a
pooling of interests.
On July 1, 1998, Premier completed the acquisition of Button Gwinnett
Financial Corporation, a Georgia corporation that served as the holding company
for The Bank of Gwinnett County, in a transaction accounted for as a pooling of
interests. Effective December 4, 1998, The Bank of Gwinnett County was merged
into Premier Bank.
On July 2, 1998, Premier completed the acquisition of The Bank Holding
Company, a Georgia corporation that served as the holding company for The Bank
of Spalding County and First Community Bank of Henry County, in a transaction
that was accounted for as a pooling of interests. Effective April 23, 1999, The
Bank of Spalding County was merged into Premier Bank; and effective May 7,
1999, First Community Bank of Henry County was merged into Premier Bank.
On December 17, 1998, Premier completed the acquisition of Frederica Bank &
Trust, a Georgia chartered commercial bank, in a transaction accounted for as a
pooling of interests. Effective April 2, 1999, Frederica Bank & Trust was
merged into Premier Bank.
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On April 20, 1999, Premier announced an agreement to acquire Farmers &
Merchants Bank, a Georgia chartered commercial bank located in Summerville,
Georgia, in a stock transaction valued at $56 million, based on Premier's
closing price of $19.25 on April 19, 1999. The exchange ratio will be 4.028
shares of Premier common stock for each share of Farmers & Merchants common
stock. Farmers & Merchants was originally organized in 1926, and has assets of
approximately $173 million. From its main office and three branches in
Chattooga County, Georgia, Farmers & Merchants currently holds approximately
75% of the market area's deposits, giving it the largest market share in its
market. The acquisition of Farmers & Merchants, which will be accounted for as
a pooling of interests, is subject to the approval of regulators and Farmers &
Merchants shareholders and is expected to be completed during the third quarter
of 1999.
On May 20, 1999, Premier announced an agreement to acquire Bank Atlanta, a
Georgia chartered commercial bank located in Decatur, Georgia, in a stock
transaction valued at $18.1 million, based on Premier's closing price of $20.50
on May 19, 1999. The exchange ratio will be 1.25 shares of Premier common stock
for each share of Bank Atlanta common stock. Bank Atlanta was chartered in
1986, and has assets of approximately $80 million. The acquisition of Bank
Atlanta, which will be accounted for as a pooling of interests, is subject to
the approval of regulators and Bank Atlanta shareholders and is expected to be
completed during the third quarter of 1999.
On July 28, 1999, Premier entered into an Agreement and Plan of
Reorganization with BB&T Corporation, pursuant to which Premier will be merged
with and into BB&T and BB&T will be the surviving corporation. As a result of
this merger, each share of Premier common stock then outstanding, including
shares of Premier common stock you will receive as North Fulton shareholders,
will be converted into the right to receive 0.5155 shares of BB&T common stock,
plus cash in lieu of any fractional share interest. BB&T is a multi-bank
holding company headquartered in Winston-Salem, North Carolina. BB&T conducts
its operations in North Carolina, South Carolina, Georgia, Virginia, Maryland,
and Washington, D.C., primarily through its commercial banking subsidiaries,
and to a lesser extent, through its other subsidiaries. As of March 31, 1999,
BB&T had total assets of approximately $38 billion, total deposits of
approximately $24.5 billion, and total shareholders' equity of approximately $3
billion. The merger of Premier with and into BB&T is subject to the approval of
Premier shareholders and banking regulators. The merger is expected to be
accounted for as a pooling of interests and is expected to be completed in the
first quarter of 2000. You, as a shareholder of North Fulton, will be able to
vote on the merger of Premier and BB&T as a result of your status as a Premier
shareholder following Premier's completion of its merger with North Fulton. The
foregoing is qualified in its entirety by reference to Premier's Current Report
on Form 8-K dated August 3, 1999. See "Incorporation By Reference."
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BUSINESS OF NORTH FULTON
General
North Fulton was incorporated in 1990 as a one-bank holding company. North
Fulton has one subsidiary, Milton National Bank, located in Roswell, Georgia.
North Fulton serves the Buckhead community through a division of Milton
National known as The Buckhead Bank. Milton National is a full-service
commercial bank, offering personal and business checking accounts, interest-
bearing checking accounts, and various types of certificates of deposit. Milton
National also provides financing for commercial transactions, makes secured and
unsecured loans, and provides other financial services to its customers. At
March 31, 1999, North Fulton had total consolidated assets of approximately
$191.9 million, total deposits of approximately $158.2 million, and total
consolidated shareholders' equity of approximately $9.8 million.
North Fulton's principal executive offices are located at 11650 Alpharetta
Highway, Roswell, Georgia 30076, and its telephone number at that address is
(770) 664-1990.
Market Area and Competition
North Fulton is located in Roswell, Georgia. Its primary market area is
defined as northern Fulton County, Georgia, from which it draws a majority of
its business. North Fulton competes for deposits and loans with numerous other
financial institutions whose resources are equal to or greater than those
available to North Fulton.
Lending Services
General. At March 31, 1999, North Fulton's commercial loans and leases
comprised 52.6% of its total loan portfolio, its real estate-related loans
comprised 43.9% of its total loan portfolio, and its consumer loans comprised
3.5% of its total loan portfolio.
Loan Approval and Review. North Fulton's loan approval policies provide for
various levels of officer lending authority. When the total amount of loans to
a single borrower exceeds that individual officer's lending authority, an
officer with a higher lending limit or North Fulton's loan committee determines
whether to approve the loan request. North Fulton makes loans to its directors
and executive officers on terms that are no more favorable than are available
to any other borrower.
Lending Limits. North Fulton's lending activities are subject to a variety
of lending limits imposed by federal law. Differing limits apply based on the
type of loan and the nature of the borrower, including the borrower's other
loan relationships with North Fulton. In general, however, North Fulton is able
to loan any one borrower a maximum amount equal to either:
. 15% of North Fulton's capital and surplus; or
. 25% of its capital and surplus if the excess over 15% is within the
federal guidelines that provide an exception to the 15% limit for some
types of secured debt.
At March 31, 1999, North Fulton's lending limit was approximately $2.4 million
for loans not fully secured and approximately $4.1 million for loans that meet
the federal guidelines for secured debt.
Credit Risk. The principal economic risk associated with each category of
the loans that North Fulton makes is the creditworthiness of the borrower.
Borrower creditworthiness is affected by general economic conditions and the
strength of the service and retail market segments. Risks associated with real
estate loans also include fluctuations in the value of real estate, new job
creation trends, tenant vacancy rates and, in the case of commercial borrowers,
the quality of the borrower's management. In addition, a commercial borrower's
ability both to properly evaluate changes in the supply and demand
characteristics affecting its markets for
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products and services and to respond effectively to such changes are
significant factors in determining its creditworthiness. General economic
factors affecting a borrower's ability to repay include interest, inflation and
employment rates.
Commercial Loans. North Fulton makes commercial loans to small- and medium-
size businesses and professional concerns. The terms of these loans vary by
their purpose and by their underlying collateral, if any. North Fulton
typically makes equipment loans for a term of seven years or less at fixed or
variable rates, with the loan being fully amortized over the term. Equipment
loans are generally secured by the financed equipment, and the ratio of the
amount of the loan to the value of the financed equipment or other collateral
is generally 80% or less. Loans to support working capital typically have terms
of one year or less and are usually secured by accounts receivable and
inventory. In general, all loans carry the personal guarantees of the
principals of the business. For loans secured by accounts receivable or
inventory, principal is typically repaid as the assets securing the loan are
converted into cash, and for loans secured with other types of collateral,
principal is typically due at maturity. The quality of the commercial
borrower's management, its ability to properly evaluate changes in the supply
and demand characteristics affecting its markets for products and services, and
its ability to respond effectively to such changes are significant factors in
its creditworthiness.
North Fulton also makes commercial loans to small businesses with respect to
which the SBA generally guarantees repayment of up to 75% of the loan amount,
subject to certain other limitations. North Fulton may sell the guaranteed
portion of these loans to institutional investors in the secondary markets. On
such loans, North Fulton retains servicing rights and obligations on all the
guaranteed portions sold. Risks associated with these loans include credit
risk, e.g., fraud, bankruptcy, economic downturn, deteriorated or non-existing
collateral and changes in interest rates, and operational risk, e.g., failure
of North Fulton to adhere to SBA funding and servicing requirements in order to
secure and maintain the SBA guarantees and servicing rights.
Real Estate Loans. North Fulton makes commercial real estate loans,
construction and development loans, and residential real estate loans in and
around northern Fulton County. These loans include commercial loans where North
Fulton takes a security interest in real estate. The primary source of
repayment on these loans, however, is generally not from the sale or rental of
the real estate; rather, it is from the operations of the business. Real estate
loans exclude home equity loans which are classified as consumer loans.
Commercial Real Estate. Commercial real estate loan terms generally are
limited to five years or less, although payments may be structured on a longer
amortization basis. Interest rates may be fixed or adjustable, although rates
generally are not fixed for a period exceeding 60 months. North Fulton will
also generally charge an origination fee. North Fulton attempts to reduce
credit risk on its commercial real estate loans by generally:
. emphasizing loans on owner-occupied office, warehouse and retail
buildings;
. limiting the ratio of the principal amount of the loan to the value of
the collateral, as established by an independent appraisal, to no more
than 80%; and
. requiring that the net projected cash flow available for debt service
equal 120% of the debt service requirement.
In addition, North Fulton generally requires personal guarantees from the
property owners supported by North Fulton's review of the owners' personal
financial statements. Risks associated with commercial real estate loans
include fluctuations in the value of real estate, new job creation trends,
tenant vacancy rates and the quality of the borrower's management. North Fulton
limits its risk by analyzing borrowers' cash flow and their collateral value on
an ongoing basis.
Construction and Development Loans. North Fulton makes construction and
development loans on a pre-sold and speculative basis. If the borrower has
entered into an agreement to sell the property prior to beginning construction,
then the loan is considered to be on a pre-sold basis. If the borrower has not
entered
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into an agreement to sell the property prior to beginning construction, then
the loan is considered to be on a speculative basis. Construction and
development loans are generally made with a term of nine months and interest is
paid monthly. The ratio of the principal amount of the loan to the value of the
collateral, as established by an independent appraisal, does not exceed 75%.
Speculative loans are based on the borrower's track record, financial strength
and cash flow position. Loan proceeds are disbursed as the project is completed
and only after the project has been physically inspected by an experienced
construction lender or appraiser. Risks associated with construction loans
include fluctuations in interest rates and in the value of real estate, and new
job creation trends.
Residential Real Estate. North Fulton's residential real estate loans
consist of residential construction loans and residential mortgage loans. North
Fulton offers variable rates on its residential construction loans and
generally makes these loans to both established builders and directly to
homeowners. The ratio of the construction loan principal to the value of
collateral, as established by an independent appraisal, generally does not
exceed 75%. North Fulton believes that this loan-to-value ratio limitation is
sufficient to compensate for fluctuations in real estate market value and to
minimize losses that could result from a downturn in the residential real
estate market.
North Fulton also originates residential mortgage loans for sale to
institutional investors in the secondary market. North Fulton limits its
interest rate risk and credit risk on these loans by locking in the interest
rate for each loan with the secondary market investor and receiving the
investor's underwriting approval before making the loan.
Consumer Loans. North Fulton makes a variety of loans to individuals for
personal, family and household purposes, including secured and unsecured
installment and term loans, home equity loans and lines of credit. Consumer
loan repayments depend upon the borrower's financial stability and can be
adversely affected by divorce, job loss, illness and personal hardships.
Because many consumer loans are secured by depreciable assets such as boats,
cars and trailers, North Fulton amortizes the loan over the useful life of the
asset. To minimize the risk that the borrower cannot afford the monthly
payments, North Fulton limits fixed monthly obligations to no more than 38% of
the borrower's gross monthly income. In addition, the borrower should also be
employed for at least 12 months prior to obtaining the loan. The loan officer
reviews the borrower's past credit history, past income level, debt history
and, when applicable, cash flow to determine the impact of all of these factors
on the borrower's ability to make future payments as agreed.
Investments
In addition to loans, North Fulton makes other investments primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States, other taxable securities and other obligations
of states and municipalities. As of March 31, 1999, investment securities
comprised approximately 16% of North Fulton's assets, with net loans comprising
approximately 69.4% of North Fulton's assets. North Fulton also engages in
Federal funds transactions with its principal correspondent banks, and
North Fulton primarily acts as a net seller of Federal funds. The sale of
Federal funds amounts to a short-term loan from North Fulton to another
financial institution.
Deposits
North Fulton offers a wide range of commercial and consumer deposit
accounts, including checking accounts, money market accounts, a variety of
certificates of deposit, and individual retirement accounts. The primary
sources of deposits are residents of, and businesses and their employees
located in and around, northern Fulton County. Deposits are obtained through
personal solicitation by North Fulton's officers and directors, direct mail
solicitations and advertisements published in the local media. North Fulton
offers a broad array of competitively priced deposit services, including demand
deposits, regular savings accounts, money market deposits (transaction and
investment), certificates of deposit, retirement accounts, and other deposit or
funds transfer services which may be permitted by law or regulation and which
may be offered to remain competitive in the market.
34
<PAGE>
Employees
At March 31, 1999, North Fulton and Milton National employed 52 full-time
employees. North Fulton considers its employee relationships to be excellent.
Facilities
North Fulton owns its main office which is located at 11650 Alpharetta
Highway in Roswell, Georgia. Its Buckhead Bank division is located in a leased
facility at 3520 Piedmont Road, N.E. in Atlanta, Georgia. Its SBA and leasing
offices are located in a leased facility at 11660 Alpharetta Highway, Suite 220
in Roswell, Georgia. Its operations and financial accounting areas are located
in a leased facility at 11660 Alpharetta Highway, Suite 225, in Roswell,
Georgia.
Legal Proceedings
Neither North Fulton nor any of its properties is subject to any material
pending legal proceedings, and North Fulton does not know of any material
proceedings being contemplated by any governmental authority.
35
<PAGE>
NORTH FULTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis discusses the major factors that
affected North Fulton's results of operations and financial condition for the
periods shown. These comments are intended to supplement and highlight
financial and other information and should be read in conjunction with North
Fulton's financial statements, related notes and selected financial data
presented elsewhere in this proxy statement/prospectus.
General
North Fulton was organized in 1990 as a bank holding company. North Fulton
has one subsidiary, Milton National Bank, located in Roswell, Georgia. North
Fulton serves the Buckhead community through a division of Milton National
known as The Buckhead Bank.
Forward Looking Statement
This discussion contains forward-looking statements that involve risks and
uncertainties. Although North Fulton believes that the assumptions underlying
the forward-looking statements contained in the discussion are reasonable, any
of the assumptions could be inaccurate, and, therefore, no assurance can be
made that any of the forward-looking statements included in this discussion
will be accurate. Factors that could cause actual results to differ from
results discussed in forward-looking statements include, but are not limited
to:
. economic conditions (both generally and in the markets where North
Fulton operates);
. competition from other providers of financial services offered by North
Fulton;
. government regulation and legislation;
. changes in interest rates;
. material unforeseen changes in the financial stability and liquidity of
North Fulton's credit customers; and
. material unforeseen complications related to the year 2000 issues for
North Fulton, its suppliers, customers and governmental agencies, all of
which are difficult to predict and which may be beyond the control of
North Fulton.
North Fulton undertakes no obligation to revise forward-looking statements to
reflect events or changes after the date of this discussion or to reflect the
occurrence of unanticipated events.
Year 2000 Considerations
North Fulton is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 or Y2K
issue is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit value to 00. The issue is
whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize this
information could generate erroneous data or cause a system to fail.
North Fulton is utilizing internal resources to identify, correct or
reprogram, and test its systems for the Y2K compliance. All mission critical
computer systems have been Y2K certified and tested by North Fulton.
Confirmation has been received from North Fulton's primary processing vendors
indicating that their software has been certified Y2K compliant and that this
certification has been validated through testing. If, however, North Fulton's
mission-critical systems and its primary software programs were unable to
process data reliably, North Fulton would be forced to obtain the same services
from another service provider or, in the alternative, to cease operations until
the existing system becomes year 2000 compliant. A failure in these systems,
software programs or any other date sensitive system could have a material
adverse effect on North Fulton's results of operations, liquidity and financial
condition.
36
<PAGE>
North Fulton also believes that its customers' year 2000 readiness could
also have a significant effect on its operations. For example, if a customer
with an outstanding loan from North Fulton is unable to maintain its cash flow
as a result of disruption caused by its own or its customers' year 2000
problems, the customer could default in the repayment of the loan, which would
lead to increased loan losses for North Fulton. Although North Fulton considers
this possibility when originating loans and establishing loan loss reserves,
the potential losses could exceed its estimates and ultimately cause a net loss
to North Fulton. To address this concern, North Fulton communicates with
customers on an ongoing basis regarding their year 2000 readiness and attempts
to identify at the earliest opportunity those customers that are likely to
encounter year 2000 problems. North Fulton works with these customers to
ensure, to the greatest extent possible, that their year 2000 compliance issues
do not disrupt North Fulton's operations.
Management has not yet fully determined the Y2K compliance expense and
related potential effect on North Fulton's earnings. Direct costs, however, are
not expected to be material to the consolidated results of operations and will
be expensed as incurred. Expenses in 1998 and 1997 related to the Y2K issue
were not material to North Fulton's financial results of operations.
Financial Condition--March 31, 1999 vs. December 31, 1998
Total assets at March 31, 1999, were $192 million, representing an $18
million (11%) increase from December 31, 1998. Cash and cash equivalents
increased $9 million when compared to December 31, 1998. Deposits increased $15
million (11%) while loans increased $6 million (5%) when compared to December
31, 1998, which reflected increased deposits not being utilized to fund
investments or loans. The allowance for loan losses at March 31, 1999, totaled
$1.7 million, representing 1.24% of total loans compared to December 31, 1998,
total of $1.6 million representing 1.23% of total loans.
Total nonperforming assets, which includes nonaccruing loans, repossessed
collateral and loans for which payments are more than 90 days past due,
decreased 34% or $291,000 from $858,000 at December 31, 1998, to $567,000 at
March 31, 1999. There were no related party loans that were considered
nonperforming at March 31, 1999.
Milton National Bank was most recently examined by its primary regulatory
authority in January 1999. There were no recommendations by the regulatory
authority that in management's opinion will have material effects on North
Fulton's liquidity, capital resources or operations.
Results of Operations--March 31, 1999 vs. March 31, 1998
For the three months ended March 31, 1999, North Fulton reported net income
of $407,366, or $.19 diluted earnings per share, compared to $315,114, or $.16
diluted earnings per share, for the same period in 1998. Net income for the
three months ended March 31, 1999, increased $92,252, or 29%, compared to the
same period in 1998. The increase was primarily due to the increase in net
interest income of $110,458 and the decrease in the provision for loan losses
of $50,205 offset by increased operating expenses of $51,025 when compared to
the same period in 1998.
Net interest income is the primary source of North Fulton's operating
income. Net interest income increased $110,458 (7%) in the first three months
of 1999 compared to the same period for 1998. Interest income for the first
three months of 1999 was $3,655,559, representing an increase of $589,702 (19%)
over the same period in 1998. Interest expense for the first three months of
1999 increased $479,244 (34%) compared to the same period in 1998. The increase
in interest income and interest expense during the first three months of 1999
compared to the same period in 1998 is primarily attributable to the increase
in the volume of both loans and deposits.
The provision for loan losses for the first three months of 1999 decreased
$50,205 compared to the same period for 1998. The decrease reflects North
Fulton's lower level of nonperforming assets when compared to
37
<PAGE>
1998. Net loan charge-offs for the three months ended March 31, 1999 were
$24,917, compared to $405 for the same period in 1998. Management believes that
the allowance for loan losses is adequate to absorb probable losses in the
portfolio.
Other operating income decreased for the three months ended March 31, 1999,
by $13,056, or 3%, compared to the same period in 1998, primarily due to a
decrease in service charges and other fees charged to deposit accounts during
1999.
Other operating expenses for the first three months of 1999 increased
$51,025 (3%) compared to the first three months in 1998. The net increase is
primarily attributable to an increase of $65,129 in employee costs due to an
increase in the number of employees and salary increases.
Financial Condition--1998 vs. 1997
During 1998, average total assets increased approximately $37 million (30%)
over 1997. Average deposits increased $29 million (26%) in 1998 over 1997.
Average loans increased $32 million (42%) in 1998 over 1997.
Total assets at December 31, 1998, were $174 million, representing a $33
million (23%) increase from December 31, 1997. Total deposits increased $16
million (13%) from 1997 to 1998 while total loans increased $31 million (32%)
during 1998. Time deposits increased $25 million from 1997 to 1998 while all
other deposit accounts decreased $8 million in 1998. As the local economy
remained strong, loan demand increased, and North Fulton showed increases in
each lending category at year end primarily related to commercial and real
estate credits. The growth in the loan portfolio was funded primarily by
increases in North Fulton's deposit base and borrowings from the Federal Home
Loan Bank of Atlanta.
Results of Operations--1998 vs. 1997
North Fulton's operational results depend upon the earnings of Milton
National. Milton National's earnings depend to a large degree on net interest
income, which is the difference between the interest income received from its
investments, such as loans, investment securities, federal funds sold, and the
interest expense which is paid on its deposit liabilities.
Net interest income increased by $1.6 million or 30% in 1998. Net interest
income at December 31, 1998, was $7.0 million compared to $5.4 million in 1997.
The increase is primarily attributable to the increase in total interest income
from loans as a result of higher average outstanding loans, partially offset by
an increase in the interest expense associated with funding the loan growth.
Net yield on average interest earning assets was 4.89% in 1998 and 4.90% in
1997.
The provision for loan losses in 1998 was $406,000 compared to $649,000 in
1997. The provision for loan losses continues to reflect management's estimate
of potential loan losses inherent in the portfolio and the creation of an
allowance for loan losses adequate to absorb these losses. The allowance for
loan losses represented approximately 1.24% and 1.50% of total loans
outstanding at December 31, 1998, and 1997, respectively. Net chargeoffs were
$265,000 during 1998 and $117,000 during 1997. North Fulton has established a
loan grading system whose classifications are consistent with those of its
subsidiary bank's regulators. Management utilizes this system to evaluate the
adequacy of its allowance for loan losses. Management allocates losses based on
expected loss ratios for each loan classification. Management has determined
these ratios considering North Fulton's loss rates and the losses experienced
by its peer group. North Fulton also utilizes an independent loan review
process to validate the internal loan grading in addition to assessing the
overall adequacy of the allowance for loan losses.
Other operating income was $2.0 million in 1998 which increased by $0.9
million or 84% when compared to 1997. This was primarily the result of
increased gains associated with Small Business Administration lending
activities, which had increased $0.8 million from 1997 to 1998. Other operating
expenses increased $1.5 million (31%) in 1998 over 1997 principally due to an
increase in personnel expenses from North Fulton's increased headcount as well
as an increase in base compensation and bonuses.
38
<PAGE>
Income taxes expressed as a percentage of earnings before income taxes
increased from 32% in 1997 to 37% in 1998. The increase relates to North
Fulton's fully utilizing its federal and state net operating loss carryforward
credits.
Table 1 presents for the three years ended December 31, 1998, average
balances of interest-earning assets and interest-bearing liabilities and the
weighted average interest rates earned and paid on those balances. In addition,
interest rate spreads, net interest margins and the ratio of interest-earning
assets versus interest-bearing liabilities for those years are presented.
Table 1--Consolidated Average Balances, Interest, and Rates--Taxable Equivalent
Basis
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------- -------------------------
Interest Weighted Interest Weighted Interest Weighted
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- -------- ------- -------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.............................. $109,402 11,479 10.49% 76,987 8,145 10.58% 57,175 5,892 10.31%
Investment securities.............. 28,208 1,779 6.31% 27,436 1,815 6.62% 20,263 1,310 6.46%
Federal funds sold................. 6,889 381 5.53% 6,271 366 5.84% 4,796 254 5.30%
-------- ------ ------ ------- ------ ------ ------ ----- ------
Total interest-earning
assets.......................... 144,499 13,639 9.44% 110,694 10,326 9.33% 82,234 7,456 9.07%
Other assets....................... 13,384 10,353 6,291
-------- ------ ------ ------- ------ ------ ------ ----- ------
Total assets..................... $157,883 121,047 88,525
======== ====== ====== ======= ====== ====== ====== ===== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits.......................... $ 4,356 102 2.34% 3,593 87 2.42% 3,405 86 2.53%
Savings deposits................... 19,788 809 4.09% 16,288 618 3.79% 11,919 413 3.47%
Other time deposits................ 86,390 5,168 5.98% 68,027 4,059 5.97% 49,986 3,029 6.06%
FHLB advances and other
borrowings........................ 8,397 520 6.19% 2,532 143 5.65% 1,980 109 5.51%
-------- ------ ------ ------- ------ ------ ------ ----- ------
Total interest-bearing
liabilities..................... 118,931 6,599 5.55% 90,440 4,907 5.43% 67,290 3,637 5.40%
Noninterest bearing demand
deposits.......................... 27,638 21,036 14,708
Other liabilities.................. 2,490 1,990 1,137
Shareholders' equity............... 8,824 7,581 5,390
-------- ------ ------ ------- ------ ------ ------ ----- ------
Total liabilities and
shareholders' equity............ $157,883 121,047 88,525
======== ====== ====== ======= ====== ====== ====== ===== ======
Tax-equivalent adjustment........... -- -- --
Net interest income................. 7,040 5,419 3,819
Interest rate spread................ 3.89% 3.90% 3.67%
Net interest margin................. 4.87% 4.90% 4.64%
Interest-earning assets/ interest-
bearing liabilities................ 121.50% 122.39% 122.21%
</TABLE>
Net interest income is determined by the amount of interest-earning assets
compared to interest-bearing liabilities and their related yields and costs.
The difference between the weighted average interest rates earned on interest-
earning assets, i.e., loans and investment securities, and the weighted average
interest rates paid on interest-bearing liabilities, i.e., deposits and
borrowings, is called the net interest spread. Another measure of the
difference in interest income earned versus interest expense paid is net
interest margin. Net interest margin is calculated by dividing net interest
income by average earning assets.
39
<PAGE>
Average interest-earning assets were $144,499 in 1998 versus $110,694 in
1997 and $82,234 in 1996. Average interest-bearing liabilities were $118,931 in
1998 versus $90,440 in 1997 and $67,290 in 1996. The interest rate spread was
3.89% in 1998 versus 3.90% in 1997 and 3.67% in 1996, while the net interest
margin was 4.87% in 1998, 4.90% in 1997 and 4.64% in 1996.
Table 2 shows the change in net interest income from 1998 to 1997 and from
1997 to 1996 due to changes in volumes and rates.
Table 2--Rate/Volume Variance Analysis--Taxable Equivalent Basis
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 Compared to 1997 Compared to
1997 1996
--------------------- --------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
------- ----- ------ ------ ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans..................... $ 3,400 (69) $3,331 $2,096 157 $2,253
Taxable investment
securities............... 49 (85) (36) 475 31 506
Federal funds sold........ 34 (20) 14 86 26 112
------- ---- ------ ------ --- ------
Total interest income... 3,483 (174) 3,309 2,657 214 2,871
Interest expense:
Interest bearing demand
deposits................. 18 (3) 15 5 (4) 1
Savings deposits.......... 143 49 192 (11) (13) (24)
Time deposits............. 1,098 7 1,105 1,274 (12) 1,262
Other..................... 363 13 376 39 (7) 32
------- ---- ------ ------ --- ------
Total interest expense.. 1,622 66 1,688 1,307 (36) 1,271
------- ---- ------ ------ --- ------
Net interest income......... $ 1,861 (240) $1,621 $1,350 250 $1,600
</TABLE>
Investment Securities
The composition of the investment securities portfolio reflects management's
strategy to maintain an appropriate level of liquidity while providing a
relatively stable source of income. The portfolio also provides a balance to
interest rate risk and credit risk in other categories of North Fulton's
balance sheet while providing a vehicle for the investment of available funds,
furnishing liquidity, and providing securities to pledge as required collateral
for certain deposits.
Investment securities increased $2 million from $24 million at December 31,
1997 to $26 million at December 31, 1998. At December 31, 1998, $18 million
(69%) of investment securities outstanding were classified as available-for-
sale. The overall increase in the amount of investments was due to increased
deposits partially offset by increased loan demand in 1998. At December 31,
1998, gross unrealized gains related to the available-for-sale portfolio
amounted to $109,000 and gross unrealized losses amounted to $40,000.
40
<PAGE>
Table 3 reflects the carrying amount of the investment securities portfolio
for the past three years.
Table 3--Carrying Value of Investments
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997 1996
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Securities Available-for-sale:
U.S. Treasuries and agencies........................ $ 17,289 $ 1,995 $ 2,984
Mortgage-backed securities.......................... 618 0 0
-------- ------- -------
Total............................................. $ 17,907 $ 1,995 $ 2,984
======== ======= =======
Securities Held-to-maturity:
U.S. Treasuries and agencies........................ 8,054 17,878 20,893
Mortgage-backed securities.......................... 429 4,053 5,126
-------- ------- -------
Total............................................. $ 8,483 21,931 26,019
======== ======= =======
Total Investment Securities........................... $ 26,390 23,926 29,003
======== ======= =======
</TABLE>
Carrying Value of Investments
The market value of investment securities will change as interest rates
change but the related unrealized gains and losses will not flow through the
earnings statement unless the related securities become permanently impaired or
they are sold or called at prices which differ from the carrying value. At
December 31, 1998, North Fulton did not have any securities that it deemed to
be permanently impaired.
Loans
Gross loans receivable increased by approximately $32 million from $97
million at December 31, 1997 to $129 million at December 31, 1998. This
increase primarily resulted from increases in the commercial and real estate
portfolios which is noted below in Table 4. Management attributes the growth to
continuing marketing efforts as well as the ongoing economic strength in the
market area served by North Fulton.
Table 4--Loan Portfolio
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial/financial/
agricultural........... $ 69,264 53.8% $58,870 60.5% $31,473 48.2% $29,363 57.3% $21,078 54.5%
Real estate
construction........... 16,507 12.8% 13,907 14.3% 14,599 22.4% 7,078 13.8% 5,737 14.8%
Real estate mortgage.... 36,907 28.6% 19,571 20.1% 13,550 20.8% 12,767 24.9% 9,031 23.4%
Installment loans to
individuals............ 4,357 3.4% 3,120 3.2% 4,959 7.6% 2,067 4.0% 2,807 7.3%
Lease financings........ 1,796 1.4% 1,871 1.9% 668 1.0% -- 0.0% -- 0.0%
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans.......... 128,831 100.0% 97,339 100.0% 65,249 100.0% 51,275 100.0% 38,653 100.0%
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Less:
Allowance for loan
losses................ 1,601 1,460 929 1,020 472
-------- ------- ------- ------- -------
Total net loans...... $127,230 $95,879 $64,320 $50,255 $38,181
======== ======= ======= ======= =======
</TABLE>
41
<PAGE>
Table 5 represents the expected maturities for commercial, financial, and
agricultural loans, and real estate construction loans at December 31, 1998.
Table 5 --Loan Portfolio Maturity
<TABLE>
<CAPTION>
Maturity
----------------------------------------
Over One Year
One Year Through Over Five
or Less Five Years Years Total
-------- ------------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural........................ $29,966 $12,964 $26,334 $69,264
Real estate--construction............ 11,452 2,363 2,692 16,507
</TABLE>
Provision and Allowance for Loan Losses
Table 6 presents an analysis of activities in the allowance for loan losses
for the past five years. An allowance for possible losses is provided through
charges to North Fulton's earnings in the form of a provision for loan losses.
The provision for loan losses was $406,000 in 1998, $649,000 in 1997 and
$505,000 in 1996. Management determines the level of the provision for loan
losses based on outstanding loan balances, the levels of nonperforming assets,
reviews of assets classified as substandard, doubtful, or loss, reviews of the
larger credits, analysis of historical loss experience, and analysis of current
economic conditions.
Management believes that the allowance for loan losses was both adequate and
appropriate at December 31, 1998 and 1997. The future level of the allowance
for loan losses, however, depends largely upon loan growth, loan loss
experience, and other factors which cannot be anticipated with a high degree of
certainty.
Table 6--Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average net loans.................... $109,402 $76,987 $57,175 $44,841 $29,880
Allowance for loan losses, beginning
of the period....................... 1,460 929 1,020 472 267
Charge-offs for the period:
Commercial/financial/agricultural.. 247 100 570 -- --
Real estate construction loans..... -- -- 21 -- --
Real estate mortgage loans......... -- -- -- -- --
Installment loans to individuals... 24 19 23 1 18
-------- ------- ------- ------- -------
Total charge-offs.................... 271 119 614 1 18
Recoveries for the period:
Commercial/financial/agricultural.. -- -- 3 5 --
Real estate construction loans..... -- -- -- -- --
Real estate mortgage loans......... -- -- -- -- --
Installment loans to individuals... 6 1 15 0 9
-------- ------- ------- ------- -------
Total recoveries..................... 6 1 18 5 9
-------- ------- ------- ------- -------
Net charge-offs/(recoveries) for
the period...................... 265 118 596 (4) 9
Provision for loan losses............ 406 649 505 552 214
-------- ------- ------- ------- -------
Allowance for loan losses, end of
period.............................. $ 1,601 $ 1,460 $ 929 $ 1,020 $ 472
======== ======= ======= ======= =======
Ratio of allowance for loan losses to
total loans outstanding............. 1.24% 1.50% 1.42% 1.99% 1.22%
Ratio of net charge-offs/(recoveries)
during the period to average net
loans outstanding during the
period.............................. .24% .15% 1.04% NM .03%
</TABLE>
42
<PAGE>
Asset Quality
At December 31, 1998, there were no commitments to lend additional funds on
nonaccrual loans. Table 7 summarizes the non-performing assets for each of the
last five years.
Table 7--Risk Elements
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual.............................. $177 $264 $69 $979 N/A
Loans past due 90 days and still accruing........ 681 23 -- -- N/A
Other real estate owned.......................... -- 69 -- -- --
---- ---- --- ---- ---
Total non-performing assets...................... $858 $356 $69 $979 N/A
==== ==== === ==== ===
Total non-performing loans as a percentage of net
loans........................................... .67% .30% .11% 1.95% N/A
</TABLE>
There may be additional loans within North Fulton's loan portfolio that are
classified as conditions dictate. Management, however, was not aware of any
such loans that were material in amount at December 31, 1998. At December 31,
1998, management was unaware of any known trends, events, or uncertainties that
would have, or that were reasonably likely to have a material effect on North
Fulton's liquidity, capital resources, or operations.
Deposits
Total deposits increased approximately $16 million during 1998, totaling
$143 million at December 31, 1998, compared to $127 million at December 31,
1997. The maturities of time deposits of $100,000 or more issued by North
Fulton at December 31, 1998, are summarized in Table 8.
Table 8--Maturities of Time Deposits Over $100,000
<TABLE>
<CAPTION>
(Dollars
in
thousands)
<S> <C>
Three months or less.......................................... $ 6,500
Over three months through six months.......................... 5,867
Over six months through twelve months......................... 12,593
Over twelve months............................................ 1,517
-------
Total..................................................... $26,477
=======
</TABLE>
At December 31, 1998, Milton National was a shareholder in the Federal Home
Loan Bank of Atlanta. Milton National had $14 million in advances outstanding
at December 31, 1998, collateralized by certain qualified loans and
investments. Management anticipates continuing to utilize this short- and long-
term source of funds to minimize interest rate risk and to fund competitive
fixed rate loans to customers.
Asset-Liability Management
A primary objective of North Fulton's asset and liability management program
is to control exposure to interest rate risk to enhance its earnings and
protect its net worth against potential loss resulting from interest rate
fluctuations. Interest rate risk is exposure to changes in net interest income
due to changes in market interest rates.
43
<PAGE>
Table 9 provides information regarding the balances of interest-earning
assets and interest-bearing liabilities outstanding as of December 31, 1998,
that are expected to mature, prepay, or reprice in each of the future time
periods shown (i.e., the interest rate sensitivity). As presented in this
table, at December 31, 1998,
the liabilities subject to rate changes within one year exceeded its assets
subject to rate changes within one year. This mismatched condition subjects
North Fulton to interest rate risk within the one-year period because North
Fulton's liabilities, due to their generally shorter term to maturity or to
their repricing characteristics, are more sensitive to short-term interest rate
changes than its assets. Theoretically, this position would result in a
decrease in net interest income if market interest rates rise and an increase
in net interest income if market interest rates decline. However, management's
recent experience has shown that the interest-bearing demand and savings
deposits categories do not actually reprice on an immediate basis as a result
of a rise in market interest rates, and, therefore net interest income could
increase under these conditions.
Management carefully measures and monitors interest rate sensitivity and
believes that its operating strategies offer protection against interest rate
risk.
Management has maintained positive ratios of average interest-earning assets
to average interest-bearing liabilities. As represented in Table 1 this ratio,
based on average balances for the respective years, was 121.50% in 1998,
122.39% in 1997 and 122.21% in 1996.
Table 9--Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1998
Maturing or Repricing in
-------------------------------------------------------
Over 1 Year Over 3 Years
One Year Through 3 Through 5 Over
or Less Years Years 5 Years Total
--------- ----------- ------------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Adjustable rate
mortgages............ $ 4,628 $ 158 $ 329 $ 524 $ 5,639
Fixed rate mortgages.. 2,738 935 195 310 4,178
Other loans........... 55,189 13,871 13,146 37,954 120,160
Investment
securities........... -- -- 5,061 21,430 26,491
Other investment...... 1,174 -- -- -- 1,174
Federal funds sold.... 7,935 -- -- -- 7,935
--------- -------- -------- ------- --------
Total interest-
earning assets..... 71,664 14,964 18,731 60,218 165,577
Interest-bearing
liabilities:
Fixed maturity
deposits............. 88,921 7,212 73 -- 96,206
DDA accounts.......... 42,192 -- -- -- 42,192
Passbook accounts..... 4,753 -- -- -- 4,753
Other borrowed funds.. 4,200 -- -- -- 4,200
FHLB advances......... 7,000 -- -- 7,000 14,000
--------- -------- -------- ------- --------
Total interest-
bearing
liabilities........ $ 147,066 $ 7,212 $ 73 $ 7,000 $161,351
========= ======== ======== ======= ========
Interest rate
sensitivity gap........ $ (75,402) 7,752 18,658 53,218 4,226
Cumulative interest rate
sensitivity gap........ $ (75,402) (67,650) (48,992) 4,226
Cumulative interest rate
sensitivity gap to
total assets........... (43)% (39)% (28)% 2%
</TABLE>
44
<PAGE>
Table 10 represents the expected maturity of the total investment securities
by maturity date and average yields based on amortized cost at December 31,
1998. The composition and maturity/repricing distribution of the investment
portfolio is subject to change depending on rate sensitivity, capital needs,
and liquidity needs.
Table 10--Expected Maturity of Investment Securities
<TABLE>
<CAPTION>
After One
But Within After Five But
Within One Year Five Years Within Ten Years After Ten Years
----------------- ----------- ----------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Totals
-------- ------- ------ ----- --------- ------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-
for-sale:
U.S. Treasury and
agencies............. $ -- -- $5,061 5.87% $ 12,228 5.71% -- -- $17,289
Mortgage-backed
securities........... -- -- -- -- -- -- 618 5.20% 618
-------- ------- ------ ---- --------- ------ ------- ------- -------
Total............... $ -- -- $5,061 5.87% $ 12,228 5.71% $ 618 $17,907
======== ======= ====== ==== ========= ====== ======= ======= =======
Securities held-to-
maturity:
U.S. Treasury and
agencies............. $ -- -- -- -- $ 8,054 6.62% -- -- $ 8,054
Mortgage-backed
securities........... -- -- -- -- -- -- 429 5.33% 429
-------- ------- ------ ---- --------- ------ ------- ------- -------
Total............... $ -- -- -- -- $ 8,054 6.62% $ 429 5.33% $ 8,483
======== ======= ====== ==== ========= ====== ======= ======= =======
</TABLE>
At December 31, 1998, North Fulton's total investment securities were
$26,390,000. Of that amount, $22,228,000 could be called by the issuers at
varying maturity dates. If interest rates fall, the issuers are more likely to
call the securities and North Fulton would have to reinvest the funds, probably
at lower interest rates. If interest rates are stable or rise, the issuers are
not likely to call the securities and the funds would remain invested until
their scheduled maturity dates.
Liquidity
Management monitors its liquidity position regularly. North Fulton intends
to manage its loan growth such that deposit flows will provide the primary
funding for all loans as well as cash reserves for working capital and short to
intermediate term marketable investments. For the quarter ended March 31, 1999,
deposit growth exceeded loan growth by $9 million. Management will continue to
seek cost effective alternative funding sources for both the short and long
term, in the event that local deposit growth does not keep pace with local loan
demand.
Milton National is required under federal regulations to maintain in cash
and eligible short-term investment securities a monthly average of 5.0% of net
deposits subject to withdrawals and borrowings payable in one year or less.
Milton National's liquidity was 26% at March 31, 1999, 22% at December 31,
1998, and 27% at December 31, 1997.
Milton National's primary sources of liquidity are deposits, loan
repayments, proceeds from sales of loans and securities, advances from the
Federal Home Loan Bank of Atlanta, borrowings from lines of credit and earnings
from investments. Advances from the Federal Home Loan Bank of Atlanta totaled
$17 million, $14 million and $1 million at March 31, 1999, December 31, 1998
and 1997, respectively. Subject to various limitations, Milton National may
borrow funds from the Federal Home Loan Bank of Atlanta in the form of
advances. Credit availability from the Federal Home Loan Bank of Atlanta to
Milton National is based on Milton National's financial and operating
condition. In addition to creditworthiness, Milton National must own a minimum
amount of Federal Home Loan Bank of Atlanta capital stock. This minimum is 5.0%
of outstanding advances from the Federal Home Loan Bank of Atlanta. Milton
National uses these advances for both long-term and short-term liquidity needs.
Other than normal banking operations, Milton National has no long-term
liquidity needs.
45
<PAGE>
Additionally, during 1997, North Fulton entered into a $5 million line of
credit with a financial institution. The line of credit is collateralized by
all of the outstanding shares of Milton National's common stock. It matures
July 1, 1999, at which time it converts to a term loan amortizing over eight
years. Interest is due quarterly at an interest rate of prime less 25 basis
points. At December 31, 1998, $1.1 million was outstanding, and at December 31,
1997, $3.2 million was outstanding.
At December 31, 1998 and 1997, North Fulton had outstanding $1 million of
mandatory convertible subordinated debentures with a coupon rate of 5.5% that
paid interest quarterly. The unsecured debentures mature on June 30, 2002, at
which time they convert to 200,000 shares of North Fulton's common stock.
North Fulton has never been involved with highly leveraged transactions that
may cause unusual potential long-term liquidity needs.
The consolidated statements of cash flows for the three months ended March
31, 1999 and the three years ended December 31, 1998, detail North Fulton's
sources and uses of funds for those periods.
Capital Resources and Dividends
Shareholders' equity increased 17.45% from December 31, 1997 to December 31,
1998. This growth resulted primarily from 1998 earnings. Dividends of $36,600
or $.02 per share were declared and paid in 1998. There were no dividends
declared or paid in 1997.
Average shareholders' equity as a percent of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average total assets was 5.59% for 1998 and 6.26% for 1997. Table 11
summarizes these and other key ratios for North Fulton for each of the last
three years.
The Federal Deposit Insurance Corporation Improvement Act required federal
banking agencies to take "prompt corrective action" with regard to institutions
that do not meet minimum capital requirements. As a result, the federal banking
agencies introduced an additional capital measure called the "Tier 1 risk-based
capital ratio." The Tier 1 ratio is the ratio of core capital to risk adjusted
total assets. Milton National exceeded all requirements to be a "well-
capitalized" institution at March 31, 1999.
Table 11--Equity Ratios
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Return on average assets........................... .90% .56% .73%
Return on average equity........................... 16.06% 8.92% 12.06%
Dividend payout ratio.............................. 2.59% -- --
Average equity to average assets................... 5.59% 6.26% 6.09%
</TABLE>
Provision for Income Taxes
The provision for income taxes was $830,243 in 1998, versus $320,838 in 1997
and $53,301 in 1996. The effective actual tax rates, tax provision as a
percentage of income before taxes for 1998, 1997, and 1996 were 36.94%, 32.20%,
and 7.58%, respectively. The increase in the effective tax rates over the
periods is primarily due to North Fulton's utilization of net operating loss
carryforward credit for federal and state purposes.
Impact of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
in this discussion have been prepared in accordance with generally accepted
accounting principles. These principles require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in relative purchasing power over time due to inflation.
46
<PAGE>
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation. The liquidity and
maturity structures of Milton National's assets and liabilities are critical to
the maintenance of acceptable performance levels.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for hedging activities and for derivative
instruments including derivative instruments embedded in other contracts. It
requires the fair value recognition of derivatives as assets or liabilities in
the financial statements. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999, but initial application of the
statement must be made as of the beginning of the quarter. At the date of
initial application, an entity may transfer any held to maturity security into
the available for sale or trading categories without calling into question the
entity's intent to hold other securities to maturity in the future. North
Fulton adopted SFAS No. 133 during 1998 which did not have a material impact on
its financial position, results of operations or liquidity.
47
<PAGE>
NORTH FULTON SECURITY OWNERSHIP
The following table sets forth certain information regarding the North
Fulton common stock owned, as of the record date and after giving effect to the
merger by:
. each person who beneficially owned more than 5% of the shares of North
Fulton common stock outstanding,
. each North Fulton director,
. the executive officers of North Fulton, and
. all North Fulton directors and executive officers as a group.
Except as otherwise indicated, the persons named in the table have sole
voting and investment powers with respect to all shares shown as beneficially
owned by them. The information shown below is based upon information furnished
by the named persons and based upon "beneficial ownership" concepts set forth
in rules issued under the Securities Exchange Act of 1934. Under these rules, a
person is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or to direct the voting
of the security, or "investment power," which includes the power to dispose or
to direct the disposition of the security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to be a
beneficial owner of the same securities.
<TABLE>
<CAPTION>
Total Percent of
Shares Percent of Premier Common
Number of Number of and Common Stock Following
Name of Beneficial Owner Shares Options Options Stock the Merger
- ------------------------ --------- --------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas E. Dannemiller... 66,906(1) 8,896 75,802 4.08 *
Baxter L. Davis......... 56,876 8,896 65,772 3.54 *
Bryant L. Day........... 50,240 8,896 59,136 3.19 *
Grant R. Essex.......... 43,000 45,600 88,600 4.68 *
R. B. Garrett III....... 22,088(1) 8,896 30,984 1.67 *
H. Richard Hiller, Jr... 28,908 8,896 37,804 2.04 *
Austin E. Hills......... 61,846 8,896 70,742 3.81 *
Martin Isenberg......... 26,168 3,896 30,064 1.62 *
L. Gregg Ivey........... 76,912(1) 8,896 85,808 4.62 *
Earl W. Johnson......... 77,860(1) 8,896 86,756 4.67 *
Weldon Johnson.......... 84,396(1) 8,896 93,292 5.02 *
James P. Keeter......... 153,918 3,896 157,814 8.52 *
Robert P. Koven......... 32,560 8,896 41,456 2.23 *
Michael McGovern........ 137,928 3,896 141,824 7.66 *
William B. Neidlinger... 39,016 8,896 47,912 2.58 *
All North Fulton
directors and executive
officers, as a group
(15 persons)........... 958,622 155,144 1,113,766 55.61 3.7
</TABLE>
- --------
* Represents less than one percent of the shares outstanding.
(1) Includes shares as to which the named person shares voting power or
investment power, or both.
48
<PAGE>
REGULATORY CONSIDERATIONS
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to Premier and North Fulton.
General
Premier and North Fulton are bank holding companies registered with the
Federal Reserve Board and the Georgia Department of Banking and Finance under
the Bank Holding Company Act and the Georgia Bank Holding Company Act,
respectively. As a result, Premier and North Fulton are subject to the
supervision, examination and reporting requirements of the Bank Holding Company
Act and the regulations of the Federal Reserve Board and the Georgia Department
of Banking and Finance issued under these acts. Milton National Bank is a
nationally chartered commercial bank. As a result, Milton National is subject
to the supervision, examination and reporting requirements of the Office of the
Comptroller of the Currency and the FDIC.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before:
. it may acquire direct or indirect ownership or control of any voting
shares of any bank if, after the acquisition, the bank holding company
will directly or indirectly own or control more than 5% of the voting
shares of the bank;
. it or any of its subsidiaries, other than a bank, may acquire all or
substantially all of the assets of any bank; or
. it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides that the Federal Reserve Board
may not approve any transaction that would result in a monopoly or that would
substantially lessen competition in the banking business, unless the public
interest in meeting the needs of the communities to be served outweighs the
anti-competitive effects. The Federal Reserve Board is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks involved and the convenience and needs of the
communities to be served. Consideration of financial resources generally
focuses on capital adequacy, and consideration of convenience and needs issues
focuses, in part, on the parties' performance under the Community Reinvestment
Act of 1977, both of which are discussed in more detail below.
The Bank Holding Company Act, as amended by the interstate banking
provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies. The effect of the Bank Holding Company Act is that Premier, and any
other bank holding company located in Georgia, may now acquire a bank located
in any other state, and any bank holding company located outside Georgia may
lawfully acquire any Georgia-based bank, regardless of state law to the
contrary, in either case subject to certain deposit-percentage, aging
requirements, and other restrictions. The Interstate Banking Act referred to
above also generally provides that, as of June 1, 1997, national and state-
chartered banks may branch interstate through acquisitions of banks in other
states.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1,
1995. The Georgia Interstate Banking Act provides that the Georgia Department
of Banking and Finance will permit
. interstate acquisitions by Georgia institutions in states which also
allow national interstate acquisitions, and
. interstate acquisitions of Georgia institutions by institutions located
in states which allow national interstate acquisitions.
49
<PAGE>
Additionally, on January 26, 1996, the Georgia General Assembly adopted the
Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all non-
Georgia banks and bank holding companies owning or acquiring banks in Georgia
the right to merge any lawfully acquired bank into an interstate branch
network. The Georgia Interstate Branching Act also allows banks to establish de
novo branches.
The Bank Holding Company Act generally prohibits a bank holding company from
engaging in activities other than:
. banking;
. managing or controlling banks or other permissible subsidiaries; and
. acquiring or retaining direct or indirect control of any company engaged
in any activities other than activities closely related to banking or
managing or controlling banks.
In determining whether a particular activity is permissible, the Federal
Reserve Board considers whether performing the activity can be expected to
produce benefits to the public that outweigh possible adverse effects, such as
undue concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Bank Holding Company Act does not
place territorial limitations on permissible non-banking activities of bank
holding companies. The Federal Reserve Board has the power to order a bank
holding company or its subsidiaries to terminate any activity or control of any
subsidiary when the continuation of the activity or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that bank holding company.
Milton National and Premier Bank are members of the FDIC. Consequently, the
FDIC insures their deposits to the maximum extent provided by law. Milton
National and Premier Bank are also subject to numerous state and federal
statutes and regulations that affect their business, activities and operations,
and each is supervised and examined by one or more state or federal bank
regulatory agencies.
Milton National is subject to regulation, supervision, and examination by
the Office of the Comptroller of the Currency and the FDIC. Premier Bank is
subject to regulation, supervision, and examination by the FDIC and the Georgia
Department of Banking and Finance. The OCC, FDIC and the Georgia Department of
Banking and Finance, as applicable, regularly examine the operations of Milton
National and Premier Bank and are given the authority to approve or disapprove
mergers, consolidations, the establishment of branches and similar corporate
actions. The OCC, FDIC and the Georgia Department of Banking and Finance, as
applicable, also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
Payment of Dividends
Premier and North Fulton are legal entities separate and distinct from their
banking and other subsidiaries. The principal sources of cash flow of Premier
and North Fulton, including cash flow to pay dividends to its shareholders, are
dividends from their banking and other subsidiaries. Premier's and North
Fulton's subsidiary depository institutions are subject to statutory and
regulatory limitations on the payment of dividends to Premier and North Fulton,
and Premier and North Fulton are subject to statutory and regulatory
limitations on dividend payments to their shareholders.
If, in the opinion of the federal banking regulators, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice, the regulatory authority may require, after notice
and hearing, that the institution cease and desist from the practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's capital base to an inadequate level would be an unsafe
and unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it
50
<PAGE>
already is undercapitalized. See "--Prompt Corrective Action." The federal
agencies have also issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings.
At March 31, 1999, under dividend restrictions imposed under federal and
state laws, the banking subsidiaries of Premier, without obtaining governmental
approvals, could declare aggregate dividends to Premier of approximately $11.6
million. At March 31, 1999, Milton National, without obtaining governmental
approvals, could declare dividends to North Fulton of approximately $3,465,000.
The payment of dividends by North Fulton, Milton National, Premier and
Premier Bank may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines.
Capital Adequacy
North Fulton and Premier are required to comply with the capital adequacy
standards established by the Federal Reserve Board. Premier Bank and Milton
National are required to comply with the capital adequacy standards established
by the appropriate federal banking regulator. The Federal Reserve Board has
promulgated two basic measures of capital adequacy for bank holding companies:
a risk-based measure and a leverage measure. All applicable capital standards
must be satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to:
. make regulatory capital requirements more sensitive to differences in
risk profile among banks and bank holding companies;
. account for off-balance-sheet exposure; and
. minimize disincentives for holding liquid assets.
Assets and off-balance-sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted assets
is 8%. At least half of total capital must be comprised of Tier 1 Capital,
which is common stock, undivided profits, minority interests in the equity
accounts of consolidated subsidiaries and noncumulative perpetual preferred
stock, less goodwill and certain other intangible assets. The remainder may
consist of Tier 2 Capital, which is subordinated debt, other preferred stock,
and a limited amount of loan loss reserves. At March 31, 1999, Premier's
consolidated total risk-based capital ratio and its Tier 1 risk-based capital
ratio were 15.67% and 14.46% respectively. At March 31, 1999, North Fulton's
consolidated total risk-based capital ratio and its Tier 1 risk-based capital
ratio were 10.20% and 9.10%, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets, of 3.0% for bank holding companies that meet specified
criteria. All other bank holding companies generally are required to maintain a
leverage ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. Premier's leverage ratio at March 31, 1999, was 11.48%. North Fulton's
leverage ratio at March 31, 1999, was 7.5%. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"tangible Tier 1 Capital leverage ratio" and other indicia of capital strength
in evaluating proposals for expansion or new activities.
51
<PAGE>
Milton National and Premier Bank are subject to risk-based and leverage
capital requirements adopted by their respective federal banking regulators,
which are substantially similar to those adopted by the Federal Reserve Board
for bank holding companies. Milton National and Premier Bank were in compliance
with applicable minimum capital requirements as of March 31, 1999. Neither
North Fulton, Milton National, Premier, nor Premier Bank has been advised by
any federal banking agency of any specific minimum capital ratio requirement
applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on taking brokered
deposits, and other restrictions on its business. As described below, the FDIC
can impose substantial additional restrictions upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "--Prompt
Corrective Action."
Support of Subsidiary Institutions
Under Federal Reserve Board policy, Premier and North Fulton are expected to
act as a source of financial strength for, and to commit resources to support,
Premier Bank and Milton National, respectively. This support may be required at
times when, absent the Federal Reserve Board policy, Premier or North Fulton
may not be inclined to provide it. In addition, any capital loans by a bank
holding company to any of its depository institution subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness
of the banks. In the event of a bank holding company's bankruptcy, the
bankruptcy trustee will assume any commitment by a bank holding company to a
federal bank regulatory agency to maintain the capital of a banking subsidiary,
which commitment will be entitled to a priority of payment.
Under the Federal Deposit Insurance Act, an FDIC-insured depository
institution can be held liable for any loss incurred by, or reasonably expected
to be incurred by, the FDIC after August 9, 1989, in connection with the
default of a commonly-controlled FDIC-insured depository institution or any
assistance the FDIC provides to any commonly-controlled FDIC-insured depository
institution "in danger of default." "Default" is defined generally as the
appointment of a conservator or receiver, and "in danger of default" is defined
generally as the existence of specified conditions indicating that a default is
likely to occur in the absence of regulatory assistance. The FDIC's claim for
damages is superior to claims of shareholders of the insured depository
institution or its holding company, but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt of the commonly-controlled
FDIC insured depository institution. Premier Bank is subject to these cross-
guarantee provisions. As a result, any loss the FDIC suffers with respect to
Premier Bank would likely result in assertion of the cross-guarantee
provisions, the assessment of estimated losses against Premier Bank's banking
or thrift affiliates and a potential loss of Premier's investment in its
banking subsidiaries.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act establishes a
system of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective in December, 1992,
federal banking regulators established five capital categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and must take specified
mandatory supervisory actions. Federal banking regulators are also authorized
to take other discretionary actions with respect to institutions in the three
undercapitalized categories, the severity of the action depending upon the
capital category of the institution. Generally, subject to a narrow exception,
the Federal Deposit Insurance Corporation Improvement Act requires the banking
regulator to appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage
ratio of 5.0% or greater and is not subject to any written agreement, order,
capital directive or prompt
52
<PAGE>
corrective action directive issued by the appropriate federal banking agency is
deemed to be well capitalized. An institution with a total risk-based capital
ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater is considered to be adequately
capitalized. A depository institution that has a total risk-based capital ratio
of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a
leverage ratio of less than 4.0% is considered to be undercapitalized. A
depository institution that has a total risk-based capital ratio of less than
6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio
of less than 3.0% is considered to be significantly undercapitalized, and an
institution that has a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be critically undercapitalized. For purposes of the
regulation, the term "tangible equity" includes core capital elements counted
as Tier 1 Capital under the risk-based capital standards, plus the amount of
outstanding cumulative perpetual preferred stock, minus intangible assets with
various exceptions. A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under the Federal Deposit Insurance Corporation Improvement Act, a bank holding
company must guarantee that its subsidiary depository institution meets its
capital restoration plan, subject to certain limitations. The obligation of a
controlling bank holding company under the Federal Deposit Insurance
Corporation Improvement Act to fund a capital restoration plan is limited to
the lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except in accordance with an accepted capital restoration
plan or with the approval of the FDIC. In addition, the appropriate federal
banking regulator may treat an under-capitalized institution in the same manner
as it treats a significantly undercapitalized institution, if it determines
that those actions are necessary.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions:
. sell enough shares, including voting shares, to become adequately
capitalized;
. merge with or be sold to another institution, but only if grounds exist
for appointing a conservator or receiver;
. restrict certain transactions with banking affiliates as if the "sister
bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist;
. otherwise restrict transactions with bank or non-bank affiliates;
. restrict interest rates that the institution pays on deposits to
"prevailing rates" in the institution's region;
. restrict asset growth or reduce total assets;
. alter, reduce or terminate activities;
. hold a new election of directors;
. dismiss any director or senior executive officer who held office for
more than 180 days immediately before the institution became
undercapitalized, provided that in requiring dismissal of a director or
senior executive officer, the regulator must comply with certain
procedural requirements, including the opportunity for an appeal in
which the director or officer will have the burden of proving his or her
value to the institution;
. employ "qualified" senior executive officers;
. cease accepting deposits from correspondent depository institutions;
53
<PAGE>
. divest certain nondepository affiliates which pose a danger to the
institution; or
. be divested by a parent holding company.
In addition, without the prior approval of the appropriate federal banking
regulator, a significantly undercapitalized institution may not pay any bonus
to any senior executive officer or increase the rate of compensation for a
senior executive officer without regulatory approval.
At March 31, 1999, Milton National and Premier Bank had the requisite
capital levels to qualify as "well capitalized."
FDIC Insurance Assessments
Pursuant to the Federal Deposit Insurance Corporation Improvement Act, the
FDIC adopted a risk-based assessment system for insured depository institutions
that takes into account the risks attributable to different categories and
concentrations of assets and liabilities. The risk-based assessment system,
which went into effect on January 1, 1994, assigns an institution to one of
three capital categories:
. well capitalized;
. adequately capitalized; and
. undercapitalized.
These three categories are substantially similar to the prompt corrective
action categories described above, with the "undercapitalized" category
including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. The FDIC also assigns an institution to one of three supervisory
subgroups within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's insurance
assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications to which
different assessment rates are applied. Assessment rates for members of both
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") for the first half of 1995, as they had been during 1994, ranged from
23 basis points for an institution in the highest category to 31 basis points
for an institution in the lowest category. These rates were established for
both funds to achieve a designated ratio of reserves to insured deposits within
a specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates had
adverse consequences for the SAIF insured institutions and other banks with
SAIF assessed deposits, including reduced earnings and an impaired ability to
raise funds in capital markets and to attract deposits, in July 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following
recapitalization of the SAIF.
54
<PAGE>
Congress enacted a variation of this proposal, designated the Deposit
Insurance Funds Act of 1996 as part of the omnibus budget legislation and
President Clinton signed it into law on September 30, 1996. As directed by the
Deposit Insurance Funds Act, the FDIC implemented a special one-time assessment
of approximately 65.7 basis points on a depository institution's SAIF-insured
deposits held as of March 31, 1995. In addition, the FDIC has implemented a
revision in the SAIF assessment rate schedule which effected, as of October 1,
1996:
. a widening in the assessment rate spread among institutions in the
different capital and risk assessment categories,
. an overall reduction of the assessment rate range assessable on SAIF
deposits of from 0 to 27 basis points, and
. a special interim assessment rate range for the last quarter of 1996 of
from 18 to 27 basis points on institutions subject to Financing
Corporation assessments.
Effective January 1, 1997, the FDIC imposed assessments to help pay off the
$780 million in annual interest payments on the $8 billion Financing
Corporation bonds issued in the late 1980's as part of the government rescue of
the thrift industry. The FDIC will assess BIF- and SAIF-insured deposits in
annual amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January, 2000, BIF- and SAIF-insured institutions
will share the Financing Corporation interest costs at equal rates, currently
estimated at 2.43 basis points.
Under the Federal Deposit Insurance Act, the FDIC may terminate an
institution's deposit insurance if it finds that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition the FDIC has imposed.
Safety and Soundness Standards
The Federal Deposit Insurance Act, as amended by the Federal Deposit
Insurance Corporation Improvement Act and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards relating to certain operational and managerial
standards. The federal bank regulatory agencies adopted, effective August 9,
1995, a set of guidelines relating to these managerial standards. The
guidelines require, among other things, appropriate systems and practices to
identify and manage certain risks and exposures specified in the guidelines.
The guidelines deem excessive compensation an unsafe and unsound practice and
consider compensation excessive when the amounts paid are unreasonable or
disproportionate to the services an executive officer, employee, director or
principal shareholder performs. In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution that has
received notice from an agency that it is not satisfying the safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an acceptable compliance plan, the agency must
issue an order directing action to correct the deficiency, and may issue an
order directing other actions to which an undercapitalized institution is
subject under the "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act. See "--Prompt Corrective Action." If an
institution fails to comply with these orders, the agency may seek to enforce
the orders in judicial proceedings and to impose civil money penalties.
Community Reinvestment Act
The Community Reinvestment Act requires 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 issued under the
Community Reinvestment Act. The final regulations eliminate the 12 assessment
factors under the former regulation and replace them with performance tests.
Institutions are no longer required to prepare Community Reinvestment
55
<PAGE>
Act Statements or extensively document director participation, marketing
efforts or the ascertainment of community credit needs. Under the final rule,
an institution's size and business strategy determines the type of examination
that it will receive. Large, retail-oriented institutions will be examined
using a performance-based lending, investment and service test. Small
institutions will be examined using a streamlined approach. All institutions
may opt to be evaluated under a strategic plan formulated with community input
and pre-approved by the bank regulatory agency.
Community Reinvestment Act regulations provide for certain disclosure
obligations. Each institution must post a notice advising the public of its
right to comment to the institution and its regulator on the institution's
Community Reinvestment Act performance and to review the institution's
Community Reinvestment Act 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. The Community Reinvestment Act requires public disclosure of a financial
institution's written Community Reinvestment Act evaluations. This promotes
enforcement of Community Reinvestment Act requirements by providing the public
with the status of a particular institution's community reinvestment record.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Premier's consolidated
financial statements for the two years ended December 31, 1998, included in its
Annual Report on Form 10-K for the year ended December 31, 1998, as set forth
in Ernst & Young LLP's report, which is incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement. Premier's
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
Mauldin & Jenkins, LLC, independent auditors, have audited Premier's
consolidated financial statements for the year ended December 31, 1996,
included in its Annual Report on Form 10-K for the year ended December 31,
1998, as set forth in Mauldin & Jenkins, LLC's report, which is incorporated by
reference in this proxy statement/prospectus and elsewhere in the registration
statement. Premier's financial statements are incorporated by reference in
reliance on Mauldin & Jenkins, LLC's report, given on their authority as
experts in accounting and auditing.
Porter Keadle Moore LLP, independent auditors, have audited the consolidated
financial statements of North Fulton at December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, as set forth in
their report. North Fulton's financial statements are included in this proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Porter Keadle Moore LLP's report, given on their authority as experts in
accounting and auditing.
OPINIONS
The legality of the shares of the Premier common stock to be issued in the
merger and the federal income tax consequences of the merger will be passed
upon by Womble Carlyle Sandridge & Rice, PLLC, Atlanta, Georgia. In addition,
various other matters relating to the merger will be passed upon by Womble
Carlyle Sandridge & Rice, PLLC, Atlanta, Georgia, for Premier and by Powell
Goldstein Frazer & Murphy, LLP, Atlanta, Georgia, for North Fulton.
56
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Premier files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy these reports, statements or the other information that Premier files with
the Securities and Exchange Commission at the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Securities and Exchange Commission at 1-800-
SEC-0330 for further information on the public reference rooms. These
Securities and Exchange Commission filings are also available to the public
from commercial document retrieval services and at the Internet world wide web
site maintained by the Securities and Exchange Commission at
http://www.sec.gov. Reports, proxy statements and other information of Premier
are also available for inspection at the offices of the New York Stock Exchange
at 11 Wall Street, New York, New York 10005.
Premier has filed this Registration Statement to register with the
Securities and Exchange Commission the Premier common stock to be issued to
North Fulton shareholders in the merger. This proxy statement/prospectus is a
part of that Registration Statement and constitutes a prospectus of Premier. As
allowed by Securities and Exchange Commission rules, this proxy
statement/prospectus does not contain all the information you can find in
Premier's Registration Statement or the exhibits to the Registration Statement.
BB&T Corporation also files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy these reports, statements or the other information that
BB&T files with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the public reference rooms. These
Securities and Exchange Commission filings are also available to the public
from commercial document retrieval services and at the Internet world wide web
site maintained by the Securities and Exchange Commission at
http://www.sec.gov. Reports, proxy statements and other information of BB&T are
also available for inspection at the offices of the New York Stock Exchange at
11 Wall Street, New York, New York 10005.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
North Fulton Bancshares, Inc.
<TABLE>
<S> <C>
Unaudited Financial Statements--March 31, 1999............................ F-1
Consolidated Balance Sheet.............................................. F-1
Consolidated Statement of Earnings...................................... F-2
Consolidated Statement of Comprehensive Income.......................... F-3
Consolidated Statement of Cash Flows for the three months Ended March
31, 1999 and 1998...................................................... F-4
Notes to Consolidated Financial Statements.............................. F-5
Financial Statements--December 31, 1998 and 1997.......................... F-6
Independent Auditor's Report............................................ F-7
Consolidated Balance Sheets............................................. F-8
Consolidated Statement of Earnings...................................... F-9
Consolidated Statements of Changes in Shareholders' Equity.............. F-10
Consolidated Statement of Comprehensive Income.......................... F-11
Consolidated Statement of Cash Flows for the years Ended December 31,
1997 and 1998.......................................................... F-12
Notes to Consolidated Financial Statements.............................. F-14
</TABLE>
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Assets
1999
------------
<S> <C>
Cash and due from banks........................................... $ 7,425,230
Federal funds sold................................................ 14,070,000
------------
Cash and cash equivalents....................................... 21,495,230
Investment securities available for sale.......................... 21,625,956
Investment securities held to maturity............................ 7,426,151
Other investments................................................. 1,715,250
Loans, net........................................................ 133,109,573
Premises and equipment, net....................................... 2,727,014
Accrued interest receivable and other assets...................... 3,810,546
------------
$191,909,720
============
Liabilities and Shareholders' Equity
Deposits:
Demand........................................................... $ 21,301,362
Interest-bearing demand.......................................... 22,718,271
Savings.......................................................... 3,999,272
Time............................................................. 110,185,056
------------
Total deposits.................................................. 158,203,961
Accrued interest payable and other liabilities.................... 2,087,476
FHLB advances..................................................... 17,000,000
Convertible subordinated debentures............................... 1,000,000
Line of credit.................................................... 3,800,000
------------
Total liabilities............................................... 182,091,437
------------
Shareholders' equity:
Common stock, $1 par value; 10,000,000 shares authorized;
1,847,632 shares issued.......................................... 1,847,632
Additional paid-in capital....................................... 5,216,007
Retained earnings................................................ 3,021,987
Accumulated other comprehensive income........................... (107,909)
Treasury stock, at cost, 18,811 shares........................... (159,434)
------------
Total shareholders' equity...................................... 9,818,283
------------
$191,909,720
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $3,151,213 2,546,692
Interest on federal funds sold............................ 73,241 92,612
Interest on taxable investment securities................. 398,946 408,427
Dividends and other interest.............................. 32,159 18,126
---------- ---------
Total interest income.................................... 3,655,559 3,065,857
---------- ---------
Interest expense:
Interest expense on deposits.............................. 1,615,297 1,374,867
Interest expense on other borrowings...................... 279,386 40,572
---------- ---------
Total interest expense................................... 1,894,683 1,415,439
---------- ---------
Net interest income...................................... 1,760,876 1,650,418
Provision for loan losses.................................. 92,000 142,205
---------- ---------
Net interest income after provision for loan losses...... 1,668,876 1,508,213
---------- ---------
Other operating income:
Service charges on deposits............................... 36,531 65,797
SBA activities............................................ 410,701 373,430
Other..................................................... 4,565 25,626
---------- ---------
Total other operating income.............................. 451,797 464,853
---------- ---------
Other operating expenses:
Salaries and employee benefits............................ 903,620 838,491
Occupancy and equipment................................... 211,028 212,381
Other operating........................................... 431,959 444,710
---------- ---------
Total other operating expenses........................... 1,546,607 1,495,582
---------- ---------
Earnings before income taxes............................. 574,066 477,484
Income tax expense......................................... 166,700 162,370
---------- ---------
Net earnings............................................. $ 407,366 315,114
========== =========
Earnings per share....................................... $ 0.22 0.17
========== =========
Diluted earnings per share............................... $ 0.19 0.16
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Net earnings................................................ $ 407,366 315,114
Other comprehensive loss, net of tax:
Unrealized losses on securities available for sale:
Holding losses arising during period, net of tax benefit
of $79,210 and $4,769.................................... (153,757) (14,735)
--------- -------
Total other comprehensive loss............................. (153,757) (14,735)
--------- -------
Comprehensive income........................................ $ 253,609 300,379
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 407,366 315,114
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses.......................... 92,000 142,205
Depreciation, amortization and accretion........... 115,323 107,999
Loss on sale of other real estate.................. -- 6,521
Increase in accrued interest receivable and other
assets............................................ (379,496) (386,777)
Increase in accrued interest payables and other
liabilities....................................... (422,830) (145,522)
----------- -----------
Net cash (used) provided by operating
activities...................................... (187,637) 39,540
----------- -----------
Cash flows from investing activities:
Purchases of investment securities available for
sale............................................... (4,045,938) (6,024,185)
Purchases of investment securities held to
maturity........................................... -- (4,062,031)
Purchases of other investments...................... (217,000) --
Proceeds from calls and maturities of investment
securities available for sale...................... 67,726 52,655
Proceeds from calls and maturities of investment
securities held to maturity........................ 1,048,621 5,141,689
Net increase in loans............................... (5,971,622) (6,598,191)
Purchase of premises and equipment.................. (20,602) (175,565)
Proceeds from sales of other real estate............ -- 17,479
----------- -----------
Net cash used by investment activities........... (9,138,815) (11,648,149)
----------- -----------
Cash flows from financing activities:
Net increase in deposits............................ 15,053,032 5,132,776
Proceeds from line of credit........................ 600,000 600,000
Proceeds from FHLB advances......................... 3,000,000 --
Repayments of FHLB advances......................... -- (1,000,000)
Proceeds from issuance of common stock.............. 46,400 --
Purchase of treasury shares......................... -- (25,995)
Dividends paid...................................... (91,441) (36,631)
----------- -----------
Net cash provided by financing activities........ 18,607,991 4,670,150
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 9,281,539 (6,938,459)
Cash and cash equivalents, at beginning of year...... 12,213,691 14,421,036
----------- -----------
Cash and cash equivalents, at end of year............ $21,495,230 7,482,577
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 1,894,683 1,415,439
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1)Summary of Significant Accounting Policies
Basis of Presentation
North Fulton Bancshares, Inc. (the "Company"), incorporated in 1990, is a
one bank holding company whose business is conducted by its wholly-owned
bank subsidiary, Milton National Bank (the "Bank"). The Company is
regulated by the Federal Reserve System and is subject to periodic
examinations. It is regulated primarily by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation and undergoes
periodic examinations by these agencies. The Bank provides a full range of
commercial and consumer services in Fulton County and the surrounding areas
of metropolitan Atlanta.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles and with general practices in the banking industry.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those estimates.
Material estimates common to the banking industry that are particularly
susceptible to significant change in an operating cycle of one year
include, but are not limited to, the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to present a
fair statement of the results of operations and financial position for the
periods covered herein.
(2) Earnings Per Share
Earnings per share are based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted earnings per
share. The following represents a reconciliation of the amounts used in the
computation of both "earnings per share" and "diluted earnings per share"
for the three months ended March 31, 1999 and 1998 as follows:
For the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Net Common Per Share
Earnings Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Earnings per share............................. $407,366 1,847,410 $.22
====
Effect of dilutive common stock issuances:
Stock options................................. -- 168,181
Convertible securities........................ 8,742 200,000
-------- ---------
Diluted earnings per share..................... $416,108 2,215,591 $.19
======== ========= ====
For the Three Months Ended March 31, 1998
<CAPTION>
Net Common Per Share
Earnings Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Earnings per share............................. $315,114 1,815,632 $.17
====
Effect of dilutive common stock issuances:
Stock options................................. -- 34,000
Convertible securities........................ 8,665 200,000
-------- ---------
Diluted earnings per share..................... $323,779 2,049,632 $.16
======== ========= ====
</TABLE>
F-5
<PAGE>
NORTH FULTON BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1998 and 1997
(with Independent Accountants' Report thereon)
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
North Fulton Bancshares, Inc.
Roswell, Georgia
We have audited the accompanying consolidated balance sheets of North Fulton
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, changes in shareholders' equity,
comprehensive income and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North
Fulton Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore LLP
Atlanta, Georgia
January 29, 1999
F-7
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $729,000
and $557,000....................................... $ 4,278,691 7,680,736
Federal funds sold.................................. 7,935,000 6,740,300
------------ -----------
Cash and cash equivalents........................ 12,213,691 14,421,036
Investment securities available for sale............ 17,906,794 1,994,685
Investment securities held to maturity.............. 8,483,728 21,931,004
Other investments................................... 1,498,250 1,080,908
Loans, net.......................................... 127,229,951 95,878,261
Premises and equipment, net......................... 2,786,696 2,822,483
Accrued interest receivable and other assets........ 3,431,050 2,554,997
------------ -----------
$173,550,160 140,683,374
============ ===========
Liabilities and Shareholders' Equity
Deposits:
Demand............................................. $ 20,561,735 30,736,374
Interest-bearing demand............................ 21,630,065 23,232,258
Savings............................................ 4,753,095 1,657,205
Time............................................... 96,206,034 71,121,743
------------ -----------
Total deposits................................... 143,150,929 126,747,580
Accrued interest payable and other liabilities...... 2,589,516 2,653,673
FHLB advances....................................... 14,000,000 1,000,000
Convertible subordinated debentures................. 1,000,000 1,000,000
Line of credit...................................... 3,200,000 1,100,000
------------ -----------
Total liabilities................................ 163,940,445 132,501,253
============ ===========
Commitments
Shareholders' equity:
Common stock, $1 par value; 10,000,000 shares
authorized; 1,842,632 and 1,815,632 shares
issued............................................ 1,842,632 1,815,632
Additional paid-in capital......................... 5,174,607 5,045,207
Retained earnings.................................. 2,706,062 1,325,524
Accumulated other comprehensive income............. 45,848 10,135
Treasury stock, at cost, 18,811 and 2,130 shares... (159,434) (14,377)
------------ -----------
Total shareholders' equity....................... 9,609,715 8,182,121
------------ -----------
$173,550,160 140,683,374
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans.............................. $11,480,229 8,145,328
Interest on federal funds sold.......................... 346,061 341,531
Interest-bearing deposits in other banks................ 34,690 24,170
Interest on taxable investment securities............... 1,694,068 1,795,083
Dividends on other investments.......................... 84,580 20,439
----------- ----------
Total interest income................................. 13,639,628 10,326,551
----------- ----------
Interest expense:
Interest expense on deposits............................ 6,079,182 4,764,178
Interest expense on other borrowings.................... 519,949 142,634
----------- ----------
Total interest expense................................ 6,599,131 4,906,812
----------- ----------
Net interest income................................... 7,040,497 5,419,739
Provision for loan losses................................ 406,405 648,548
----------- ----------
Net interest income after provision for loan losses... 6,634,092 4,771,191
----------- ----------
Other operating income:
Service charges on deposits............................. 279,651 210,916
Securities gains, net................................... 109,114 7,427
SBA activities.......................................... 1,458,763 626,896
Other................................................... 121,189 226,168
----------- ----------
Total other operating income.......................... 1,968,717 1,071,407
----------- ----------
Other operating expenses:
Salaries and employee benefits.......................... 3,660,247 2,508,663
Occupancy and equipment................................. 871,194 714,035
Professional fees....................................... 393,314 367,900
Data processing expenses................................ 250,012 183,330
Other operating......................................... 1,180,630 1,072,300
----------- ----------
Total other operating expenses........................ 6,355,397 4,846,228
----------- ----------
Earnings before income taxes.......................... 2,247,412 996,370
Income tax expense....................................... 830,243 320,838
----------- ----------
Net earnings.......................................... $ 1,417,169 675,532
=========== ==========
Earnings per share.................................... $ 0.77 0.38
=========== ==========
Diluted earnings per share............................ $ 0.69 0.35
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
---------- ---------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... $1,709,278 4,576,669 649,992 (16,500) -- 6,919,439
Issuance of common
stock.................. 106,354 468,538 -- -- -- 574,892
Change in accumulated
other comprehensive
income................. -- -- -- 26,635 -- 26,635
Purchase of treasury
stock.................. -- -- -- -- (14,377) (14,377)
Net earnings............ -- -- 675,532 -- -- 675,532
---------- --------- --------- ------- -------- ---------
Balance, December 31,
1997................... 1,815,632 5,045,207 1,325,524 10,135 (14,377) 8,182,121
Issuance of common
stock.................. 23,000 113,400 -- -- -- 136,400
Exercise of stock
options................ 4,000 16,000 -- -- -- 20,000
Change in accumulated
other comprehensive
income................. -- -- -- 35,713 -- 35,713
Purchase of treasury
stock.................. -- -- -- -- (145,057) (145,057)
Net earnings............ -- -- 1,417,169 -- -- 1,417,169
Cash dividends declared
of $.02 per share...... -- -- (36,631) -- -- (36,631)
---------- --------- --------- ------- -------- ---------
Balance, December 31,
1998................... $1,842,632 5,174,607 2,706,062 45,848 (159,434) 9,609,715
========== ========= ========= ======= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C>
Net earnings............................................... $1,417,169 675,532
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale:
Holding gains arising during period, net of tax of
$60,269 and $19,114..................................... 103,408 31,186
Reclassification adjustment for gains included in net
earnings, net of tax of $41,419 and $2,876.............. (67,695) (4,551)
---------- -------
Total other comprehensive income.......................... 35,713 26,635
---------- -------
Comprehensive income....................................... $1,452,882 702,167
========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 1,417,169 675,532
Adjustments to reconcile net income to net cash used
for operating activities:
Provision for deferred income taxes................ (4,301) (103,922)
Gain on sale of SBA loans.......................... (1,370,967) (544,887)
Provision for loan losses.......................... 406,405 648,548
Depreciation, amortization and accretion........... 443,420 317,546
Net gain on sale of investment securities.......... (109,114) (7,427)
Loss on disposal of premises and equipment......... 14,765 1,741
Loss on sales of other real estate................. 14,167 --
Increase in interest receivable, prepaid expenses
and other assets.................................. (940,752) (486,590)
Increase in accrued interest expenses and other
liabilities....................................... (83,008) 1,230,958
----------- -----------
Net cash (used) provided by operating activities.. (212,216) 1,731,499
----------- -----------
Cash flows from investing activities:
Purchases of investment securities available for
sale............................................... (18,261,585) (4,961,251)
Purchases of investment securities held to
maturity........................................... (6,092,969) (5,044,373)
Purchases of other investments...................... (417,342) (632,458)
Proceeds from calls and maturities of investment
securities available for sale...................... 895,572 1,000,000
Proceeds from calls and maturities of investment
securities held to maturity........................ 8,348,309 9,048,331
Proceeds from sales of investment securities
available for sale................................. 12,667,532 4,995,313
Proceeds from sale of SBA loans..................... 10,667,712 8,108,236
Net increase in loans............................... (41,054,840) (39,880,321)
Purchase of premises and equipment.................. (281,612) (732,986)
Proceeds from sales of premises and equipment....... 1,200 --
Proceeds from sales of other real estate............ 54,833 30,956
----------- -----------
Net cash used in investment activities............ (33,473,190) (28,068,553)
----------- -----------
Cash flows from financing activities:
Net increase in deposits............................ 16,403,349 26,766,389
Proceeds from borrowings............................ 2,100,000 1,100,000
Proceeds from FHLB advances......................... 14,000,000 --
Repayments of FHLB advances......................... (1,000,000) --
Proceeds from issuance of common stock.............. 156,400 574,892
Purchase of treasury shares......................... (145,057) (14,377)
Dividends paid...................................... (36,631) --
----------- -----------
Net cash provided by financing activities......... 31,478,061 28,426,904
----------- -----------
Net increase in cash equivalents..................... (2,207,345) 2,089,850
Cash and cash equivalents at beginning of year....... 14,421,036 12,331,186
----------- -----------
Cash and cash equivalents at end of year............. $12,213,691 14,421,036
=========== ===========
</TABLE>
F-12
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................ $6,420,014 4,554,393
Income taxes............................................ $1,288,000 13,000
Noncash investing and financing activities:
Change in unrealized on investment securities available
for sale................................................ $ 35,713 26,635
Transfer of investments from held to maturity to
available for sale classification....................... $7,582,269 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
North Fulton Bancshares, Inc. (the "Company"), incorporated in 1990, is a
one-bank holding company whose business is conducted by its wholly-owned
bank subsidiary, Milton National Bank (the "Bank"). The Company is
regulated by the Federal Reserve System and is subject to periodic
examinations. It is regulated primarily by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation and undergoes
periodic examinations by these agencies. The Bank provides a full range of
commercial and consumer services in Fulton County and the surrounding areas
of metropolitan Atlanta.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles and with general practices in the banking industry.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those estimates.
Material estimates common to the banking industry that are particularly
susceptible to significant change in an operating cycle of one year
include, but are not limited to, the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Investment Securities
The Company classifies its securities in one of three categories: trading,
available for sale or held to maturity. Trading securities are bought and
held principally for the purpose of selling in the near term. Held to
maturity securities are those securities for which the Company has the
ability and intent to hold until maturity. All other securities not
included in trading or held to maturity are classified as available for
sale. There were no trading securities during 1998 or 1997.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion
of premiums or discounts. Unrealized holding gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of shareholders' equity
until realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Loans and Allowance for Loan Losses
Loans are stated at principal amount outstanding, net of unearned interest
and the allowance for loan losses. Unearned interest on discounted loans is
recognized as income over the term of the loans using a method which
approximates a level yield. Interest on other loans is calculated by using
the simple interest method on daily balances of the principal amount
outstanding.
F-14
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
Loans and Allowance for Loan Losses--(continued)
As prescribed in Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", gains or losses on sales of SBA loans are
determined at settlement date and are measured by the difference between
the net proceeds less the allocated basis in the loans. Periodic evaluation
of the recorded servicing assets are made to determine if the asset has
become impaired.
The basis in the loan sold is determined by allocating the previous
carrying amount between the loan sold, the retained interest and the
servicing right established based on their relative fair values at the date
of the transfer. The servicing asset is amortized into income over the
expected life of the loan sold.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that
may become uncollectible.
Management's judgment in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality, and review of specific problem
loans. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or at
the loan's observable market price, or at the fair value of the collateral
of the loan if the loan is collateral dependent. Interest income is
recognized using the cash basis method of accounting during the period in
which the loans were impaired. A loan is impaired when, based on current
information and events, it is probable that all amounts due according to
the contractual terms of the loan agreement will not be collected.
Management believes that the allowance for 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 allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the
time of their examination.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation.
Depreciation is computed principally using the straight-line method over
the estimated useful lives of the assets. When assets are retired or
otherwise disposed, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
earnings for the period. Costs incurred for maintenance and repairs are
expensed currently. Major improvements and betterments are capitalized and
depreciated.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the
assets and liabilities are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income tax expense in the period that includes the enactment
date.
F-15
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
Income Taxes--(continued)
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by such
asset is required. A valuation allowance is provided for the portion of the
deferred tax asset when it is more likely than not that some portion or all
of the deferred tax asset will not be realized. In assessing the
realizability of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income and tax planning strategies. asset will not be realized. In
assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected
future taxable income and tax planning strategies.
Treasury Stock
Treasury stock is accounted for by the cost method. Subsequent reissuances
are on a first-in, first-out basis.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for hedging derivatives
and for derivative instruments including derivative instruments embedded in
other contracts. It requires the fair value recognition of derivatives as
assets or liabilities in the financial statements. The accounting for the
changes in the fair value of a derivative depends on the intended use of
the derivative instruments at inception. SFAS No. 133 is effective for all
fiscal quarters beginning after June 15, 1999, but initial application of
the statement must be made as of the beginning of the quarter. At the date
of initial application, an entity may transfer any held to maturity
security into the available for sale or trading categories without calling
into question the entity's intent to hold other securities to maturity in
the future. The Company believes the adoption of SFAS No. 133 will not have
a material impact on its financial position, results of operations or
liquidity.
Net Earnings Per Share
SFAS No. 128 "Earnings Per Share" became effective for the Company for the
year ended December 31, 1997. This standard specifies the computation,
presentation and disclosure requirements for earnings per share and is
designed to simplify previous earnings per share standards and to make
domestic and international practices more compatible. Earnings per share
are based on the weighted average number of common shares outstanding
during the period while the effects of potential common shares outstanding
during the period are included in diluted earnings per share
SFAS No. 128 requires the presentation on the face of the statement of
earnings of earnings per share with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Additionally, the statement requires
the reconciliation of the amounts
F-16
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
Net Earnings Per Share--(continued)
used in the computation of both "earnings per share" and "diluted earnings
per share" for the years ended December 31, 1998 and 1997 as follows:
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Per
Net Common Share
Earnings Shares Amount
---------- --------- ------
<S> <C> <C> <C>
Earnings per share............................... $1,417,167 1,837,065 $.77
====
Effect of dilutive common stock issuances:
Stock options................................... -- 67,438
Convertible securities.......................... 34,962 200,000
---------- ---------
Diluted earnings per share....................... $1,452,129 2,104,503 $.69
========== ========= ====
</TABLE>
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Per
Net Common Share
Earnings Shares Amount
-------- --------- ------
<S> <C> <C> <C>
Earnings per share................................. $675,532 1,791,508 $.38
====
Effect of dilutive common stock issuances:
Stock options..................................... -- 38,549
Convertible securities............................ 34,658 200,000
-------- ---------
Diluted earnings per share......................... $710,190 2,030,057 $.35
======== ========= ====
</TABLE>
(2)INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at
December 31, 1998 and 1997 are as follows:
Securities Available for Sale:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies....... $17,220,406 108,127 40,010 17,288,523
Mortgage-backed securities..... 616,919 1,352 -- 618,271
----------- ------- ------ ----------
Total........................ $17,837,325 109,479 40,010 17,906,794
=========== ======= ====== ==========
<CAPTION>
December 31, 1997
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies....... $ 496,701 2,048 -- 498,749
U.S. Treasuries................ 1,483,080 12,856 -- 1,495,936
----------- ------- ------ ----------
Total........................ $ 1,979,781 14,904 -- 1,994,685
=========== ======= ====== ==========
</TABLE>
F-17
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2)INVESTMENT SECURITIES--(continued)
Securities Held to Maturity:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies....... $ 8,054,347 97,423 -- 8,151,770
Mortgage-backed securities..... 429,381 3,120 -- 432,501
----------- ------- ------ ----------
Total........................ $ 8,483,728 100,543 -- 8,584,271
=========== ======= ====== ==========
<CAPTION>
December 31, 1997
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies....... $16,851,055 126,445 7,992 16,969,508
U.S. Treasuries................ 1,026,889 611 -- 1,027,500
Mortgage-backed securities..... 4,053,060 6,279 6,678 4,052,661
----------- ------- ------ ----------
Total........................ $21,931,004 133,335 14,670 22,049,669
=========== ======= ====== ==========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1998, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers have
the right to call or prepay certain obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Held to Securities Available
Maturity for Sale
-------------------- ---------------------
Estimated
Amortized Fair Amortized Estimated
Cost Value Cost Fair Value
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies:
1 to 5 years.................... $ -- -- 5,001,785 5,060,517
5 to 10 years................... 8,054,347 8,151,770 12,218,621 12,228,006
Mortgage-backed securities....... 429,381 432,501 616,919 618,271
---------- --------- ---------- ----------
$8,483,728 8,584,271 17,837,325 17,906,794
========== ========= ========== ==========
</TABLE>
Proceeds from sales of investment securities available for sale during 1998
and 1997 were $12,667,532 and $5,995,313, respectively. Gross gains of
$120,678 and $18,898 were realized on sales in 1998 and 1997, respectively.
Gross losses of $11,564 and $11,471 were realized on sales in 1998 and
1997, respectively.
Investment securities pledged as collateral to secure deposits at December
31, 1998 and 1997 were approximately $5,090,000 and $5,278,000,
respectively. During 1998, the Company adopted SFAS No. 133 and in
accordance with its provisions elected to transfer approximately $7,582,000
of securities held to maturity to available for sale.
F-18
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3)LOANS
Major classifications of loans at December 31, 1998 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Commercial........................................... $ 69,877,059 59,248,096
Real estate-mortgage................................. 37,237,032 19,696,699
Real estate-construction............................. 16,654,014 13,995,786
Consumer............................................. 4,396,004 3,139,953
Lease financing receivable........................... 1,812,001 1,882,751
------------ ----------
Total loans........................................ 129,976,110 97,963,285
Less:Unearned interest and fees...................... 1,145,325 624,616
Allowance for loan losses.......................... 1,600,834 1,460,408
------------ ----------
Net loans.......................................... $127,229,951 95,878,261
============ ==========
</TABLE>
The Bank grants loans and extensions of credit to individuals and a variety
of firms and corporations located in the general trade area of northern
Fulton County and adjoining counties in the northern metropolitan Atlanta
area.
A substantial portion of the Company's revenues are generated from the
origination of loans guaranteed by the SBA, and the sale of the guaranteed
portions of these loans. Funding for the various SBA loan programs depends
upon annual appropriations by the U.S. Congress.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Balance as beginning of year.......................... $1,460,408 929,211
Provision charged to operating expenses............... 406,405 648,548
Amounts charged off................................... (271,175) (118,431)
Recoveries on amounts previously charged off.......... 5,196 1,080
---------- ---------
Balance at end of year................................ $1,600,834 1,460,408
========== =========
</TABLE>
(4)PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Land................................................. $ 458,061 458,061
Building............................................. 1,740,367 1,740,367
Furniture and equipment.............................. 1,730,791 1,531,274
----------- ---------
3,929,219 3,729,702
Less accumulated depreciation........................ (1,142,523) (907,219)
----------- ---------
$ 2,786,696 2,822,483
=========== =========
</TABLE>
Depreciation expense was $301,434 and $230,258 for the years ended December
31, 1998 and 1997, respectively.
F-19
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination
of $100,000 was approximately $26,477,000 and $26,750,000 at December 31,
1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1999......................................................... $88,921,204
2000......................................................... 6,047,448
2001......................................................... 667,835
2002......................................................... 496,533
2003 and thereafter.......................................... 73,014
-----------
$96,206,034
===========
</TABLE>
(6) LEASED PROPERTY
The following is a schedule by years of minimum future rentals on
noncancellable operating leases as of December 31, 1998:
<TABLE>
<S> <C>
1999............................................................ $243,249
2000............................................................ 250,034
2001............................................................ 256,941
2002............................................................ 46,265
--------
$796,489
========
</TABLE>
Rent expense in 1998 and 1997 approximated $246,000 and $197,000,
respectively.
(7)FEDERAL HOME LOAN BANK ADVANCES AND LINE OF CREDIT
The Bank has an agreement with the Federal Home Loan Bank ("FHLB") whereby
the FHLB agreed to provide the Bank credit facilities. Amounts advanced by
the FHLB are collateralized by the Bank's 1-4 family first mortgage loans
and certain securities. The Bank may draw advances up to 75% of the
outstanding balance of these loans and securities. At December 31, 1998,
the Bank had the following advances outstanding:
<TABLE>
<CAPTION>
Advance Interest Rate Maturity Call Feature
------- ------------- -------- ------------
<S> <C> <C> <C>
$5,000,000 5.76% February 1, 1999 --
$2,000,000 5.18% June 29, 1999 --
$7,000,000 5.09% August 28, 2008 Callable after August 2001
</TABLE>
Additionally, during 1997, the Company entered into a $5,000,000 line of
credit with a financial institution. The facility, which is collateralized
by all of the outstanding shares of the Bank's common stock, matures July
1, 1999 at which time it converts to a term loan amortizing over eight
years. Interest is due quarterly at an interest rate of prime rate less 25
basis points. At December 31, 1998 and 1997, there was $3,200,000 and
$1,100,000 outstanding, respectively.
F-20
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) CONVERTIBLE SUBORDINATED DEBENTURES
At December 31, 1998 and 1997, the Company had outstanding $1,000,000 of
mandatorily convertible subordinated debentures with a coupon rate of 5.59%
paying interest quarterly. The unsecured debentures mature on June 30, 2002
at which time they convert to 200,000 shares of common stock.
(9) SHAREHOLDERS' EQUITY
The Company has an Incentive Stock Option Plan (the "Incentive Plan")
where, options granted vest ratably over their stated vesting period from
date of grant. The options expire no later than ten years from the date of
grant. Options to employees are granted at an exercise price equal to the
current fair value of the underlying stock on the date of the grant. Stock
options granted under the Incentive Plan were granted at a price of $5 per
share. Under certain conditions, the Directors may alter the number of
options granted and their exercise price.
The Company instituted the Director Compensation Plan (the "Director Plan")
in 1996 under which options to acquire 55,000 shares were granted to
directors at an exercise price of $5 per share which approximated the
current fair value of the underlying stock. Options issued under the
Director Plan are subject to the same vesting and exercise provisions as
those issued under the Incentive Plan. Options issued to directors during
1997 and 1998 were issued at 75% of fair value. As a result, included in
1998 and 1997 results were expenses of $105,958 and $62,287, respectively,
in accordance with APB No.25.
Under the Incentive and Director Plans, 157,250 shares are available for
future grant.
A summary status of the Company's Incentive and Director Plans as of
December 31, 1998 and 1997, and changes during the year, is presented
below:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- ------------------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year...... 170,000 $ 5.00 178,500 $5.00
Granted during the year............. 93,287 $ 10.07 48,000 $5.00
Exercised during the year........... (4,000) $ 5.00 -- --
Forfeited during the year........... (2,500) $ 11.25 (56,500) $5.00
------- ---------
Outstanding, end of year............ 256,787 $ 6.84 170,000 $5.00
======= =========
Options exercisable at year end..... 182,976 $ 5.79 102,712 $5.00
======= =========
Range of exercise prices............ $ 8.44 to $11.25
Weighted average remaining
contractual lives (years).......... 8.07
</TABLE>
The Company is encouraged, but not required, to compute the fair value of
options at the date of grant and to recognize such costs as compensation
expense over the vesting period or immediately if only subject to service
requirement and the award is expected to vest. The Company has chosen not
to adopt the cost
F-21
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) SHAREHOLDERS' EQUITY--(continued)
recognition principles of this statement. Had compensation cost been
determined based upon the fair value of the options at the grant dates, the
Company's net earnings and net earnings per share would have been adjusted
to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C> <C>
Net earnings.................................. As reported $1,417,167 675,532
Proforma $1,361,174 683,490
Earnings per share............................ As reported $ .77 .38
Proforma $ .74 .38
Diluted earnings per share.................... As reported $ .69 .35
Proforma $ .66 .34
</TABLE>
The fair value of each option is estimated on the date of grant using the
Minimum Value pricing model with the following weighted average assumptions
used for grants in 1998 and 1997: dividend yield of 0%, a risk free
interest rate of 5%, and an expected life of 10 years for both years. For
disclosure purposes, the Company immediately recognized the expense
assuming that all awards will vest.
During 1998 and 1997, the Company entered into an agreement to award 5,000
and 13,000 shares, respectively, of stock to officers of the Company. The
awards vest on the tenth anniversary of the award date or, under conditions
defined by the agreement and with the Board of Directors approval, if the
employee terminates employment with the Company. During the vesting period,
the holder has voting rights and shares the benefit of any dividends
offered on outstanding shares.
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. The amount of
dividends the Bank may pay in 1999 without prior approval is approximately
$3,252,000 plus 1999 earnings of the Bank.
(10) EMPLOYEE BENEFIT PLAN
The Company has established the Milton National Bank Profit Sharing 401(k)
Plan for all employees 21 years of age or older who are currently employed
with more than one day of service. Under the plan provisions, employees may
contribute up to 15% of their compensation. The Company will make a minimum
matching contribution equal to a percentage of the amount contributed by
the employee, up to 10% of the first 15% of compensation contributed by the
employee, but may match total elections at greater amounts. Expenses
incurred for this plan for the years ended December 31, 1998 and 1997 were
$114,784 and $79,643, respectively.
(11) INCOME TAXES
The components of income tax expense for the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Current................................................... $834,544 424,760
Deferred provision........................................ (4,301) (48,605)
Change in valuation allowance............................. -- (55,317)
-------- -------
Provision for income taxes................................ $830,243 320,838
======== =======
</TABLE>
F-22
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) INCOME TAXES--(continued)
The difference between income tax expense and the tax computed by applying
the statutory federal income tax rate to income before taxes is explained
as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
-------- -------
<S> <C> <C>
Federal income taxes at statutory rate..................... $764,120 338,766
Non-deductible expenses.................................. 22,678 37,389
Change in valuation allowance............................ -- (55,317)
State taxes, net of federal benefit...................... 43,445 (53,301)
-------- -------
Provision for income taxes............................... $830,243 320,838
======== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- -------
<S> <C> <C>
Deferred tax liabilities:
Premises and equipment................................ $ (82,305) (44,398)
Net unrealized gain on investment securities available
for sale............................................. (23,619) (4,769)
--------- -------
Deferred tax liabilities............................. (105,924) (49,167)
--------- -------
Deferred tax assets:
Deferred loan income.................................. 87,547 30,570
Accrual to cash....................................... 16,144 32,288
Allowance for loan losses............................. 489,537 459,396
Deferred compensation................................. 56,236 31,886
State net operating loss carryforwards and credits.... 10,786 59,159
Other................................................. 1,794 6,537
--------- -------
Deferred tax assets.................................. 662,044 619,836
--------- -------
Net deferred tax asset............................... $ 556,120 570,669
========= =======
</TABLE>
During 1997, the valuation allowance declined by $55,317, respectively, as
a result of the utilization of tax loss carryforwards in the current year
that makes it more likely than not that previously unrecorded benefits will
be recognized.
(12)REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under certain adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
F-23
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12)REGULATORY MATTERS--(continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital to Risk-Weighted Assets and of Tier 1 capital to average assets
(all as defined). Management believes, as of December 31, 1998, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total Risk-
based and Tier 1 leverage ratios as set forth below. There are no
conditions or events since that notification that management believes have
changed the institution's category.
Consolidated actual capital amounts and ratios are also presented below.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
----------------- ---------------- ------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets)................ $12,164,702 8% 11,585,430 8% N/A N/A
Tier 1 Capital
(to Risk Weighted
Assets)................ $ 9,563,868 7% 5,796,284 4% N/A N/A
Tier 1 Capital
(to Average Assets)..... $ 9,563,868 6% 6,271,389 4% N/A N/A
As of December 31, 1997:
Total Capital
(to Risk Weighted
Assets)................ $ 8,688,905 8% 8,384,000 8% N/A N/A
Tier 1 Capital
(to Risk Weighted
Assets)................ $ 7,378,835 7% 4,192,000 4% N/A N/A
Tier 1 Capital
(to Average Assets)..... $ 7,378,835 6% 5,331,000 4% N/A N/A
</TABLE>
F-24
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12)REGULATORY MATTERS--(continued)
The Bank's actual capital amounts and ratios are also presented below.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
----------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets)............... $15,485,928 11% 11,578,264 8% 14,472,830 10%
Tier 1 Capital
(to Risk Weighted
Assets)............... $13,885,094 10% 5,785,456 4% 8,678,184 6%
Tier 1 Capital
(to Average Assets).... $13,885,094 10% 6,240,492 4% 7,800,615 5%
As of December 31, 1997:
Total Capital
(to Risk Weighted
Assets)............... $11,488,267 11% 8,381,000 8% 10,476,000 10%
Tier 1 Capital
(to Risk Weighted
Assets)............... $10,178,727 10% 4,191,000 4% 6,286,000 6%
Tier 1 Capital
(to Average Assets).... $10,178,727 8% 5,331,000 4% 6,663,000 5%
</TABLE>
(13)FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. The assumptions used
in the estimation of the fair value of the Company's financial instruments
are detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the 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 Cash Equivalents
For cash, due from banks and federal funds sold the carrying amount is a
reasonable estimate of fair value.
Investment Securities
Fair values of investment securities available for sale and investment
securities held to maturity are based on quoted market prices.
Other Investments
The carrying value of other investments approximates fair value.
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.
F-25
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13)FAIR VALUE OF FINANCIAL INSTRUMENTS--(continued)
Deposits
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.
FHLB Advances and Line of Credit
FHLB advances were granted at fixed rates and mature within thirty days of
the balance sheet date. Borrowings outstanding on the line of credit were
granted at a variable rate. Management has determined the carrying values
of these financial instruments approximate fair value.
Convertible Debentures
The debentures were issued at a fixed rate in 1995. The fixed rate on the
notes approximates the current rate environment considering the relative
risk inherent in the instruments.
Commitments to Extend Credit and Standby Letters of Credit
Because commitments to extend credit and standby letters of credit are
made using variable rates, the contract value is a reasonable estimate of
fair value.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the 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.
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 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.
F-26
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13)FAIR VALUE OF FINANCIAL INSTRUMENTS--(continued)
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............. $ 12,213,691 12,213,691 14,421,036 14,421,036
Securities available for
sale.................... 17,906,794 17,906,794 1,994,685 1,994,685
Securities held to
maturity................ 8,483,728 8,584,271 21,931,004 22,049,669
Other investments........ 1,498,250 1,498,250 1,080,908 1,080,908
Loans, net............... 127,229,951 126,310,806 95,878,261 96,669,000
Liabilities:
Deposits................. $143,150,929 143,612,918 126,747,580 127,097,000
Line of credit........... 3,200,000 3,200,000 1,100,000 1,100,000
Convertible subordinated
debentures.............. 1,000,000 1,000,000 1,000,000 1,000,000
FHLB advances............ 14,000,000 14,000,000 1,000,000 1,000,000
Unrecognized financial
instruments:
Commitments to extend
credit.................. $ 47,034,000 47,034,000 34,146,000 34,146,000
Standby letters of
credit.................. $ 2,146,000 2,146,000 1,546,000 1,546,000
</TABLE>
(14)COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contractual amounts of these
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The Bank generally requires collateral to support financial instruments
with credit risk.
<TABLE>
<CAPTION>
Approximate Contract
Amount
----------------------
1998 1997
----------- ----------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit...................... $47,034,000 34,146,000
Standby letters of credit......................... $ 2,146,000 1,546,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
F-27
<PAGE>
NORTH FULTON BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14)COMMITMENTS--(continued)
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank,
upon extension of credit is based on management's credit evaluation.
Collateral held varies but may include unimproved and improved real
estate, certificates of deposit or personal property.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
(15)RELATED PARTIES
In the normal course of business, the Bank makes loans at prevailing
interest rates to directors and officers of the Bank and the Company.
These loans are made at rates and terms comparable to those offered to
other customers. The aggregate dollar amount of these loans was
approximately $1,966,000 and $1,863,000 at December 31, 1998 and 1997,
respectively. During 1998, $384,000 of new loans were made and there were
repayments of $281,000.
The Bank occupies certain of its office space under an operating lease
with an entity owned by a Director of the Bank and the Company. Management
believes lease terms are at prevailing market rates for comparable space.
This lease was modified in 1997 to allow for an increase in space. The
amounts herein were included in note 6. The future minimum lease payments
under this noncancelable operating lease consist of the following:
<TABLE>
<CAPTION>
<S> <C>
1999............................ $ 70,137
2000............................ 72,938
2001............................ 75,861
2002............................ 46,265
--------
Total minimum lease payments.. $265,201
========
</TABLE>
F-28
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 6, 1999 by and between PREMIER BANCSHARES, INC.
("Premier"), a corporation organized and existing under the laws of the State of
Georgia, with its principal office located in Atlanta, Georgia, and NORTH FULTON
BANCSHARES, INC. ("North Fulton"), a corporation organized and existing under
the laws of the State of Georgia, with its principal office located in Roswell,
Georgia.
Preamble
---------
The Boards of Directors of Premier and North Fulton are of the opinion that
the transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the merger of North
Fulton with and into Premier, with Premier being the surviving corporation of
the merger. At the effective time of such merger, the outstanding shares of
capital stock of North Fulton will be converted into the right to receive shares
of capital stock of Premier. As a result, shareholders of North Fulton will
become shareholders of Premier, and the wholly-owned subsidiary of North Fulton,
Milton National Bank, will continue to conduct its business and operations as a
wholly-owned subsidiary of Premier. The transactions described in this
Agreement are subject to the approvals of the Boards of Directors of both
Premier and North Fulton, the shareholders of North Fulton, the Board of
Governors of the Federal Reserve System, the Georgia Department of Banking and
Finance and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the merger
(i) for federal income tax purposes shall qualify as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code and (ii) for
accounting purposes shall be accounted for as a "pooling of interests."
As a condition and inducement to Premier's willingness to consummate the
transactions contemplated by this Agreement, each of the directors of North
Fulton will execute and deliver to Premier an agreement (a "Support Agreement")
within ten (10) calendar days of the date of this Agreement, in substantially
the form of Exhibit 6 to this Agreement.
---------
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at
------
the Effective Time, North Fulton shall be merged with and into Premier in
accordance with the provisions of
<PAGE>
Section 14-2-1101, 14-2-1103, and 14-2-1105 of the GBCC and with the effect
provided in Section 14-2-1106 of the GBCC (the "Merger"). Premier shall be the
Surviving Corporation resulting from the Merger. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective Boards of Directors of Premier and North Fulton.
1.2 Time and Place of Closing. The Closing will take place at 10:00
-------------------------
a.m. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 10:00 a.m.), or at such other time as
the Parties, acting through their chief executive officers may mutually agree.
The place of Closing shall be at the offices of Womble Carlyle Sandridge & Rice,
PLLC, Atlanta, Georgia, or such other place as may be mutually agreed upon by
the Parties.
1.3 Effective Time. The Merger and the other transactions contemplated
--------------
by this Agreement shall become effective on the date and at the time the
Articles of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Georgia (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the chief executive officer of each Party, the Parties shall use
their reasonable efforts to cause the Effective Time to occur on the last
business day of the month in which occurs the last to occur of (a) the effective
date (including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over and approving
or exempting the Merger, (b) the date on which the shareholders of North Fulton
approve this Agreement to the extent such approval is required by applicable
Law; or such later date as may be mutually agreed upon in writing by the chief
executive officer of each Party.
1.4 Execution of Support Agreements. Within ten (10) calendar days of
-------------------------------
the execution of this Agreement and as a condition hereto, each of the directors
of North Fulton will execute and deliver to premier a Support Agreement, in
substantially the form of Exhibit 6 to this Agreement.
---------
ARTICLE II
TERMS OF MERGER
---------------
2.1 Articles of Incorporation. The Articles of Incorporation of Premier
-------------------------
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of Premier in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation from and after
the Effective Time until otherwise amended or repealed.
2.3 Directors and Officers.
----------------------
(a) The officers and directors of the Surviving Corporation from and
after the Effective Time shall consist of the officers and directors of Premier
immediately preceding the
2
<PAGE>
Effective Time, together with such additional persons as may thereafter be
elected; provided, however, that Premier shall select one (1) of the current
directors of North Fulton listed in paragraph (c) below to serve on the board of
directors of the Surviving Corporation from and after the Effective Date. Such
officers and directors shall serve in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation.
(b) The directors of Premier Bank from and after the Effective Time
shall consist of the directors of Premier Bank immediately preceding the
Effective Time, provided, however, that upon the consummation of a proposed
merger of Milton National Bank with and into Premier Bank, Premier shall elect
one of the directors of Milton National Bank, as of the Effective Time, to the
Board of Directors of Premier Bank. Such directors shall serve in accordance
with the Articles of Incorporation and Bylaws of Premier Bank.
(c) The directors of Milton National Bank from and after the
Effective Time shall consist of L. Gregg Ivey, H. Richard Hiller, Weldon H.
Johnson and Michael McGovern, together with such additional persons as Premier,
in its sole discretion, may designate. Such directors shall serve in accordance
with the Articles of Association and Bylaws of Milton National Bank.
ARTICLE III
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3,
--------------------
at the Effective Time, by virtue of the Merger and without any action on the
part of Premier or North Fulton, or the shareholders of either of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of Premier Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(b) Each share of North Fulton Common Stock (excluding shares held
by Premier or North Fulton or any of their respective Subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted) issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
0.8749 shares of Premier Common Stock (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event Premier or North Fulton
------------------------
changes the number of shares of Premier Common Stock or North Fulton Common
Stock, respectively, issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend or similar recapitalization with respect
to such stock and the record date therefor (in the case of a stock dividend) or
the effective date therefor (in the case of a stock split or similar
recapitalization) shall be after the date hereof and prior to the Effective
Time, the Exchange Ratio shall be proportionately adjusted.
3
<PAGE>
3.3 Shares Held by Premier or North Fulton. Each of the shares of North
--------------------------------------
Fulton Common Stock held by any Premier Company or by any North Fulton Company,
in each case other than in a fiduciary capacity or as a result of debts
previously contracted, shall be canceled and retired at the Effective Time and
no consideration shall be issued in exchange therefor.
3.4 Conversion of Stock Options; Restricted Stock.
---------------------------------------------
(a) At the Effective Time, all rights with respect to North Fulton
Common Stock pursuant to stock options granted by North Fulton under the North
Fulton Stock Plans ("North Fulton Options"), which are outstanding at the
Effective Time, whether or not exercisable, shall be converted into and become
rights with respect to Premier Common Stock, and Premier shall assume each North
Fulton Option, in accordance with the terms of the North Fulton Stock Plan and
stock option agreement by which it is evidenced. From and after the Effective
Time, (i) each North Fulton Option assumed by Premier may be exercised solely
for shares of Premier Common Stock, (ii) the number of shares of Premier Common
Stock subject to such North Fulton Option shall be equal to the number of shares
of North Fulton Common Stock subject to such North Fulton Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and (iii) the per
share exercise price under each such North Fulton Option shall be adjusted to
reflect the Exchange Ratio. It is intended that the foregoing assumption shall
be undertaken in a manner that will not constitute a "modification" as defined
in Section 424 of the Internal Revenue Code, as to any stock option which is an
"incentive stock option." North Fulton and Premier agree to take all necessary
steps to effect the provisions of this Section 3.4.
(b) Premier may, at its election, substitute, as of the Effective
Time, stock options under the Premier Bancshares, Inc. 1997 Stock Option Plan
(the "Premier Stock Option Plan") for all or a part of the North Fulton Options,
subject to the following conditions: (i) the requirements of Section 3.4(a)
shall be met; (ii) such substitution shall not constitute a modification,
extension or renewal of any of the North Fulton Options which are incentive
stock options; (iii) the substituted options shall continue in effect in all
material respects on the same terms and conditions as contained in the document
granting the North Fulton Options; and (iv) each grant of a substitute option to
any individual who shall be deemed subject to Section 16 of the 1934 Act shall
have been specifically approved in advance by the full Board of Directors of
Premier or by a committee consisting solely of "non-employee" directors as
defined in Rule 16b-3. As soon as practicable following the Effective Time,
Premier shall deliver to the participants receiving substitute options under the
Premier Stock Option Plan an appropriate notice setting forth such participant's
rights pursuant thereto. Premier has reserved under the Premier Stock Option
Plan adequate shares of Premier Common Stock for delivery upon exercise of any
such substituted options.
3.5 Dissenting Shareholders. Any holder of shares of North Fulton
-----------------------
Common Stock who perfects such holder's dissenters' rights of appraisal in
accordance with and as contemplated by Article 13 of the GBCC shall be entitled
to receive the value of such shares in cash as determined pursuant to such
provision of the GBCC; provided, that no such payment shall be made to any
4
<PAGE>
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the GBCC and has surrendered to Premier the
certificate or certificates representing shares for which payment is being made.
In the event that after the Effective Time a dissenting shareholder of North
Fulton fails to perfect, or effectively withdraws or loses, such holder's right
to appraisal and of payment for such holder's shares, Premier shall issue and
deliver the consideration to which such holder of shares of North Fulton Common
Stock is entitled under this Article III (without interest) upon surrender by
such holder of the certificate or certificates representing shares of North
Fulton Common Stock held by such holder.
3.6 Fractional Shares. Notwithstanding any other provision of this
-----------------
Agreement, each holder of shares of North Fulton Common Stock exchanged pursuant
to the Merger, or of options to purchase shares of North Fulton Common Stock,
who would otherwise have been entitled to receive a fraction of a share of
Premier Common Stock (after taking into account all certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Premier Common Stock
multiplied by the market value of one share of Premier Common Stock at the
Effective Time, in the case of shares exchanged pursuant to the Merger, or the
date of exercise, in the case of options. The market value of one share of
Premier Common Stock at the Effective Time or the date of exercise, as the case
may be, shall be the last sale price of such common stock on the American Stock
Exchange (as reported by The Wall Street Journal or, if not reported thereby,
any other authoritative source) on the last trading day preceding the Effective
Time or the date of exercise, as the case may be. No such holder will be
entitled to dividends, voting rights, or any other rights as a stockholder in
respect of any fractional shares.
ARTICLE IV
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. Promptly after the Effective Time, Premier and
-------------------
North Fulton shall cause the exchange agent selected by Premier (the "Exchange
Agent") to mail to the former holders of North Fulton Common Stock appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
North Fulton Common Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent). After the Effective Time, each holder of
shares of North Fulton Common Stock (other than shares to be canceled pursuant
to Section 3.3 of this Agreement or shares as to which dissenters' rights have
been perfected as provided in Section 3.5 of this Agreement) issued and
outstanding at the Effective Time, shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1 and 3.6 of this Agreement, together with all undelivered
dividends or distributions in respect of such shares (without interest thereon)
pursuant to Section 4.2 of this Agreement. Neither Premier nor the Exchange
Agent shall be obligated to deliver the consideration to which any former holder
of North Fulton Common Stock is entitled as a result of the Merger until such
holder surrenders his or her certificate or certificates representing the shares
of North Fulton Common Stock for exchange as provided in this Section 4.1. The
certificate or
5
<PAGE>
certificates of North Fulton Common Stock so surrendered shall be duly endorsed
as Premier may require. Any other provision of this Agreement notwithstanding,
neither Premier nor the Exchange Agent shall be liable to a holder of North
Fulton Common Stock for any amounts paid or property delivered in good faith to
a public official pursuant to any applicable abandoned property Law.
4.2 Rights of Former North Fulton Shareholders. The stock transfer
------------------------------------------
books of North Fulton shall be closed as to holders of North Fulton Common Stock
immediately prior to the Effective Time and no transfer of North Fulton Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of North Fulton
Common Stock (other than shares to be canceled pursuant to Section 3.3 or shares
as to which dissenters' rights have been perfected as provided in Section 3.5 of
this Agreement) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Section 3.1 and
3.6 of this Agreement in exchange therefor. To the extent permitted by Law,
former holders of record of North Fulton Common Stock shall be entitled to vote
after the Effective Time at any meeting of Premier shareholders the number of
whole shares of Premier Common Stock into which their respective shares of North
Fulton Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing North Fulton Common Stock for
certificates representing Premier Common Stock in accordance with the provisions
of this Agreement. Whenever a dividend or other distribution is declared by
Premier on the Premier Common Stock, the record date for which is at or after
the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but no dividend
or other distribution payable to the holders of record of Premier Common Stock
as of any time subsequent to the Effective Time shall be delivered to the holder
of any certificate representing shares of North Fulton Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 4.1 of this Agreement. However, upon
surrender of such North Fulton Common Stock certificate, both Premier Common
Stock certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid for
fractional share interests (without interest) shall be delivered and paid with
respect to each share represented by such certificate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF NORTH FULTON
---------------
North Fulton hereby represents and warrants to Premier as follows:
5.1 Organization, Standing, and Power. North Fulton is a corporation
---------------------------------
duly organized, validly existing, and in good standing under the Laws of the
State of Georgia and is duly registered as a bank holding company under the BHC
Act. North Fulton has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. North
Fulton is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States
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of the United States and foreign jurisdictions where the character of its Assets
or the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on North Fulton.
5.2 Authority; No Breach By Agreement.
---------------------------------
(a) North Fulton has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of North
Fulton, subject to the approval of this Agreement by the holders of a majority
of the outstanding shares of North Fulton Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of the
Merger by North Fulton. Subject to such requisite shareholder approval, this
Agreement represents a legal, valid and binding obligation of North Fulton,
enforceable against North Fulton in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by North
Fulton, nor, except as described in Section 5.2 of the North Fulton Disclosure
----------
Memorandum, the consummation by North Fulton of the transactions contemplated
- ----------
hereby, nor compliance by North Fulton with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of North Fulton's
Articles of Incorporation or Bylaws, or (ii) constitute or result in a Default
under, or require any Consent pursuant to, or result in the creation of any Lien
on any Asset of any North Fulton Company under, any Contract or Permit of any
North Fulton Company, where such Default or Lien, or any failure to obtain such
Consent, is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on North Fulton, or (iii) subject to receipt of the
requisite approvals referred to in Section 9.1 (b) of this Agreement, violate
any Law or Order applicable to any North Fulton Company or any of their
respective Assets.
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and rules
of the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on North Fulton, no notice to, filing with, or Consent
of any public body or authority is necessary for the consummation by North
Fulton of the Merger and the other transactions contemplated in this Agreement.
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<PAGE>
5.3 Common Stock.
------------
(a) The authorized common stock of North Fulton consists of
10,000,000 shares of North Fulton Common Stock, of which 1,828,821 shares are
issued and outstanding as of the date of this Agreement and not more than
2,329,115 shares will be issued and outstanding at the Effective Time (as a
result of the exercise of outstanding options and the conversion of certain
subordinated debentures). All of the issued and outstanding shares of capital
stock of North Fulton are duly and validly issued and outstanding and are fully
paid and nonassessable under the GBCC. None of the outstanding shares of capital
stock of North Fulton has been issued in violation of any preemptive rights of
the current or past shareholders of North Fulton. North Fulton has reserved
300,000 shares of North Fulton Common Stock for issuance under the North Fulton
Stock Plans, pursuant to which options to purchase not more than 300,294 shares
of North Fulton Common Stock are outstanding as of the date of this Agreement
and not more than 300,294 will be outstanding at the Effective Time.
(b) North Fulton has issued Series A Convertible Subordinated
Debentures with a maturity date of June 30, 2002 (the "Debentures") in the total
principal amount of $1,000,000. The interest rate of the Debentures is 5.59%
per annum. North Fulton is current in all interest payments under the
Debentures. The Debentures are convertible into a total of 200,000 shares of
North Fulton Common Stock at a conversion price of $5.00 per share. North
Fulton has disclosed in Section 5.3(b) of the North Fulton Disclosure Memorandum
---------------------
the names of each holder of a Debenture, together with the principal amount
owing to such holder.
(c) Except as set forth in Section 5.3(a) and (b) of this Agreement,
or as disclosed in Section 5.3 of the North Fulton Disclosure Memorandum, there
---------------------
are no shares of capital stock or other equity securities of North Fulton
outstanding and no outstanding Rights relating to the capital stock of North
Fulton.
5.4 North Fulton Subsidiaries. North Fulton has disclosed in Section
-------------------------
5.4 of the North Fulton Disclosure Memorandum all of the North Fulton
---------------------
Subsidiaries as of the date of this Agreement. Except as disclosed in Section
5.4 of the North Fulton Disclosure Memorandum, North Fulton or one of its
---------------------
Subsidiaries owns all of the issued and outstanding shares of capital stock of
each North Fulton Subsidiary. No equity securities of any North Fulton
Subsidiary are or may become required to be issued (other than to another North
Fulton Company) by reason of any Rights, and there are no Contracts by which any
North Fulton Subsidiary is bound to issue (other than to another North Fulton
Company) additional shares of its capital stock or Rights, or by which any North
Fulton Company is or may be bound to transfer any shares of the capital stock of
any North Fulton Subsidiary (other than to another North Fulton Company). There
are no Contracts relating to the rights of any North Fulton Company to vote or
to dispose of any shares of the capital stock of any North Fulton Subsidiary.
All of the shares of capital stock of each North Fulton Subsidiary held by a
North Fulton Company are fully paid and nonassessable under the applicable Law
of the jurisdiction in which such Subsidiary is incorporated or organized and
are owned by a North Fulton
8
<PAGE>
Company free and clear of any Lien. Each North Fulton Subsidiary is either a
bank, a savings association or a corporation and is duly organized, validly
existing, and (as to corporations) in good standing under the Laws of the
jurisdiction in which it is organized and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each North Fulton Subsidiary is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on North Fulton. Each North Fulton
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund, as appropriate.
5.5 Financial Statements. North Fulton has included in Section 5.5 of
--------------------
the North Fulton Disclosure Memorandum copies of all North Fulton Financial
---------------------
Statements for periods ended prior to the date hereof and will deliver to
Premier copies of all North Fulton Financial Statements prepared subsequent to
the date hereof. The North Fulton Financial Statements (as of the dates thereof
and for the periods covered thereby) (a) are, or if dated after the date of this
Agreement will be, in accordance with the books and records of the North Fulton
Companies, which are or will be, as the case may be, complete and correct and
which have been or will have been, as the case may be, maintained in accordance
with good business practices, and (b) present or will present, as the case may
be, fairly the consolidated financial position of the North Fulton Companies as
of the dates indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows of the North Fulton Companies for the
periods indicated, in accordance with GAAP (subject to any exceptions as to
consistency specified therein or as may be indicated in the notes thereto or, in
the case of interim financial statements, to normal recurring year-end
adjustments that are not material in amount or effect).
5.6 Absence of Undisclosed Liabilities. No North Fulton Company has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on North Fulton except Liabilities which
are accrued or reserved against in the consolidated balance sheets of North
Fulton as of December 31, 1998, included in the North Fulton Financial
Statements or reflected in the notes thereto. No North Fulton Company has
incurred or paid any Liability since December 31, 1998, except for such
Liabilities incurred or paid in the ordinary course of business consistent with
past business practice and which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on North Fulton.
5.7 Absence of Certain Changes or Events. Since December 31, 1998,
------------------------------------
except as disclosed in Section 5.7 of the North Fulton Disclosure Memorandum,
---------------------
(a) there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on North Fulton, and (b) the North Fulton Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or
9
<PAGE>
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of North
Fulton provided in Article VII of this Agreement.
5.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of
the North Fulton Companies have been timely filed or requests for extensions
have been timely filed, granted, and have not expired, except to the extent that
all such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on North Fulton and all returns filed are complete and
accurate to the Knowledge of North Fulton. All Taxes shown on filed returns have
been paid. As of the date of this Agreement, there is no audit examination,
deficiency or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually or in the
aggregate, a Material Adverse Effect on North Fulton, except as reserved against
in the North Fulton Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.8(a) of the North Fulton Disclosure
----------
Memorandum. All Taxes and other Liabilities due with respect to completed and
- ----------
settled examinations or concluded Litigation have been paid.
(b) Except as disclosed in Section 5.8(b) of the North Fulton
Disclosure Memorandum, none of the North Fulton Companies has executed an
- ---------------------
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect, and no unpaid tax
deficiency has been asserted in writing against or with respect to any North
Fulton Company, which deficiency is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on North Fulton.
(c) Adequate provision for any Taxes due or to become due for any of
the North Fulton Companies for the period or periods through and including the
date of the respective North Fulton Financial Statements has been made and is
reflected on such North Fulton Financial Statements.
(d) Deferred Taxes of the North Fulton Companies have been provided
for in accordance with GAAP.
(e) Each of the North Fulton Companies is in compliance with, and
its records contain all information and documents (including, without
limitation, properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under federal,
state and local Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the Internal
Revenue Code, except for such instances of noncompliance and such omissions as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on North Fulton.
10
<PAGE>
5.9 Allowance for Possible Loan Losses. The allowance for possible loan
----------------------------------
or credit losses (the "Allowance") shown on the consolidated balance sheets of
North Fulton included in the most recent North Fulton Financial Statements dated
prior to the date of this Agreement was, and the Allowance shown on the
consolidated balance sheets of North Fulton included in the North Fulton
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for losses relating
to or inherent in the loan and lease portfolios (including accrued interest
receivables) of the North Fulton Companies and other extensions of credit
(including letters of credit and commitments to make loans or extend credit) by
the North Fulton Companies as of the dates thereof except where the failure of
such Allowance to be so adequate is not reasonably likely to have a Material
Adverse Effect on North Fulton.
5.10 Assets. Except as disclosed in Section 5.10 of the North Fulton
------
Disclosure Memorandum or as disclosed or reserved against in the North Fulton
- ---------------------
Financial Statements, the North Fulton Companies have good and marketable title,
free and clear of all Liens, to all of their respective Assets. All material
tangible properties used in the businesses of the North Fulton Companies are in
good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with North Fulton's past practices. All
Assets which are material to the business of the North Fulton Companies and held
under leases or subleases by any of the North Fulton Companies are held under
valid Contracts enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting the enforcement of creditors'
rights generally and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceedings may be brought), and each such Contract is in
full force and effect. The policies of fire, theft, liability and other
insurance maintained with respect to the Assets or businesses of the North
Fulton Companies provide adequate coverage under current industry practices
against loss or Liability, and the fidelity and blanket bonds in effect as to
which any of the North Fulton Companies is a named insured are reasonably
sufficient. The Assets of the North Fulton Companies include all assets
required to operate the business of the North Fulton Companies as presently
conducted.
5.11 Environmental Matters. Except as disclosed in Section 5.11 of the
---------------------
North Fulton Disclosure Memorandum:
---------------------
(a) To the Knowledge of North Fulton, each North Fulton Company, its
Participation Facilities and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for noncompliance which is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on North Fulton.
(b) There is no Litigation pending or to the Knowledge of North
Fulton threatened before any court, governmental agency or authority or other
forum in which any North Fulton Company or any of its Loan Properties or
Participation Facilities has been or, with respect to threatened Litigation, may
be named as a defendant or potentially responsible party (i) for alleged
11
<PAGE>
noncompliance with any Environmental Law or (ii) relating to the Release into
the Environment of any Hazardous Material, whether or not occurring at, on,
under or involving a site owned, leased or operated by any North Fulton Company
or any of its Loan Properties or Participation Facilities, except for such
Litigation pending or threatened the resolution of which is not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
North Fulton, and to the Knowledge of North Fulton, there is no reasonable basis
for any such Litigation.
(c) To the Knowledge of North Fulton, there have been no releases of
Hazardous Material in, on, under or affecting any Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on North Fulton.
5.12 Compliance with Laws. North Fulton is duly registered as a bank
--------------------
holding company under the BHC Act. Each North Fulton Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on North Fulton, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on North Fulton. Except as disclosed
in Section 5.12 of the North Fulton Disclosure Memorandum, no North Fulton
---------------------
Company:
(a) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on North Fulton; and
(b) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory Authority
or the staff thereof (i) asserting that any North Fulton Company is not in
compliance with any of the Laws or Orders which such governmental authority or
Regulatory Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on North
Fulton, (ii) threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on North Fulton, or (iii) requiring any North Fulton Company to enter
into or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
5.13 Labor Relations. No North Fulton Company is the subject of any
---------------
Litigation asserting that it or any other North Fulton Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other North Fulton Company
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving any North Fulton
Company,
12
<PAGE>
pending or, to its Knowledge, threatened, nor, to its Knowledge, is there any
activity involving any North Fulton Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
----------------------
(a) North Fulton has disclosed in Section 5.14 of the North Fulton
Disclosure Memorandum and delivered or made available to Premier prior to the
- ---------------------
execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of ERISA, currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by any North
Fulton Company or Affiliate thereof for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
and under which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "North Fulton Benefit Plans"). Any of the North Fulton Benefit Plans which
is an "employee pension benefit plan," as that term is defined in Section 3(2)
of ERISA, is referred to herein as a "North Fulton ERISA Plan." Each North
Fulton ERISA Plan which is also a "defined benefit plan" (as defined in Section
414(j) of the Internal Revenue Code) is referred to herein as a "North Fulton
Pension Plan." No North Fulton Pension Plan is or has been a multi-employer
plan within the meaning of Section 3(37) of ERISA.
(b) All North Fulton Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on North Fulton.
Each North Fulton ERISA Plan which is intended to be qualified under Section
401(a) of the Internal Revenue Code has received a favorable determination
letter from the Internal Revenue Service, and North Fulton is not aware of any
circumstances likely to result in revocation of any such favorable determination
letter. To the Knowledge of North Fulton, no North Fulton Company nor any other
party has engaged in a transaction with respect to any North Fulton Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any North Fulton Company to a tax or penalty imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in
amounts which are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on North Fulton.
(c) Neither North Fulton nor any ERISA Affiliate of North Fulton
maintains an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA that is or was subject to Title IV of ERISA.
13
<PAGE>
(d) Neither North Fulton nor any ERISA Affiliate of North Fulton has
any past, present or future obligation or liability to contribute to any multi-
employer plan, as defined in Section 3(37) of ERISA.
(e) Except as disclosed in Section 5.14(e) of the North Fulton
Disclosure Memorandum, (i) no North Fulton Company has any obligations for
- ---------------------
retiree health and life benefits under any of the North Fulton Benefit Plans,
except as required by Section 601 of ERISA and Section 4980B of the Code; (ii)
there are no restrictions on the rights of any North Fulton Company to amend or
terminate any such Plan; and (iii) any amendment or termination of any such Plan
will not cause any North Fulton Company to incur any Liability that is
reasonably likely to have a Material Adverse Effect on North Fulton.
(f) Except as disclosed in Section 5.14(f) of the North Fulton
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
- ---------------------
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any North Fulton Company from any North Fulton Company under any North Fulton
Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under
any North Fulton Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including, without limitation, entitlements under any
executive compensation, supplemental retirement, or employment agreement) of
employees and former employees of any North Fulton Company and their respective
beneficiaries have been fully reflected on the North Fulton Financial Statements
to the extent required by and in accordance with GAAP.
(h) North Fulton and each ERISA Affiliate of North Fulton has
complied with the continuation of coverage requirements of Section 1001 of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA
Sections 601 through 608 in a manner that will not cause any North Fulton
Company to incur any Liability that is reasonably likely to have a Material
Adverse Effect on North Fulton.
(i) Except as disclosed in Section 5.14(i) of the North Fulton
Disclosure Memorandum, neither North Fulton nor any ERISA Affiliate of North
- ---------------------
Fulton is obligated, contingently or otherwise, under any agreement to pay any
amount which would be treated as a "parachute payment," as defined in Section
280G(b) of the Internal Revenue Code (determined without regard to Section
280G(b)(2)(A)(ii) of the Internal Revenue Code).
(j) Other than routine claims for benefits, to the Knowledge of
North Fulton, there are no actions, audits, investigations, suits or claims
pending against any North Fulton Benefit Plan, any trust or other funding agency
created thereunder, or against any fiduciary of any North Fulton Benefit Plan or
against the assets of any North Fulton Benefit Plan.
14
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5.15 Material Contracts. Except as disclosed in Section 5.15 of the
-------------------
North Fulton Disclosure Memorandum or otherwise reflected in the North Fulton
---------------------
Financial Statements, none of the North Fulton Companies, nor any of their
respective Assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under, (a) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $25,000, excluding "at will"
employment arrangements, (b) any Contract relating to the borrowing of money by
any North Fulton Company or the guarantee by any North Fulton Company of any
such obligation (other than Contracts evidencing deposit liabilities, purchases
of federal funds, Federal Home Loan Bank advances, fully-secured repurchase
agreements, trade payables, and Contracts relating to borrowings or guarantees
made in the ordinary course of business), (c) any Contracts between or among
North Fulton Companies, and (d) any other Contract (excluding this Agreement) or
amendment thereto that is required to be filed as an exhibit to a Form 10-KSB or
Form 10-QSB filed by North Fulton with the SEC as of the date of this Agreement
if North Fulton were required to file a Form 10-KSB or 10-QSB with the SEC
(together with all Contracts referred to in Sections 5.10 and 5.14(a) of this
Agreement, the "North Fulton Contracts"). None of the North Fulton Companies is
in Default under any North Fulton Contract, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on North Fulton. All of the indebtedness of any North Fulton Company for
money borrowed is prepayable at any time by such North Fulton Company without
penalty or premium.
5.16 Legal Proceedings. Except as disclosed in Section 5.16 of the North
------------------
Fulton Disclosure Memorandum, there is no Litigation instituted or pending, or,
---------------------
to the Knowledge of North Fulton, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any North Fulton Company, or
against any Asset, interest, or right of any of them, that is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on North
Fulton, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any North Fulton
Company, that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on North Fulton.
5.17 Reports. Since January 1, 1997, each North Fulton Company has
--------
timely filed all reports and statements, together with any amendments required
to be made with respect thereto, that it was required to file with (a) the
Regulatory Authorities, and (b) any applicable federal and state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on North Fulton). As of their respective
dates, each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all material respects with all
applicable Laws. As of its respective date, each such report and document to
North Fulton's Knowledge did not, in any material respect, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
15
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5.18 Statements True and Correct. No statement, certificate, instrument
----------------------------
or other writing furnished or to be furnished by any North Fulton Company or any
Affiliate thereof to Premier pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a Material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
North Fulton Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by Premier with the SEC will, when the Registration
Statement becomes effective, be false or misleading with respect to any Material
fact, or omit to state any Material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any North Fulton Company or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to North Fulton's shareholders in connection with the
North Fulton Shareholders' Meeting, and any other documents to be filed by a
North Fulton Company or any Affiliate thereof with the SEC or any other
Regulatory Authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, and with respect to the
Proxy Statement, when first mailed to the shareholders of North Fulton, be false
or misleading with respect to any Material fact, or omit to state any Material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
North Fulton Shareholders' Meeting, be false or misleading with respect to any
Material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the North Fulton Shareholders' Meeting. All documents that any North
Fulton Company or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all Material respects with the provisions of
applicable Law.
5.19 Accounting, Tax and Regulatory Matters. No North Fulton Company or
---------------------------------------
any Affiliate thereof has taken any action, or agreed to take any action, or has
any Knowledge of any fact or circumstance that is reasonably likely to (a)
prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (b) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to in the second
sentence of such Section. To the Knowledge of North Fulton, there exists no
fact, circumstance, or reason why the requisite Consents referred to in Section
9.1(b) of this Agreement cannot be received in a timely manner without the
imposition of any condition or restriction of the type described in the second
sentence of such Section 9.1(b).
5.20 Charter Provisions. Each North Fulton Company has taken all action
-------------------
so that the entering into of this Agreement and the consummation of the Merger
and the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any North Fulton
16
<PAGE>
Company or restrict or impair the ability of Premier to vote, or otherwise to
exercise the rights of a shareholder with respect to, shares of any North Fulton
Company that may be acquired or controlled by it.
5.21 State Anti-Takeover Laws. Each North Fulton Company has taken all
-------------------------
necessary action to exempt the transactions contemplated by this Agreement from
any applicable "moratorium," "control share," "fair price," "business
combination," or other anti-takeover laws and regulations of the State of
Georgia including those laws contained within Sections 14-2-1110 et seq. and 14-
2-1131 et seq. of the GBCC.
5.22 Millennium Compliance. North Fulton represents and warrants that
----------------------
each North Fulton Company has tested and assessed its software, hardware, and
other computer equipment to ensure that there will not be a Year 2000 Problem.
North Fulton further represents and warrants that each North Fulton Company has
prepared and implemented a written plan of action to ensure that the software,
hardware, and other computer equipment owned, licensed, or used by each North
Fulton Company will not be the subject of a failure in any such software,
hardware, or other computer equipment as a result of a Year 2000 Problem. North
Fulton further represents and warrants that each North Fulton Company has
contacted and received assurances from all key suppliers of goods and services
to each North Fulton Company, including but not limited to suppliers of computer
software, computer hardware, and other computer equipment, that each of the
software, hardware, and other computer equipment owned, licensed, or used by
such suppliers will not be the subject of failures in any such software,
hardware, or other computer equipment as a result of a Year 2000 Problem.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PREMIER
-----------------------------------------
Premier hereby represents and warrants to North Fulton as follows:
6.1 Organization, Standing, and Power. Premier is a corporation duly
----------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
Premier has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. Premier is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Premier.
6.2 Authority; No Breach By Agreement.
----------------------------------
17
<PAGE>
(a) Premier has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Premier.
This Agreement represents a legal, valid and binding obligation of Premier,
enforceable against Premier in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Except as described in Section 6.2 of the Premier Disclosure
----------
Memorandum, neither the execution and delivery of this Agreement by Premier, nor
- ----------
the consummation by Premier of the transactions contemplated hereby, nor
compliance by Premier with any of the provisions hereof will (i) conflict with
or result in a breach of any provision of Premier's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any Premier
Company under, any Contract or Permit of any Premier Company, where such Default
or Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier, or (iii)
subject to receipt of the requisite approvals referred to in Section 9.1(b) of
this Agreement, violate any Law or Order applicable to any Premier Company or
any of their respective Assets.
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and rules
of the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Premier, no notice to, filing with, or Consent of,
any public body or authority is necessary for the consummation by Premier of the
Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock.
--------------
(a) The authorized capital stock of Premier consists of 60,000,000
shares of Premier Common Stock, of which 26,102,975 shares were issued and
outstanding as of the date of this Agreement and 2,000,000 shares of preferred
stock of which 40,770 shares are issued and outstanding as of the date of this
Agreement. All of the issued and outstanding shares of Premier Common Stock
are, and all of the shares of Premier Common Stock to be issued in exchange for
shares of North Fulton Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the GBCC. None of the
outstanding shares of Premier Common
18
<PAGE>
Stock has been, and none of the shares of Premier Common Stock to be issued in
exchange for shares of North Fulton Common Stock upon consummation of the Merger
will be, issued in violation of any preemptive rights of the current or past
shareholders of Premier.
(b) Premier has issued $29,639,175 of 9.00% Subordinated Debentures
to Premier Capital Trust I, a statutory business trust organized and existing
under the laws of the State of Delaware. The Subordinated Debentures will mature
on December 31, 2027. The Subordinated Debentures were purchased by Premier
Capital Trust I with the proceeds of the public offering of 1,150,000 shares of
9.00% Cumulative Trust Preferred Securities and sale of Common Securities to
Premier. Premier owns all of the Common Securities issued by Premier Capital
Trust I. The Common Securities and the Preferred Securities represent undivided
beneficial interests in the assets of Premier Capital Trust I.
(c) Except as set forth in Sections 6.3(a) and 6.3(b) of this
Agreement, or as disclosed in Section 6.3(c) of the Premier Disclosure
----------
Memorandum, there are no shares of capital stock or other equity securities of
- ----------
Premier outstanding and no outstanding Rights relating to the capital stock of
Premier.
6.4 Premier Subsidiaries. Premier has disclosed in Section 6.4 of the
---------------------
Premier Disclosure Memorandum all of the Premier Subsidiaries as of the date of
---------------------
this Agreement. Except as disclosed in Section 6.4 of the Premier Disclosure
----------
Memorandum, Premier or one of its Subsidiaries owns all of the issued and
- ----------
outstanding shares of capital stock of each Premier Subsidiary. No equity
securities of any Premier Subsidiary are or may become required to be issued
(other than to another Premier Company) by reason of any Rights, and there are
no Contracts by which any Premier Subsidiary is bound to issue (other than to
another Premier Company) additional shares of its capital stock or Rights, or by
which any Premier Company is or may be bound to transfer any shares of the
capital stock of any Premier Subsidiary (other than to another Premier Company).
There are no Contracts relating to the rights of any Premier Company to vote or
to dispose of any shares of the capital stock of any Premier Subsidiary. All of
the shares of capital stock of each Premier Subsidiary held by a Premier Company
are fully paid and nonassessable under the applicable Law of the jurisdiction in
which such Subsidiary is incorporated or organized. Each Premier Subsidiary is
either a bank, a savings association, a corporation or a limited liability
company and is duly organized, validly existing, and (as to corporations) in
good standing under the Laws of the jurisdiction in which it is organized and
has the corporate power and authority necessary for it to own, lease and operate
its Assets and to carry on its business as now conducted. Each Premier
Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier. Each Premier Subsidiary that is a depository institution is
an "insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder, and the deposits in which are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund, as appropriate.
19
<PAGE>
6.5 Financial Statements. Premier has included in Section 6.5 of the
---------------------
Premier Disclosure Memorandum copies of all Premier Financial Statements for
---------------------
periods ended prior to the date hereof and will deliver to North Fulton copies
of all Premier Financial Statements prepared subsequent to the date hereof. The
Premier Financial Statements (as of the dates thereof and for the periods
covered thereby) (a) are, or if dated after the date of this Agreement will be,
in accordance with the books and records of the Premier Companies, which are or
will be, as the case may be, complete and correct and which have been or will
have been, as the case may be, maintained in accordance with good business
practices, and (b) present or will present, as the case may be, fairly the
consolidated financial position of the Premier Companies as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows of the Premier Companies for the periods indicated, in
accordance with GAAP (subject to exceptions as to consistency specified therein
or as may be indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material in
amount or effect).
6.6 Absence of Undisclosed Liabilities. No Premier Company has any
-----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Premier, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Premier as of
December 31, 1998, included in the Premier Financial Statements or reflected in
the notes thereto. No Premier Company has incurred or paid any Liability since
December 31, 1998, except for such Liabilities incurred or paid in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier.
6.7 Absence of Certain Changes or Events. Since December 31, 1998,
-------------------------------------
except as disclosed in Section 6.7 of the Premier Disclosure Memorandum, (a)
---------------------
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier, and (b) the Premier Companies have not taken any action, or
failed to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of Premier
provided in Article VII of this Agreement.
6.8 Tax Matters.
------------
(a) All Tax returns required to be filed by or on behalf of any of
the Premier Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired, except to the extent that all
such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on Premier, and all returns filed are complete and
accurate to the Knowledge of Premier. All Taxes shown on filed returns have been
paid. As of the date of this Agreement, there is no audit examination,
deficiency or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually or in the
aggregate, a Material Adverse Effect on Premier, except as reserved against in
the Premier Financial Statements delivered prior to the date of this Agreement
or as disclosed in Section 6.8(a) of the
20
<PAGE>
Premier Disclosure Memorandum. All Taxes and other Liabilities due with respect
- -----------------------------
to completed and settled examinations or concluded Litigation have been paid.
(b) Except as disclosed in Section 6.8(b) of the Premier Disclosure
----------
Memorandum none of the Premier Companies has executed an extension or waiver of
- ----------
any statute of limitations on the assessment or collection of any Tax due that
is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any Premier Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier.
(c) Adequate provision for any Taxes due or to become due for any
of the Premier Companies for the period or periods through and including the
date of the respective Premier Financial Statements has been made and is
reflected on such Premier Financial Statements.
(d) Deferred Taxes of the Premier Companies have been provided for
in accordance with GAAP.
(e) Each of the Premier Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements under federal, state and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier.
6.9 Allowance for Possible Loan Losses. The Allowance shown on the
----------------------------------
consolidated balance sheets of Premier included in the most recent Premier
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of Premier included in the
Premier Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP
and applicable regulatory requirements or guidelines) to provide for losses
relating to or inherent in the loan and lease portfolios (including accrued
interest receivables) of the Premier Companies and other extensions of credit
(including letters of credit and commitments to make loans or extend credit) by
the Premier Companies as of the dates thereof except where the failure of such
Allowance to be so adequate is not reasonably likely to have a Material Adverse
Effect on Premier.
6.10 Environmental Matters. Except as disclosed in Section 6.10 of the
---------------------
Premier Disclosure Memorandum:
---------------------
(a) To the Knowledge of Premier, each Premier Company, its
Participation Facilities and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for noncompliance which is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier.
21
<PAGE>
(b) There is no Litigation pending or to the Knowledge of Premier
threatened before any court, governmental agency or authority or other forum in
which any Premier Company or any of its Loan Properties or Participation
Facilities has been or, with respect to threatened Litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance with
any Environmental Law or (ii) relating to the Release into the Environment of
any Hazardous Material, whether or not occurring at, on, under or involving a
site owned, leased or operated by any Premier Company or any of its Loan
Properties or Participation Facilities, except for such Litigation pending or
threatened the resolution of which is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier or to the
Knowledge of Premier, there is no reasonable basis for any such Litigation.
(c) To the Knowledge of Premier, there have been no releases of
Hazardous Material in, on, under or affecting any Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Premier.
6.11 Compliance with Laws. Premier is duly registered as a bank holding
--------------------
company under the BHC Act. Each Premier Company has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Premier. Except as disclosed in
Section 6.11 of the Premier Disclosure Memorandum, no Premier Company:
---------------------
(a) is in violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Premier; and
(b) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory Authority
or the staff thereof (i) asserting that any Premier Company is not in compliance
with any of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Premier,
or (iii) requiring any Premier Company to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends.
6.12 Labor Relations. No Premier Company is the subject of any
----------------
Litigation asserting that it or any other Premier Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Premier
22
<PAGE>
Company to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving any Premier
Company, pending or, to its Knowledge, threatened, nor, to its Knowledge, is
there any activity involving any Premier Company's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
6.13 Material Contracts. Except as disclosed in Section 6.13 of the
-------------------
Premier Disclosure Memorandum or otherwise reflected in the Premier Financial
---------------------
Statements, none of the Premier Companies, nor any of their respective Assets,
businesses or operations, is a party to, or is bound or affected by, or receives
benefits under, (a) any Contract relating to the borrowing of money by any
Premier Company or the guarantee by any Premier Company of any such obligation
(other than Contracts evidencing deposit liabilities, purchases of federal
funds, Federal Home Loan Bank advances, fully-secured repurchase agreements,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (b) any other Contract (excluding this
Agreement) or amendment thereto that is required to be filed as an exhibit to a
Form 10-K or Form 10-Q filed by Premier with the SEC as of the date of this
Agreement that has not been filed as an exhibit to any Premier Form 10-K or 10-Q
filed with the SEC (the "Premier Contracts"). None of the Premier Companies is
in Default under any Premier Contract, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Premier.
6.14 Legal Proceedings. Except as disclosed in Section 6.14 of the
-----------------
Premier Disclosure Memorandum, there is no Litigation instituted or pending, or,
---------------------
to the Knowledge of Premier, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable probability
of an unfavorable outcome) against any Premier Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Premier Company, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier.
6.15 Reports. Since January 1, 1997, each Premier Company has timely
--------
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and Proxy
Statements, (b) other Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respect with all applicable Laws. As of its respective date, each such report
and document to Premier's Knowledge did not, in any material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
23
<PAGE>
6.16 Statements True and Correct. No statement, certificate, instrument
----------------------------
or other writing furnished or to be furnished by any Premier Company or any
Affiliate thereof to North Fulton pursuant to this Agreement or any other
document, agreement or instrument referred to herein contains or will contain
any untrue statement of Material fact or will omit to state a Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by any Premier Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by Premier with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect to
any Material fact, or omit to state any Material fact necessary to make the
statements therein not misleading. None of the documents to be filed by any
Premier Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, be false or misleading with respect to
any Material fact, or omit to state any Material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that any Premier Company or any Affiliate thereof
is responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all Material respects
with the provisions of applicable Law.
6.17 Accounting, Tax and Regulatory Matters. No Premier Company or any
--------------------------------------
Affiliate thereof has taken any action, or agreed to take any action, or has any
Knowledge of any fact or circumstance that is reasonably likely to (a) prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or treatment as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement. To the Knowledge of Premier,
there exists no fact, circumstance, or reason why the requisite Consents
referred to in Section 9.1(b) of this Agreement cannot be received in a timely
manner without the imposition of any condition or restriction of the type
described in the second sentence of such Section 9.1(b).
6.18 Charter Provisions. Each Premier Company has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any Premier Company or restrict or
impair the ability of Premier to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Premier Company that may be acquired
or controlled by it.
6.19 Millennium Compliance. Premier represents and warrants that Premier
---------------------
has tested and assessed its software, hardware, and other computer equipment to
ensure that there will not be a Year 2000 Problem. Premier further represents
and warrants that it has prepared and implemented a written plan of action
designed to ensure that the software, hardware, and other computer equipment
owned, licensed, or used by it will not be the subject of a failure in any such
software, hardware, or other computer equipment as a result of a Year 2000
problem. Premier further represents and warrants that it has contacted and
received assurances from all key suppliers of goods
24
<PAGE>
and services, including but not limited to suppliers of computer software,
computer hardware, and other computer equipment, that each of the software,
hardware, and other computer equipment owned, licensed, or used by such supplier
will not be the subject of failures in any such software, hardware, or other
computer equipments as a result of a Year 2000 Problem.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Affirmative Covenants of North Fulton. Unless the prior written
-------------------------------------
consent of Premier shall have been obtained, and except as otherwise
contemplated herein or disclosed in the North Fulton Disclosure Memorandum,
---------------------
North Fulton shall, and shall cause each of its Subsidiaries, from the date of
this Agreement until the Effective Time or termination of this Agreement: (a) to
operate its business in the usual, regular and ordinary course; (b) to preserve
intact its business organization and Assets and maintain its rights and
franchises; (c) to use its reasonable efforts to cause its representations and
warranties to be correct at all times; and (d) to take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) or
9.1(c) of this Agreement or (ii) adversely affect in any material respect the
ability of either Party to perform its covenants and agreements under this
Agreement.
7.2 Negative Covenants of North Fulton. Except as disclosed in the
----------------------------------
North Fulton Disclosure Memorandum, from the date of this Agreement until the
---------------------
earlier of the Effective Time or the termination of this Agreement, North Fulton
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer of Premier, which
consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any North Fulton Company, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a North Fulton Company to another
North Fulton Company) in excess of an aggregate of $50,000 (for the North Fulton
Companies on a consolidated basis) except in the ordinary course of the business
of the North Fulton Companies consistent with past practices (which shall
include, for any of its Subsidiaries, creation of deposit liabilities, purchases
of federal funds, advances from the Federal Reserve Bank or Federal Home Loan
Bank, and entry into repurchase agreements fully secured by U.S. government or
agency securities), or impose, or suffer the imposition, on any Asset of any
North Fulton Company of any Lien or permit any such Lien to exist (other than in
connection with deposits, repurchase agreements, bankers acceptances, Federal
Home Loan Bank advances, "treasury tax and loan" accounts established in the
ordinary course of business,
25
<PAGE>
the satisfaction of legal requirements in the exercise of trust powers, and
Liens in effect as of the date hereof that are disclosed in the North Fulton
Disclosure Memorandum); or
- ---------------------
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any North Fulton Company, or declare or pay any dividend or
make any other distribution in respect of North Fulton's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereof or the conversion of the Debentures pursuant to
Section 9.2(g), or as disclosed in Section 7.2(d) of the North Fulton Disclosure
----------
Memorandum, issue, sell, pledge, encumber, authorize the issuance of or enter
- ----------
into any Contract to issue, sell, pledge, encumber, or authorize the issuance of
or otherwise permit to become outstanding, any additional shares of North
Fulton Common Stock or any other capital stock of any North Fulton Company, or
any stock appreciation rights, or any option, warrant, conversion, or other
right to acquire any such stock, or any security convertible into any such
stock; or
(e) except as disclosed in Section 7.2(e) of the North Fulton
Disclosure Memorandum, adjust, split, combine or reclassify any capital stock of
- ---------------------
any North Fulton Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of North Fulton Common
Stock or sell, lease, mortgage or otherwise dispose of or otherwise encumber (i)
any shares of capital stock of any North Fulton Subsidiary (unless any such
shares of stock are sold or otherwise transferred to another North Fulton
Company) or (ii) any Asset having a book value in excess of $25,000 other than
in the ordinary course of business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities or securities of like maturity or grade or general
obligations of states and municipalities, purchase any securities or make any
material investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned North Fulton Subsidiary; or otherwise acquire direct or indirect
control over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) acquisitions of control by Milton National
Bank in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to any employees
whose annual salary exceeds $35,000 of any North Fulton Company (including such
discretionary increases as may be contemplated by existing employment
agreements), except in accordance with past practice or previously approved by
the Board of Directors of North Fulton, in each case as disclosed in Section
7.2(g) of the North Fulton Disclosure Memorandum or as required by Law; pay any
---------------------
severance or termination pay or any bonus other than pursuant to written
policies or written Contracts in effect on the date of this Agreement and
disclosed in Section 7.2(g) of the North Fulton Disclosure Memorandum; enter
---------------------
into or amend any severance agreements with officers of any North Fulton
26
<PAGE>
Company; grant any general increase in compensation to all employees; grant any
increase in fees or other increases in compensation or other benefits to
directors of any North Fulton Company; or voluntarily accelerate the vesting of
any stock options or other stock-based compensation or employee benefits; or
(h) enter into or amend any employment Contract between any North
Fulton Company and any Person (unless such amendment is required by Law) that
the North Fulton Company does not have the unconditional right to terminate
without Liability (other than Liability for services already rendered), at any
time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any North Fulton Company
or make any material change in or to any existing employee benefit plans of any
North Fulton Company other than any such change that is required by Law or that,
in the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan; or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to conform
to changes in Tax Laws or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any North Fulton
Company for money damages in excess of $50,000 or which imposes material
restrictions upon the operations of any North Fulton Company;
(l) except in the ordinary course of business, modify, amend or
terminate any material Contract or waive, release, compromise or assign any
material rights or claims; or
(m) default under the Debentures or modify, alter or amend the
Debentures.
7.3 Affirmative Covenants of Premier. Unless the prior written consent
--------------------------------
of North Fulton shall have been obtained, and except as otherwise contemplated
herein or as disclosed in the Premier Disclosure Memorandum, Premier shall, and
---------------------
shall cause each of its Subsidiaries to, from the date of this Agreement until
the Effective Time or termination of this Agreement: (a) operate its business
in the usual, regular and ordinary course; (b) preserve intact its business
organization and Assets and maintain its rights and franchises; (c) use its
reasonable efforts to cause its representations and warranties to be correct at
all times; and (d) take no action which would (i) adversely affect the ability
of any Party to obtain any Consents required for the transactions contemplated
hereby without imposition of a condition or restriction of the type referred to
in the last sentence of Section 9.1(b) or 9.1(c) of this Agreement or (ii)
adversely affect in any Material respect the ability of either Party to perform
its covenants and agreements under this Agreement.
7.4 Adverse Changes in Condition. Each Party agrees to give written
-----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or
27
<PAGE>
circumstance relating to it or any of its Subsidiaries which (a) is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
it or (b) is reasonably likely to cause or constitute a material breach of any
of its representations, warranties, or covenants contained herein, and to use
its reasonable efforts to prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
--------
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
8.1 Registration Statement; Proxy Statement; Shareholder Approval.
-------------------------------------------------------------
(a) As soon as reasonably practicable after execution of this
Agreement, Premier shall file the Registration Statement with the SEC, and shall
use its reasonable efforts to cause the Registration Statement to become
effective under the 1933 Act and take any action required to be taken under the
applicable state Blue Sky or securities Laws in connection with the issuance of
the shares of Premier Common Stock upon consummation of the Merger. North
Fulton shall furnish all information concerning it and the holders of its
capital stock as Premier may reasonably request in connection with such action.
(b) North Fulton shall call a Shareholders' Meeting, to be held as
soon as reasonably practicable after the Registration Statement is declared
effective by the SEC, for the purpose of voting upon approval of this Agreement
and such other related matters as North Fulton deems appropriate.
(c) In connection with the North Fulton Shareholders' Meeting, (i)
Premier shall prepare and file with the SEC on North Fulton's behalf a Proxy
Statement (which shall be included in the Registration Statement) and mail it to
North Fulton's shareholders, (ii) the Parties shall furnish to each other all
information concerning them that they may reasonably request in connection with
such Proxy Statement, (iii) the Board of Directors of North Fulton shall
recommend (subject to compliance with the fiduciary duties of the members of the
Board of Directors as advised by counsel) to its shareholders the approval of
this Agreement and (iv) the Board of Directors and officers of North Fulton
shall use their reasonable efforts to obtain such shareholders' approval
(subject to compliance with their fiduciary duties as advised by counsel).
8.2 Exchange Listing. Premier shall use its reasonable efforts to list,
----------------
prior to the Effective Time, on the American Stock Exchange the shares of
Premier Common Stock to be issued to the holders of North Fulton Common Stock
pursuant to the Merger.
28
<PAGE>
8.3 Applications. Premier shall promptly prepare and file, and North
------------
Fulton shall cooperate in the preparation and, where appropriate, filing of,
applications with the Board of Governors of the Federal Reserve System and the
Georgia Department of Banking and Finance seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.4 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, Premier shall execute and file the Certificate of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
--------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed by Premier in connection with the Premier
Common Stock to be issued in the Merger shall not violate this covenant),
including, without limitation, using its reasonable efforts to lift or rescind
any Order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement. Each Party shall use, and shall cause each of its
Subsidiaries to use, its reasonable efforts to obtain all Consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.6 Investigation and Confidentiality.
----------------------------------
(a) Prior to the Effective Time, each Party will keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof and all
work papers containing confidential information received from the other Party.
29
<PAGE>
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other Party.
8.7 Press Releases. Prior to the Effective Time, Premier and North
---------------
Fulton shall agree with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
other transaction contemplated hereby; provided, however, that nothing in this
Section 8.7 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.8 Acquisition Proposals. Except with respect to this Agreement and
----------------------
the transactions contemplated hereby, neither North Fulton nor any Affiliate
thereof nor any investment banker, attorney, accountant or other representative
(collectively, "Representatives") retained by North Fulton shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of North Fulton's Board of
Directors as advised by counsel, neither North Fulton nor any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally obligated to furnish, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but North Fulton may
communicate information about such an Acquisition Proposal to its shareholders
if and to the extent that it is required to do so in order to comply with its
legal obligations as advised by counsel. North Fulton shall promptly notify
Premier orally and in writing in the event that it receives any inquiry or
proposal relating to any such transaction. Unless the prior written consent of
Premier is obtained, North Fulton shall (a) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the foregoing, and (b) direct and
use its reasonable efforts to cause all of its Representatives not to engage in
any of the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes and
----------------------------
agrees to use its reasonable efforts to cause the Merger to qualify, and to take
no action which would cause the Merger not to qualify, for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes. Each of the Parties further undertakes
and agrees to use its reasonable best efforts to cause the Merger to be
eligible, and to take no action which would cause the Merger not to be accounted
for as a "pooling of interests."
8.10 Agreement of Affiliates. North Fulton has disclosed in Section 8.10
-----------------------
of the North Fulton Disclosure Memorandum all Persons whom it reasonably
---------------------
believes is an "affiliate" of North Fulton for purposes of Rule 145 under the
1933 Act. North Fulton shall use its reasonable efforts to cause each such
Person to deliver to Premier and North Fulton, not later than thirty (30) days
after the date of this Agreement, a written agreement, substantially in the form
of Exhibit 1, providing that such Person will not sell, pledge, transfer or
---------
otherwise dispose of the shares of North Fulton
30
<PAGE>
Common Stock held by such Person except as contemplated by such agreement or by
this Agreement and will not sell, pledge, transfer or otherwise dispose of the
shares of Premier Common Stock to be received by such Person upon consummation
of the Merger except in compliance with applicable provisions of the 1933 Act
and the rules and regulations thereunder. Premier shall be entitled to place
restrictive legends upon certificates for shares of Premier Common Stock issued
to Affiliates of North Fulton pursuant to this Agreement to enforce the
provisions of this Section 8.10. Premier shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of Premier Common Stock by such Affiliates.
8.11 Employee Benefits and Contracts.
--------------------------------
(a) Following the Effective Time, Premier shall provide generally
to officers and employees of the North Fulton Companies who continue employment
with Premier or its Subsidiaries following the Effective Time employee benefits
under employee benefit plans, on terms and conditions which when taken as a
whole are substantially similar to those currently provided by the Premier
Companies to their similarly situated officers and employees. For purposes of
participation under such employee benefit plans, the service of the employees of
the North Fulton Companies prior to the Effective Time shall be treated as
service with a Premier Company participating in such employee benefit plans,
provided that, with respect to any employee benefit plan where the benefits are
funded through insurance, the granting of such benefits shall be subject to the
consent of the appropriate insurer and may be conditioned upon an employee's
participation in a North Fulton Benefit Plan of the same type immediately prior
to the Effective Time.
(b) Premier and its Subsidiaries also shall honor in accordance
with their terms all employment, severance, consulting and other compensation
Contracts disclosed in Section 8.11 of the North Fulton Disclosure Memorandum to
---------------------
Premier between any North Fulton Company and any current or former director,
officer, or employee thereof and all provisions for vested benefits accrued
through the Effective Time under the North Fulton Benefit Plans.
8.12 Severance Payments to Milton National Bank Directors. Each member
-----------------------------------------------------
of the Board of Directors of North Fulton as of the Effective Time shall be
entitled to receive a severance payment from Premier in the amount of $25,000 in
exchange for a one (1) year non-competition/non-solicitation agreement from
such director in such form as Premier may reasonably request. Said severance
payment shall be delivered at the Effective Time. The one (1) year non-
competition/non-solicitation period shall commence on the date such director no
longer serves as a member of the Board of Directors of Milton National Bank or
of the Board of Directors of any Premier Company.
8.13 Separation Agreement. Milton National Bank and Grant R. Essex shall
---------------------
enter into a Separation Agreement dated as of the Effective Time in
substantially the form attached hereto as Exhibit "5".
-----------
31
<PAGE>
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 Conditions to Obligations of Each Party. The respective obligations
---------------------------------------
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of North Fulton shall have
---------------------
approved this Agreement, and the consummation of the transactions contemplated
hereby, including the Merger, as and to the extent required by Law, the American
Stock Exchange or by the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
---------------------
with, and notifications to all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of either Party would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render inadvisable the consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained any and
-----------------------
all Consents required for consummation of the Merger (other than those referred
to in Section 9.1(b) of this Agreement) or for the preventing of any Default
under any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party. No Consent so obtained which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of either
Party would so materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
(d) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of Premier Common Stock issuable pursuant to the Merger shall have been
received.
(e) Exchange Listing. The shares of Premier Common Stock issuable
-----------------
pursuant to the Merger shall have been approved for listing on the American
Stock Exchange.
32
<PAGE>
(f) Tax Matters. Premier and North Fulton shall have received a
------------
written opinion of counsel from Womble Carlyle Sandridge & Rice, PLLC, in form
reasonably satisfactory to them (the "Tax Opinion"), to the effect that for
federal income tax purposes (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, (ii) the
exchange in the Merger of North Fulton Common Stock for Premier Common Stock
will not give rise to gain or loss to the shareholders of North Fulton with
respect to such exchange (except to the extent of any cash received), and (iii)
neither Premier nor North Fulton will recognize gain or loss as a consequence of
the Merger (except for income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code). In
rendering such Tax Opinion, counsel shall be entitled to rely upon
representations of officers of Premier and North Fulton reasonably satisfactory
in form and substance to such counsel.
(g) Affiliate Agreements. The Parties shall have received from each
---------------------
affiliate of North Fulton the affiliates letter referred to in Section 8.10
hereof.
(h) Pooling Letter. The Parties shall have received a letter from
---------------
Ernst & Young L.L.P. and Porter Keadle Moore, L.L.P., dated as of the Effective
Time, to the effect that the Merger will qualify for pooling-of-interests
accounting treatment under Accounting Principles Board Opinion No. 16 if closed
and consummated in accordance with this Agreement.
9.2 Conditions to Obligations of Premier. The obligations of Premier to
------------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Premier pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
-------------------------------
9.2(a), the accuracy of the representations and warranties of North Fulton set
forth or referred to in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
North Fulton set forth in Section 5.3 of this Agreement shall be true and
correct (except for inaccuracies which are de minimis in amount). The
representations and warranties of North Fulton set forth in Section 5.19,
Section 5.20 and Section 5.21 of this Agreement shall be true and correct in all
Material respects. There shall not exist inaccuracies in the representations
and warranties of North Fulton set forth in this Agreement (excluding the
representations and warranties set forth in Sections 5.3, 5.19, 5.20 and 5.21)
such that the aggregate effect of such inaccuracies would have, or is reasonably
likely to have, a Material Adverse Effect on North Fulton; provided that, for
purposes of this sentence only, those representations and warranties which are
qualified by references to "Material" or "Material Adverse Effect" shall be
deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
----------------------------------------
agreements and covenants of North Fulton to be performed and complied with
pursuant to this Agreement and
33
<PAGE>
the other agreements contemplated hereby prior to the Effective Time shall have
been duly performed and complied with in all Material respects.
(c) Certificates. North Fulton shall have delivered to Premier (i) a
-------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Sections 9.2(a) and 9.2(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by North Fulton's Board of Directors and shareholders evidencing the
taking of all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Premier and its counsel
shall request.
(d) Opinion of Counsel. North Fulton shall have delivered to Premier
-------------------
an opinion of Powell Goldstein Frazer & Murphy LLP, counsel to North Fulton,
dated as of the Effective Time, in form reasonably satisfactory to Premier, as
to the matters set forth in Exhibit 2 hereto.
---------
(e) Claims/Indemnification Letters. Each of the directors and
-------------------------------
officers of North Fulton shall have executed and delivered to Premier letters in
substantially the form of Exhibit 3 hereto.
---------
(f) Litigation. No preliminary or permanent injunction or other order
-----------
by any federal or state court which prevents the consummation of the Merger
shall have been issued and shall remain in effect, nor any action therefor
initiated which, in the good faith judgment of the Board of Directors of
Premier, it is not in the best interests of the shareholders of Premier to
contest; and there shall not have been instituted or be pending any action or
proceeding by any United States federal or state government or governmental
agency or instrumentality (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or seeking material damages in connection with the
Merger; or (ii) seeking to prohibit Premier's or the Surviving Corporation's
ownership or operation of all or a material portion of Premier's or North
Fulton's business or assets, or compel Premier or the Surviving Corporation to
dispose of or hold separate all or a material portion of Premier's or North
Fulton's business or assets as a result of the Merger, which, in any case, in
the reasonable judgment of Premier based upon a legal opinion from legal
counsel, could result in the relief sought being obtained.
(g) Convertible Subordinated Debentures. Prior to the Effective Time,
-----------------------------------
each of the holders of the Debentures, as set forth in Section 5.3(b) of the
North Fulton Disclosure Memorandum, shall have converted all of the Debentures
---------------------
into shares of North Fulton Common Stock pursuant to Section 4(a)(i) of the
Debentures. Immediately following said conversion, no indebtedness shall remain
owing to said holders under the Debentures.
(h) Support Agreements. Within ten (10) calendar days of the
------------------
execution of this Agreement, each of the directors of North Fulton shall have
executed and delivered to Premier a Support Agreement substantially in the form
of Exhibit 6 to this Agreement.
---------
34
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(i) Piedmont Place Lease. North Fulton shall have received, prior to
--------------------
the Effective Time, the consent of The Realty Associates Fund III, L.P. ("Realty
Associates"), or its successor to the transactions contemplated by this
Agreement, pursuant to the provisions of that certain Lease Agreement between
Milton National Bank and Realty Associates dated January 10, 1997 (the "Piedmont
Place Lease"). Such consent shall specifically include the merger of Milton
National Bank into Premier Bank or any other Premier Subsidiary and the
assignment of the rights and duties under the Piedmont Place Lease to such
Premier Subsidiary.
9.3 Conditions to Obligations of North Fulton. The obligations of North
-----------------------------------------
Fulton to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by North Fulton pursuant to Section 11.6(b)
of this Agreement:
(a) Representations and Warranties. For purposes of this Section
-------------------------------
9.3(a), the accuracy of the representations and warranties of Premier set forth
or referred to in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
Premier set forth in Section 6.17 and Section 6.18 of this Agreement shall be
true and correct in all material respects. There shall not exist inaccuracies
in the representations and warranties set forth in this Agreement (excluding the
representations and warranties set forth in Sections 6.17 and 6.18) such that
the aggregate effect of such inaccuracies would have, or is reasonably likely to
have a Material Adverse Effect on Premier; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
reference to "Material" or "Material Adverse Effect" shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
----------------------------------------
agreements and covenants of Premier to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. Premier shall have delivered to North Fulton (i) a
-------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by Premier's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as North Fulton and its counsel shall request.
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(d) Opinion of Counsel. Premier shall have delivered to North Fulton
------------------
an opinion of Womble Carlyle Sandridge & Rice, PLLC, counsel to Premier, dated
as of the Effective Time, in form reasonably acceptable to North Fulton, as to
matters set forth in Exhibit 4 hereto.
---------
(e) North Fulton Fairness Opinion. North Fulton shall have received
-----------------------------
from Brown, Burke Capital Partners, Inc. a letter, dated not more than five (5)
business days prior to the date of the Proxy Statement, to the effect that, in
the opinion of such firm, the consideration to be paid to North Fulton
shareholders in connection with the Merger is fair, from a financial point of
view, to the shareholders of North Fulton.
(f) Litigation. No preliminary or permanent injunction or other order
----------
by any federal or state court which prevents the consummation of the Merger
shall have been issued and shall remain in effect, nor any action therefor
initiated which, in the good faith judgment of the Board of Directors of North
Fulton, it is not in the best interests of the shareholders of North Fulton to
contest; and there shall not have been instituted or be pending any action or
proceeding by any United States federal or state government or governmental
agency or instrumentality (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or seeking material damages in connection with the
Merger; or (ii) seeking to prohibit Premier's or the Surviving Corporation's
ownership or operation of all or a material portion of Premier's or North
Fulton's business or assets, or compel Premier or the Surviving Corporation to
dispose of or hold separate all or a material portion of Premier's or North
Fulton's business or assets as a result of the Merger, which, in any case, in
the reasonable judgment of North Fulton based upon a legal opinion from legal
counsel, could result in the relief sought being obtained.
ARTICLE X
TERMINATION
-----------
10.1 Termination. Notwithstanding any other provision of this Agreement,
-----------
and notwithstanding the approval of this Agreement by the shareholders of North
Fulton, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of the Board of Directors of North Fulton and
the Board of Directors of Premier; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of North Fulton and Section 9.3(a) in the
case of Premier or in Material breach of any covenant or agreement contained in
this Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or has
not been cured within thirty (30) days after the giving of written notice to the
breaching Party of such breach and which breach would provide the non-breaching
Party the ability to refuse to consummate the Merger under the standard set
forth in Section 9.2(a) of this Agreement in the case of Premier and Section
9.3(a) of this Agreement in the case of North Fulton; or
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<PAGE>
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of North Fulton and Section 9.3(a) in the
case of Premier or in the Material breach of any covenant or other agreement
contained in this Agreement) in the event of a Material breach by the other
Party of any covenant or agreement contained in this Agreement which cannot be
or has not been cured within thirty (30) days after the giving of written notice
to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event (provided
that the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of North Fulton and Section 9.3(a)
in the case of Premier or in the material breach of any covenant or agreement
contained in this Agreement) (i) any Consent of any Regulatory Authority
required for consummation of the Merger and the other transactions contemplated
hereby shall have been denied by final nonappealable action of such authority or
if any action taken by such authority is not appealed within the time limit for
appeal, or (ii) if the shareholders of North Fulton fail to vote their approval
of this Agreement and the transactions contemplated hereby as required by the
GBCC at the Shareholders' Meeting where the transactions were presented to such
shareholders for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated on or before November 30, 1999, but only
if the failure to consummate the transactions contemplated hereby on or before
such date is not caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of North Fulton and Section 9.3(a) in the
case of Premier or in the material breach of any covenant or other agreement
contained in this Agreement) in the event that any of the conditions precedent
to the obligations of such Party to consummate the Merger (other than as
contemplated by Section 10.1(d) of this Agreement) cannot be satisfied or
fulfilled by the date specified in Section 10.1(e) of this Agreement; or
(g) By the Board of Directors of either Party on or before two (2)
business days following the business day of receipt of the Disclosure
----------
Memorandum of the other Party (which receipt shall not be later than April 8,
- ----------
1999), in the event that such Party, after a review of the Disclosure Memorandum
---------------------
provided by the other Party, determines not to proceed with the Merger.
10.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have
37
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no effect, except that the provisions of this Section 10.2 and Article 11 and
Section 8.6(b) of this Agreement shall survive any such termination and
abandonment.
10.3 Non-Survival of Representations and Covenants. The respective
---------------------------------------------
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except for this Section 10.3 and
Articles 2, 3, 4 and 11 and Sections 8.10, 8.11 and 8.12 of this Agreement.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Definitions. Except as otherwise provided herein, the capitalized
-----------
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" shall mean any tender offer or exchange offer or any
proposal for a merger (other than the Merger), acquisition of all of the stock
or Assets of, or other business combination involving North Fulton or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of North Fulton or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner, or
direct or indirect beneficial owner of any 10% or greater equity or voting
interest of such Person; or (iii) any other Person for which a Person described
in clause (ii) acts in such capacity.
"Agreement" shall mean this Agreement and Plan of Reorganization, including
the Exhibits delivered pursuant hereto and incorporated herein by reference.
"Allowance" shall have the meaning provided in Section 5.9 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
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"Closing" shall mean the closing of the transactions contemplated hereby,
as described in Section 1.2 of this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Debentures" shall have the meaning provided in Section 5.3(b) of this
Agreement.
"Default" shall mean (a) any breach or violation of or default under any
Contract, Order or Permit, (b) any occurrence of any event that with the passage
of time or the giving of notice or both would constitute a breach or violation
of or default under any Contract, Order or Permit, or (c) any occurrence of any
event that with or without the passage of time or the giving of notice would
give rise to a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under, any
Contract, Order or Permit.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.3 of this Agreement.
"Environment" shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601(8).
"Environmental Laws" shall mean all Laws pertaining to pollution or
protection of the environment and which are administered, interpreted or
enforced by the United States Environmental Protection Agency and state and
local agencies with primary jurisdiction over pollution or protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et. seq., the
-------
Resource, Conservation and Recovery Act, 42 U.S.C. (S) 6901 et. seq., the Toxic
-------
Substance Control Act, 15 U.S.C. (S) 2601, et. seq., and all implementing
-------
regulations and state counterparts of such acts.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall refer to a relationship between entities such that
the entities would, now or at any time in the past, constitute a "single
employer" within the meaning of Section 414 of the Internal Revenue Code.
"ERISA Plan" shall have the meaning provided in Section 5.14 of this
Agreement.
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<PAGE>
"Exchange Ratio" shall have the meaning provided in Section 3.1 of this
Agreement.
"Exhibits" 1 through 4, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Georgia Certificate of Merger" shall mean the Certificate of Merger to be
executed by Premier and filed with the Secretary of State of the State of
Georgia relating to the Merger as contemplated by Section 1.1 of this Agreement.
"Hazardous Material" shall mean any substance which is a "hazardous
substance"or "toxic substance" as defined in the Comprehensive Environment
Response, Compensation, and Liability Act, 42 U.S.C. (S)9601 et seq., or any
------
other substance or material defined, designated, classified or regulated as
hazardous or toxic under any Environmental Law, specifically including asbestos
requiring abatement, removal or encapsulation pursuant to the requirements of
Environmental Laws of polychlorinated biphenyls, and petroleum and petroleum
products).
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person shall mean the knowledge
after due inquiry of the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice
President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, easement, encroachment,
encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or other security arrangement,
or any adverse right or interest, charge, or claim of any
40
<PAGE>
nature whatsoever on, or with respect to, any property or property interest,
other than (i) Liens for current property Taxes not yet due and payable; (ii)
for depository institution Subsidiaries of a Party, pledges to secure deposits
and (iii) other Liens incurred in the ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including, without limitation, Contracts related to it),
or the transactions contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions and their Affiliates
by Regulatory Authorities other than the violations of law section from such
reports.
"Loan Property" shall mean any property owned by the Party in question or
by any of its Subsidiaries or in which such Party or Subsidiary holds a security
interest, and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine materiality in
that instance.
"Material Adverse Effect" on a Party shall mean an event, change or
occurrence which has a material adverse impact on (a) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (b) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (w) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(x) changes in GAAP or regulatory accounting principles generally applicable to
banks and their holding companies, (y) actions and omissions of a Party (or any
of its Subsidiaries) taken with the prior informed consent of the other Party in
contemplation of the transactions contemplated hereby, or (z) the Merger and
compliance with the provisions of this Agreement on the operating performance of
the Parties.
"Merger" shall mean the merger of North Fulton with and into Premier
referred to in Section 1.1 of this Agreement.
"Milton National Bank" shall mean Milton National Bank, a national bank and
a North Fulton Subsidiary.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"North Fulton Benefit Plans" shall have the meaning set forth in Section
5.14 of this Agreement.
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"North Fulton Common Stock" shall mean the no par value common stock of
North Fulton.
"North Fulton Companies" shall mean, collectively, North Fulton and all
North Fulton Subsidiaries.
"North Fulton Disclosure Memorandum" shall mean the written information
---------------------
entitled "North Fulton Disclosure Memorandum" delivered on or prior to April 8,
---------------------
1999 to Premier describing in reasonable detail the matters contained therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made.
"North Fulton Financial Statements" shall mean (a) the consolidated balance
sheets (including related notes and schedules, if any) of North Fulton as of
December 31, 1998, and December 31, 1997 and 1996, and the related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for each of the three fiscal years ended December 31,
1998, 1997 and 1996, included in the North Fulton Disclosure Memorandum, and (b)
---------------------
the consolidated balance sheets (including related notes and schedules, if any)
of North Fulton and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) with
respect to periods ended subsequent to December 31, 1998.
"North Fulton Options" shall have the meaning set forth in Section 3.4 of
this Agreement.
"North Fulton Stock Plans" shall mean the existing stock option and other
stock-based compensation plans of North Fulton disclosed in Section 5.14 of the
North Fulton Disclosure Memorandum.
---------------------
"North Fulton Subsidiaries" shall mean the subsidiaries of North Fulton.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
"Party" shall mean either Premier or North Fulton, and "Parties" shall mean
both Premier and North Fulton.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets,
Liabilities, or business.
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<PAGE>
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Premier Bank" shall mean Premier Bank, a Georgia state-chartered bank and
a Premier Subsidiary.
"Premier Common Stock" shall mean the $1.00 par value common stock of
Premier.
"Premier Companies" shall mean, collectively, Premier and all Premier
Subsidiaries.
"Premier Disclosure Memorandum" shall mean the written information entitled
---------------------
"Premier Disclosure Memorandum" delivered on or prior to April 8, 1999 to North
---------------------
Fulton describing in reasonable detail the matters contained therein and, with
respect to each disclosure made therein, specifically referencing each Section
of this Agreement under which such disclosure is being made.
"Premier Financial Statements" shall mean (a) the consolidated balance
sheets (including related notes and schedules, if any) of Premier as of December
31, 1998, 1997 and 1996, and the related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules, if
any) for each of the three years ended December 31, 1998, 1997 and 1996, and (b)
the consolidated balance sheets (including related notes and schedules, if any)
of Premier and related statements of income, changes in shareholders' equity,
and cash flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to December 31, 1998.
"Premier Stock Plans" shall mean the existing stock option and other stock-
based compensation plans of Premier.
"Premier Subsidiaries" shall mean the Subsidiaries of Premier at the
Effective Time.
"Proxy Statement" shall mean the proxy statement used by North Fulton to
solicit the approval of its shareholders of the transactions contemplated by
this Agreement which shall be included in the prospectus of Premier relating to
shares of Premier Common Stock to be issued to the shareholders of North Fulton.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, filed with the SEC by Premier under the 1933 Act with
respect to the shares of Premier Common Stock to be issued to the shareholders
of North Fulton in connection with the transactions contemplated by this
Agreement and which shall include the Proxy Statement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of Thrift Supervision (including its
predecessor, the Federal Home Loan Bank Board), the
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Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, all state regulatory agencies having jurisdiction over the Parties
and their respective Subsidiaries, the NASD and the SEC.
"Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Rights.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of North
Fulton to be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks, associations or
other entities of which the entity in question owns or controls 50% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 50% or more of the outstanding equity
securities is owned directly or indirectly by its parent; provided, however,
there shall not be included any such entity acquired through foreclosure or any
such entity the equity securities of which are owned or controlled in a
fiduciary capacity.
"Support Agreements" shall mean the various Support Agreements, each in
substantially the form of Exhibit 6 to this Agreement.
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"Surviving Corporation" shall mean Premier as the surviving corporation
resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local or foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupancy and other taxes, assessments, charges,
fares or impositions, including interest, penalties and additions imposed
thereon or with respect thereto.
"Year 2000 Problem" shall mean any problem affecting the ability of any
Party or its Subsidiaries to continue operation as an ongoing business or to
provide the usual and customary
44
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services of any Party or its Subsidiaries, relating to the failure of software,
hardware or other computer equipment to: (a) store all date-related information
and process all data interfaces involving dates in a manner that unambiguously
identifies the century, for all date values before, during or after the Year
2000; (b) calculate, sort, report and otherwise operate correctly and in a
consistent manner for all date information processed by any software, hardware
or other computer equipment, whether before, during or after the Year 2000; (c)
calculate, sort, report and otherwise operate correctly, in a consistent manner
and without interruption regardless whether the date on which the software,
hardware or other computer equipment is operated or executed is before, during
or after the Year 2000; (d) report and display all dates with a four-digit date
so that the century is unambiguously identified; and (e) handle all leap years,
including but not limited to the Year 2000 leap year, correctly.
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation."
11.2 Expenses.
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(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants and
counsel, except that each of the Parties shall bear and pay (i) one-half of the
filing fees payable in connection with the Registration Statement and the
applications filed with other Regulatory Authorities, and (ii) one-half of the
costs incurred in connection with the printing or copying of the Proxy
Statements.
(b) Notwithstanding the provisions of Section 11.2(a) of this
Agreement, if for any reason this Agreement is terminated pursuant to Sections
10.1(b) or 10.1(c) of this Agreement, the breaching Party agrees to pay the non-
breaching Party (i) an amount equal to the reasonable and documented fees and
expenses incurred by such non-breaching Party in connection with the examination
and investigation of the breaching Party, the preparation and negotiation of
this Agreement and related agreements, regulatory filings and other documents
related to the transactions contemplated hereunder, including, without
limitation, fees and expenses of investment banking consultants, accountants,
attorneys and other agents and (ii) $1,000,000 if the breach is willful or this
Agreement is terminated in contemplation of an Acquisition Proposal, which sums
represent compensation for the non-breaching Party's loss as a result of the
transactions contemplated by this Agreement not being consummated. Final
settlement with respect to payment of such fees and expenses shall be made
within thirty (30) days after the termination of this Agreement. This Section
11.2(b) shall be the non-breaching Party's sole and exclusive remedy for
actionable breach by the breaching Party under this Agreement.
11.3 Brokers and Finders. Each of the Parties represents and warrants
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that neither it nor any of its officers, directors, employees or Affiliates has
employed any broker or finder or incurred
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any Liability for any financial advisory fees, investment bankers' fees,
brokerage fees, commissions, or finders' fees in connection with this Agreement
or the transactions contemplated hereby, other than Brown, Burke Capital
Partners, Inc. employed by North Fulton and The Robinson-Humphrey Company
employed by Premier. In the event of a claim by any broker or finder based upon
his or its representing or being retained by or allegedly representing or being
retained by Premier or North Fulton, each of Premier and North Fulton, as the
case may be, agrees to indemnify and hold the other Party harmless of and from
any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, other than as provided in
Section 8.10 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of North Fulton Common Stock, there shall be
made no amendment that pursuant to the GBCC requires further approval by such
shareholders without the further approval of such shareholders.
11.6 Waivers.
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(a) Prior to or at the Effective Time, Premier, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by North Fulton, to waive or extend the time for the compliance or
fulfillment by North Fulton of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Premier under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing and signed by a duly authorized officer of Premier.
(b) Prior to or at the Effective Time, North Fulton, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by Premier, to waive or extend the time for the compliance or
fulfillment by Premier of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of North
Fulton under this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be effective unless in
writing and signed by a duly authorized officer of North Fulton.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same
46
<PAGE>
or any other provision of this Agreement. No waiver of any condition or of the
breach of any term contained in this Agreement in one or more instances shall be
deemed to be or construed as a further or continuing waiver of such condition or
breach or a waiver of any other condition or of the breach of any other term of
this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, or by courier or overnight carrier, to the persons at
the addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
Premier: Premier Bancshares, Inc.
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, Georgia 30326
Telecopy Number: (404) 814-3672
Attention: Darrell D. Pittard
Chairman and CEO
Copy to Counsel: Womble Carlyle Sandridge & Rice, PLLC
Suite 700
1275 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telecopy Number: (404) 888-7490
Attention: Steven S. Dunlevie, Esq.
North Fulton: North Fulton Bancshares, Inc.
11650 Alpharetta Highway
Roswell, Georgia 30076
Telecopy Number: (770) 740-2918
Attention: Michael McGovern
Chairman of the Board
47
<PAGE>
Copy to Counsel: Powell, Goldstein, Frazer & Murphy, LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy Number: (404) 572-5954
Attention: Walter G. Moeling, Esq.
11.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
11.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
11.12 Enforcement of Agreement. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.13 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
48
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: PREMIER BANCSHARES, INC.
/s/ Barbara J. Burtt By: /s/ Darrell D. Pittard
- -------------------------------- ------------------------------
Secretary Darrell D. Pittard
Chairman and Chief Executive Officer
[CORPORATE SEAL]
ATTEST: NORTH FULTON BANCSHARES, INC.
/s/ Grant R. Essex By: /s/ Michael McGovern
- ----------------------- -----------------------------------
Secretary Michael McGovern
Chairman of the Board
[CORPORATE SEAL]
49
<PAGE>
EXHIBIT 1
---------
AFFILIATE AGREEMENT
Premier Bancshares, Inc.
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, Georgia 30326
North Fulton Bancshares, Inc.
11650 Alpharetta Highway
Roswell, Georgia 30076
Gentlemen:
The undersigned is a shareholder of North Fulton Bancshares, Inc. ("North
Fulton"), a corporation organized and existing under the laws of the State of
Georgia, and will become a shareholder of Premier Bancshares, Inc. ("Premier" or
the "Surviving Corporation") pursuant to the transactions described in the
Agreement and Plan of Reorganization, dated as of April 6,1999 (the
"Agreement"), by and between North Fulton and Premier. Under the terms of the
Agreement, Premier and North Fulton will be merged (the "Merger") and the shares
of common stock of North Fulton ("North Fulton Common Stock") will be converted
into shares of common stock of the Surviving Corporation ("Surviving Corporation
Common Stock"). This Affiliate Agreement represents an agreement between the
undersigned and the Surviving Corporation regarding certain rights and
obligations of the undersigned in connection with the shares of the Surviving
Corporation to be received by the undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and the Surviving Corporation hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
North Fulton the undersigned is an "affiliate" under Rule 145(c) as defined in
Rule 405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that the undersigned will be such an "affiliate" at the
time of the Merger.
2. Initial Restriction on Disposition. The undersigned agrees that the
----------------------------------
undersigned will not, except by operation of law, by will or under the laws of
descent and distribution, sell, transfer, or otherwise dispose of the
undersigned's interests in, or reduce the undersigned's risk relative to, any of
the shares of the Surviving Corporation Common Stock into which the
undersigned's shares of North Fulton Common Stock are converted upon
consummation of the Merger until such time as
1
<PAGE>
the Surviving Corporation notifies the undersigned that the requirements of SEC
Accounting Series Release Nos. 130 and 135 ("ASR 130 and 135") have been met.
The undersigned understands that ASR 130 and 135 relate to publication of
financial results of post-Merger combined operations of the Surviving
Corporation and North Fulton. The Surviving Corporation agrees that it will
publish such results within 45 days after the end of the first fiscal quarter of
the Surviving Corporation containing the required period of post-Merger combined
operations and that it will notify the undersigned promptly following such
publication.
3. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
(a) During the 30 days immediately preceding the effective time of the
Merger, the undersigned will not, except by operation of law, by will, or
under the laws of descent and distribution, sell, transfer, or otherwise
dispose of the undersigned's interests in, or reduce the undersigned's risk
relative to, any of the shares of North Fulton Common Stock beneficially
owned by the undersigned as of the date of the shareholders' meeting of
North Fulton held to approve the merger.
(b) The Surviving Corporation Common Stock received by the undersigned
as a result of the Merger will be taken for the undersigned's own account
and not for others, directly or indirectly, in whole or in part.
(c) The undersigned understands that any distribution by the
undersigned of the Surviving Corporation Common Stock has not been
registered under the 1933 Act and that shares of the Surviving Corporation
Common Stock received pursuant to the Merger can only be sold by the
undersigned (1) following registration under the 1933 Act, or (2) in
conformity with the volume and other requirements of Rule 145(d)
promulgated by the SEC as the same now exist or may hereafter be amended,
or (3) to the extent some other exemption from registration under the 1933
Act might be available. The undersigned understands that the Surviving
----------------------------------------------
Corporation is under no obligation to file a registration statement with
------------------------------------------------------------------------
the SEC covering the disposition of the undersigned's shares of the
-------------------------------------------------------------------
Surviving Corporation Common Stock.
-----------------------------------
4. Restrictions on Transfer. The undersigned understands and agrees that
------------------------
stop transfer instructions with respect to the shares of the Surviving
Corporation Common Stock received by the undersigned pursuant to the Merger will
be given to the Surviving Corporation's transfer agent and that there will be
placed on the certificates for such shares, or shares issued in substitution
thereof, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce his
risks relative thereto in any way, until such time as the Surviving
Corporation has published the financial results covering at least 30
days of combined operations after the effective
2
<PAGE>
date of the merger through which the business combination was
effected. In addition, the shares represented by this certificate may
not be sold, transferred or otherwise disposed of except or unless (a)
covered by an effective registration statement under the Securities
Act of 1933, as amended, (b) in accordance with (i) Rule 145(d) (in
the case of shares issued to an individual who is not an affiliate of
the Surviving Corporation) or (ii) Rule 144 (in the case of shares
issued to an individual who is an affiliate of the Surviving
Corporation) of the Rules and Regulations of such Act, or (c) in
accordance with a legal opinion satisfactory to counsel for the
Surviving Corporation that such sale or transfer is otherwise exempt
from the registration requirements of such Act."
Such legend will also be placed on any certificate representing the Surviving
Corporation securities issued subsequent to the original issuance of the
Surviving Corporation Common Stock pursuant to the Merger as a result of any
stock dividend, stock split or other recapitalization as long as the Surviving
Corporation Common Stock issued to the undersigned pursuant to the Merger has
not been transferred in such manner to justify the removal of the legend
therefrom. If the provisions of Rules 144 and 145 are amended to eliminate
restrictions applicable to the Surviving Corporation Common Stock received by
the undersigned pursuant to the Merger, or at the expiration of the restrictive
period set forth in Rule 145(d), the Surviving Corporation, upon the request of
the undersigned, will cause the certificates representing the shares of the
Surviving Corporation Common Stock issued to the undersigned in connection with
the Merger to be reissued free of any legend relating to the restrictions set
forth in Rules 144 and 145(d) upon receipt by the Surviving Corporation of an
opinion of its counsel to the effect that such legend may be removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his or her ability to sell, transfer or otherwise
dispose of the shares of the Surviving Corporation Common Stock received by the
undersigned, to the extent the undersigned believes necessary, with the
undersigned's counsel or counsel for North Fulton.
6. Filing of Reports by the Surviving Corporation. The Surviving
----------------------------------------------
Corporation agrees, for a period of three years after the effective date of the
Merger, to file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so
that the public information provisions of Rule 145(d) promulgated by the SEC as
the same are presently in effect will be available to the undersigned in the
event the undersigned desires to transfer any shares of the Surviving
Corporation Common Stock issued to the undersigned pursuant to the Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of the Surviving Corporation Common Stock received
by the undersigned in connection with the Merger at any time during the
restrictive period set forth in Rule 145(d), the undersigned will provide the
necessary representation letter to the transfer agent for the Surviving
Corporation Common Stock together with such additional information as the
transfer agent may reasonably
3
<PAGE>
request. If the Surviving Corporation's counsel concludes that such proposed
sale or transfer complies with the requirements of Rule 145(d), the Surviving
Corporation shall cause such counsel to provide such opinions as may be
necessary to the Surviving Corporation's transfer agent so that the undersigned
may complete the proposed sale or transfer.
8. Acknowledgments. The undersigned recognizes and agrees that the
---------------
foregoing provisions also apply to (a) the undersigned's spouse, (b) any
relative of the undersigned or of the undersigned's spouse who has the same home
as the undersigned, (c) any trust or estate in which the undersigned, the
undersigned's spouse, and any such relative collectively own at least a 10%
beneficial interest or of which any of the foregoing serves as trustee, executor
or in any similar capacity and (d) any corporation or other organization in
which the undersigned, the undersigned's spouse and any such relative
collectively own at least 10% of any class of equity securities or of the equity
interest. The undersigned further recognizes that, in the event that the
undersigned is a director or officer of the Surviving Corporation or becomes a
director or officer of the Surviving Corporation upon consummation of the
Merger, among other things, any sale of the Surviving Corporation Common Stock
by the undersigned within a period of less than six months following the
effective time of the Merger may subject the undersigned to liability pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between the Surviving Corporation and the undersigned concerning the subject
matter hereof. Any notice required to be sent to any party hereunder shall be
sent by registered or certified mail, return receipt requested, using the
addresses set forth herein or such other address as shall be furnished in
writing by the parties. This Affiliate Agreement shall be governed by the laws
of the State of Georgia.
4
<PAGE>
This Affiliate Agreement is executed as of the_____ day of April, 1999.
Very truly yours,
___________________________________
Signature
___________________________________
Print Name
AGREED TO AND ACCEPTED as of
April __, 1999
PREMIER BANCSHARES, INC.
By:_____________________________
Darrell D. Pittard, Chairman
and Chief Executive Officer
AGREED TO AND ACCEPTED as of
April __, 1999
NORTH FULTON BANCSHARES, INC.
By:_____________________________
Michael McGovern, Chairman
5
<PAGE>
EXHIBIT 2
---------
MATTERS AS TO WHICH
COUNSEL TO NORTH FULTON WILL OPINE*
1. North Fulton is a corporation duly organized, existing and in good
standing under the laws of the State of Georgia with corporate power and
authority to conduct its business as now conducted and to own and use its
Assets.
2. North Fulton's authorized capital stock consists of 10,000,000 shares
of North Fulton Common Stock, of which 1,828,821 shares were outstanding as of
the date hereof. The outstanding shares of North Fulton Common Stock are duly
authorized, validly issued, fully paid and nonassessable. None of the
outstanding shares of North Fulton Common Stock has been issued in violation of
any statutory preemptive rights. Except as disclosed in North Fulton's
Disclosure Memorandum dated April __, 1999, to our knowledge, there are no
- ---------------------
options, subscriptions, warrants, calls, rights or commitments obligating North
Fulton to issue equity securities or acquire its equity securities.
3. The execution and delivery by North Fulton of the Agreement do not,
and if North Fulton were now to perform its obligations under the Agreement such
performance would not, result in any violation of the Articles of Incorporation
or Bylaws of any North Fulton Company, or, to our knowledge, result in any
breach of, or default or acceleration under, any material Contract or Order to
which a North Fulton Company is a party or by which a North Fulton Company is
bound.
4. North Fulton has duly authorized the execution and delivery of the
Agreement and all performance by North Fulton thereunder and has duly executed
and delivered the Agreement.
5. The Agreement is enforceable against North Fulton.
______________________________
*Pursuant to the January 1, 1992 edition of the Interpretive Standards
Applicable to Legal Opinions to Third Parties in Corporate Transactions adopted
by the Legal Opinion Committee of the Corporate and Banking Law Section of the
State Bar of Georgia.
1
<PAGE>
EXHIBIT 3
---------
CLAIMS/INDEMNIFICATION LETTER
April __, 1999
Premier Bancshares, Inc.
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, Georgia 30326
Ladies and Gentlemen:
This letter is delivered pursuant to Section 9.2(e) of the Agreement and
Plan of Reorganization (the "Agreement"), dated as of April 6, 1999, by and
between North Fulton Bancshares, Inc. ("North Fulton") and Premier Bancshares,
Inc. ("Premier") which provides for the merger (the "Merger") of North Fulton
and Premier.
Concerning claims which I may have against North Fulton or its wholly-owned
subsidiary, Milton National Bank, in my capacity as an officer or director:
(a) Premier shall assume all liability (to the extent North Fulton was
so liable) for claims for indemnification arising under North Fulton's
Articles of Incorporation or Bylaws or under any indemnification contract
disclosed to Premier, as existing on March 31, 1999, and for claims for
salaries, wages or other compensation, employee benefits, reimbursement of
expenses, or worker's compensation arising out of employment through the
effective time of the Merger;
(b) Milton National Bank shall retain all liability (to the extent it
was so liable) for claims for indemnification arising under its Articles of
Incorporation or Bylaws as existing on March 31, 1999, and for claims for
salaries, wages, or other compensation, employee benefits, reimbursement of
expenses, or worker's compensation arising out of employment through the
effective time of the Merger;
(c) In my capacity as an officer or a director, I am not aware that I
have any claims (other than those referred to in paragraphs (a) or (b)
above) against North Fulton or Milton National Bank (other than routine
deposit, loan and other banking services conducted in the ordinary course
of business with North Fulton or Milton National Bank;
(d) I hereby release North Fulton and Milton National Bank from any
and all claims which I am aware that I have against any of them in my
capacity as an officer or a director, other than those referred to in
paragraphs (a) or (b) above.
1
<PAGE>
By executing this letter on behalf of Premier, you shall acknowledge the
assumption by Premier of the liabilities described in paragraphs (a) and (b)
above.
Sincerely,
__________________________________
Signature of Officer or Director
__________________________________
Printed Name of Officer or Director
On behalf of Premier, I hereby acknowledge receipt of this letter and
affirm the assumption by Premier of the liabilities described in paragraph (a)
and (b) above, as of this _____ day of _______________, 1999.
PREMIER BANCSHARES, INC.
By: ___________________________________________________
Darrell D. Pittard, Chairman and Chief Executive
Officer
2
<PAGE>
EXHIBIT 4
---------
MATTERS AS TO WHICH
COUNSEL TO PREMIER WILL OPINE*
1. Premier is a corporation in existence under the laws of the State of
Georgia with corporate power to carry on its business as now conducted.
2. Premier's authorized capital stock consists of 60,000,000 common
shares, of which 26,102,975 shares are issued and outstanding as of the date
hereof and 2,000,000 preferred shares of which 40,770 shares are issued and
outstanding as of the date hereof. The outstanding shares of Premier Common
Stock are duly authorized by all necessary corporate action on the part of
Premier and are validly issued, fully paid and nonassessable. None of the
outstanding shares of Premier Common Stock has been issued in violation of any
statutory preemptive rights.
3. The shares of Premier Common Stock to be issued in exchange for North
Fulton Common Stock upon consummation of the Merger have been duly authorized by
all necessary corporate action and, when issued as provided for in the
Agreement, will be validly issued, fully paid and nonassessable. None of the
shares of Premier Common Stock to be exchanged for North Fulton Common Stock
upon consummation of the Merger will be issued in violation of any statutory
preemptive rights.
4. The execution and delivery by Premier of the Agreement and the
consummation by Premier of the transactions provided in the Agreement: (a) do
not violate any provision of the Articles of Incorporation or Bylaws of any
Premier Company, and (b) do not violate or constitute a breach of, or a default
under, any material Contract or Order to which a Premier Company is a party.
5. The Agreement has been duly executed and delivered by Premier and is
enforceable against Premier.
* subject to customary assumptions and limitations
1
<PAGE>
EXHIBIT 5
---------
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT ("Agreement") is made and entered into as of
the ___ day of _______, 1999, by and among MILTON NATIONAL BANK ("Employer"), a
bank chartered under the laws of the United States, and GRANT R. ESSEX
("Employee"), a resident of Georgia.
W I T N E S S E T H:
WHEREAS, Employer is the wholly-owned subsidiary of North Fulton
Bancshares, Inc., a Georgia corporation;
WHEREAS, North Fulton Bancshares, Inc. will merge with and into
Premier Bancshares, Inc. (the "Holding Company") and, as a result, Employer
shall become the wholly-owned subsidiary of the Holding Company (the "Merger");
WHEREAS, it is anticipated that Employer will subsequently merge with
and into Premier Bank, another wholly-owned subsidiary of the Holding Company,
and, as of the effective date of such merger, all references to the term
"Employer" shall include Premier Bank;
WHEREAS, Employee currently serves as President and Chief Executive
Officer of Employer and will continue serving in such capacities after the
Merger as an employee-at-will;
WHEREAS, Employer and Employee have entered into a Separation
Agreement, dated as of December 15, 1998; and
WHEREAS, the parties have determined that it will be mutually
beneficial for Employee to terminate such Separation Agreement and execute a new
agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Effective Date. This Agreement shall become effective as of the same
--------------
date on which the Merger becomes effective (the "Effective Date").
2. Termination of December 15, 1998 Separation Agreement. Effective as of
-----------------------------------------------------
the Effective Date, Employee and Employer mutually agree to terminate the
Separation Agreement dated December 15, 1998.
3. Payment to Employee Upon Termination of Employment. If, within one (1)
--------------------------------------------------
year following the Effective Date, Employee's employment is terminated for any
reason, other than a
<PAGE>
Termination for Cause (as defined below), then Employer shall pay to Employee a
sum equal to $240,000.00, which sum (i) shall be paid within thirty (30) days of
----------
the effective date of Employee's termination, (ii) shall be in satisfaction of
all claims arising out of or related to the employment of Employee by Employer
and (iii) shall be in consideration of the Restrictive Covenants contained in
paragraphs 5, 6 and 7 hereof. This payment shall be payable whether the
termination is voluntary or involuntary, unless said termination is a
Termination for Cause. For purposes of this Agreement, a "Termination for Cause"
shall mean a termination because of: Employee's personal dishonesty; breach of
fiduciary duties involving personal profit; willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses); willful
violation of a final cease-and-desist order; the regulatory suspension or
removal of Employee; or a material breach by Employee of any provision of this
Agreement following notice given to Employee by Employer and a thirty (30)-day
right to cure such breach after said notice.
4. Payment to Employee One Year After Termination of Employment. If
------------------------------------------------------------
Employee qualifies for a payment under paragraph 3 above, then Employer shall
pay to Employee or, in the event of Employee's death, to Employee's legal
representative(s), a sum equal to $240,000.00 on the first anniversary of the
-----------
effective date of Employee's termination of employment; provided that Employee
shall not be entitled to payment hereunder if Employee is in breach of the
Restrictive Covenants, and provided further that Employee shall refund in full
to Employer, upon demand, any sums paid under this paragraph 4 in the event
Employee shall violate any of the Restrictive Covenants contained in paragraphs
5, 6 and 7 hereof. The payment under this paragraph shall be additional
consideration for the restrictive covenants set forth hereafter and shall be in
full and final satisfaction of all claims arising out of or related to the
employment of Employee by Employer or relating to this Agreement.
5. Nondisclosure of Confidential Information. Employee acknowledges that
-----------------------------------------
he now possesses and will possess confidential information of a special and
unique nature and value affecting and relating to the business of Employer,
Premier Bank and the Holding Company (collectively, the "Protected Parties"),
including, without limitation, customer lists, deposits, business records, other
trade secrets, and other similar confidential information relating to the
Protected Parties and the business of each (collectively, "Confidential
Information"). Employee recognizes and acknowledges that all Confidential
Information is the exclusive property of the Protected Parties, respectively,
constitutes trade secrets of the Protected Parties, is material and
confidential, and greatly affects the goodwill and business of the Protected
Parties. As a material inducement to Employer to enter into this Agreement, and
to continue the employ of Employee, Employee covenants and agrees that he will
not at any time during the term of his employment, and for a period of two (2)
years from the end of such employment, directly or indirectly, divulge, reveal,
or communicate any Confidential Information to any person, firm, corporation, or
entity whatsoever (other than the Protected Parties), or use any Confidential
Information for his own benefit or for the benefit of others. Employee further
acknowledges that said Confidential Information has material commercial value to
the Protected Parties so long as it is not known by competitors of the Protected
Parties and that the Protected Parties have taken reasonable steps to keep all
such information and trade secrets confidential.
6. Non-piracy of Employees. For the period of time beginning on the
-----------------------
Effective Date and ending two (2) years after Employee's termination of
employment, for any reason, including
2
<PAGE>
a Termination for Cause, Employee covenants and agrees that he shall not,
directly or indirectly, hire or attempt to hire, or assist anyone in hiring, any
officer, director, or employee of the Protected Parties that performed work for
the Protected Parties within the last twelve (12) months preceding the
termination of Employee's employment with Employer, or those employees who are
engaged or employed with the Protected Parties at the time of Employee's
termination or resignation, for a Competitive Business. A "Competitive Business"
is a business engaged in the banking or financial services businesses that is
offering services and/or products identical or similar to those offered by
Employer during Employee's employment with Employer. Employee has been hired by
Employer to work in the business defined herein as "Competitive Business," and
has worked for such business prior to the Effective Date, and Employee hereby
acknowledges the reasonableness of this provision.
7. Non-solicitation of Customers And Noncompete.
--------------------------------------------
(a) For the period of time beginning on the Effective Date and ending
two (2) years after Employee's termination of employment for any reason,
including a Termination for Cause, Employee agrees not to, directly or
indirectly, solicit or call upon any customers/clients of Employer with whom
Employee has had material personal contact at any time during the last two (2)
years of Employee's employment with Employer, including prospective
customers/clients of Employer with whom Employee had such contact during said
two-year period, if the purpose of such solicitation is to solicit these
customers/clients or prospective customers/clients for a Competitive Business as
defined in paragraph 6, including but not limited to any Competitive Business
started by Employee. Employee acknowledges that due to his employment with
Employer, he has and will develop special contacts and relationships with
Employer's clients and prospects while on Employer's payroll, and that it would
be unfair and harmful to Employer if Employee took advantage of these
relationships in a Competitive Business.
(b) For the period of time beginning the Effective Date and ending two
(2) years after Employee's termination of employment for any reason, including a
Termination for Cause, Employee agrees not to, directly or indirectly, compete
with Employer, as an officer, director, member, shareholder (other than a
shareholder in a company that is publicly traded and so long as such ownership
is less than three percent [3%]), owner, partner, employee, or independent
contractor, by working for or engaging in a Competitive Business as defined in
paragraph 6, in a capacity identical or similar to the capacity Employee served
for Employer, in any Competitive Business located in the Territory. For
purposes of this paragraph, the "Territory" is the Georgia counties of Fulton,
Gwinnett, Forsyth and Cobb. Employee acknowledges the reasonableness of this
limitation on his ability to compete with Employer, including the reasonableness
of the Territory.
(c) Employee understands and agrees that the terms and provisions of
paragraphs 5, 6 and 7 (the "Restrictive Covenants") are not intended to restrict
Employee in the exercise of his skills or the use of knowledge or information
that does not rise to the level of a trade secret under applicable law or to the
level of Confidential Information set forth in paragraph 5 above. Employee
acknowledges and agrees that the purpose of the Restrictive Covenants is to
prevent Employee from unfairly taking advantage of the contacts he has
3
<PAGE>
established while with Employer, but not to preclude Employee's opportunity to
engage in his occupation in any unrelated and non-competitive field of endeavor,
or to engage in directly competitive endeavors so long as they meet the
requirements of this Agreement. Employee represents that his experience and
abilities are such that the existence or enforcement of these provisions will
not prevent him from earning an adequate livelihood and/or will not cause an
undue burden to himself or his family. Employee acknowledges the reasonableness
of these provisions.
(d) Employee and Employer acknowledge that the performance by Employee
of bona fide general consulting services, whether as self-employed or as an
employee of a third party, to a Competitive Business in the Territory would not
necessarily violate (although it could violate) the provisions of paragraphs 5,
6 and 7(a) hereof, directly or indirectly, depending upon Employee's activities
as a general consultant.
8. Injunctions. In view of the irreparable harm and damage which the
-----------
Protected Parties would sustain as a result of a breach by Employee of the
Restrictive Covenants, and in view of the lack of an adequate remedy at law to
protect the Protected Parties' interests, the Protected Parties shall have the
right to receive, and Employee hereby consents to the issuance of, a preliminary
and a permanent injunction enjoining Employee from any violation of the
Restrictive Covenants, which injunction shall be of a duration consistent with
the provisions hereof. The foregoing remedy shall be in addition to, and not in
limitation of, any other rights or remedies to which the Protected Parties are
or may be entitled at law or in equity respecting this Agreement. Employee
acknowledges and agrees that the existence of any claim or cause of action
against Employer shall not constitute a defense to the enforcement by Employee
of Employee's covenants, obligations or undertakings in this Agreement.
9. Federal Income Tax Withholding. Employer may withhold from any
------------------------------
benefits payable under this Agreement all federal, state, city, or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
10. Effect of Prior Agreements. This Agreement contains the entire
--------------------------
understanding between the parties hereto and supersedes any prior written
agreements and any contemporaneous oral agreements or understandings by,
between, or among Employer and Employee with respect to Employee's employment or
termination of employment. Employee waives and releases any and all rights,
demands, causes of actions, or claims relating to or arising out of the
Separation Agreement dated December 15, 1998, his employment by Employee or any
rights accruing to Employee under any severance or separation policy adopted by
Employer. Other than the payments set forth herein in paragraphs 3 and 4,
Employee's rights, if any, in any incentive stock plan maintained by the Holding
Company or rights to receive COBRA continuation benefits, Employee is entitled
to no other payments or benefits upon termination of employment.
11. General Provisions.
------------------
(a) Nonassignability. The respective rights of the Protected Parties
----------------
may be assigned by the Protected Parties. Neither this Agreement nor any right
or interest hereunder shall be
4
<PAGE>
assignable by Employee, his beneficiaries or legal representatives, without the
written consent of Employer; provided, however, that nothing in this paragraph
11(a) shall preclude (i) Employee from designating a beneficiary to receive any
benefits payable hereunder upon his death, or (ii) the executors,
administrators, or other legal representatives of Employee or his estate from
assigning any rights hereunder to the person or persons entitled thereto.
(b) No Attachment. Except as required by law, no right to receive
-------------
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or
to execution, attachment, levy, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void, and of no effect.
(c) Binding Agreement. This Agreement shall be binding upon, and
-----------------
inure to the benefit of, Employer and Employee and their respective heirs,
successors, assigns, and legal representatives.
(d) Amendment of Agreement. This Agreement may not be modified or
----------------------
amended except by an instrument in writing, signed by the parties hereto, and
which specifically refers to this Agreement.
(e) Waiver. No term or condition of this Agreement shall be deemed to
------
have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
(f) Severability. If for any reason any provision of this Agreement
------------
is held invalid, such invalidity shall not affect any other provision of this
Agreement not held invalid, and each such other provision shall to the full
extent consistent with law continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the
full extent consistent with law continue in full force and effect.
(g) Headings. The headings of paragraphs herein are included solely
--------
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(h) Governing Law. This Agreement has been executed and delivered in
-------------
the State of Georgia, and its validity, interpretation, performance, and
enforcement shall be governed by the laws of said State.
12. Rights of Third Parties. Nothing herein expressed or implied is
-----------------------
intended to or shall be construed to confer upon or give to any person, firm, or
other entity, other than the parties hereto and their permitted assigns, any
rights or remedies under or by reason of this
5
<PAGE>
Agreement; provided, however, that the Holding Company and Premier Bank are
intended third-party beneficiaries of this Agreement for the purposes of
enforcing the restricted covenants set forth herein.
13. Notices. All notices, requests, demands, and other communications
-------
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the United States by registered or certified mail,
or personally delivered, to the party entitled thereto at the address stated
below or to such changed address as the addressee may have given by a similar
notice:
To Employer: Chairman, Compensation Committee
Board of Directors
Premier Bancshares, Inc.
2180 Atlanta Plaza
950 E. Paces Ferry Road
Atlanta, Georgia 30326
-and-
Copy to: Steven S. Dunlevie, Esq.
Womble Carlyle Sandridge & Rice, PLLC
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
To Employee: Mr. Grant R. Essex
1850 Highgrove Club Drive
Alpharetta, Georgia 30004-6958
IN WITNESS WHEREOF, Employer has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officers,
and Employee has signed this Agreement, as of the Effective Date.
ATTEST: MILTON NATIONAL BANK
- -------------------------- By:
Secretary ------------------------------------
Its:
---------------------------------
[BANK SEAL]
(SEAL)
- -------------------------- ---------------------------------
Witness GRANT R. ESSEX
6
<PAGE>
EXHIBIT 6
---------
SUPPORT AGREEMENT
-----------------
THIS SUPPORT AGREEMENT ("Agreement") is made and entered into as of
the _____ day of April, 1999, by and between the undersigned,
_____________________, a resident of ____________, Georgia, and Premier
Bancshares, Inc., a corporation organized and existing under the laws of the
State of Georgia ("Premier").
Premier and North Fulton Bancshares, Inc., a corporation organized and
existing under the laws of the State of Georgia ("North Fulton"), have entered
into an Agreement and Plan of Reorganization, dated as of April 6, 1999 (the
"Merger Agreement"). The Merger Agreement generally provides for the merger of
North Fulton into Premier (the "Merger") and the conversion of the issued and
outstanding shares of the no par value common stock of North Fulton ("North
Fulton Common Stock") into shares of the $1.00 par value common stock of
Premier. The Merger Agreement is subject to the affirmative vote of the
shareholders of North Fulton, the receipt of certain regulatory approvals, and
the satisfaction of other conditions.
The undersigned is a member of the Board of Directors of North Fulton
and is the owner of ________ shares of North Fulton Common Stock and has rights
by option or otherwise to acquire _______ additional shares of North Fulton
Common Stock (collectively, the "Shares"). In order to induce Premier to enter
into the Merger Agreement, the undersigned is entering into this Agreement with
Premier to set forth certain terms and conditions governing the actions to be
taken by the undersigned solely in his capacity as a shareholder of North Fulton
with respect to the Shares until consummation of the Merger.
NOW, THEREFORE, in consideration of the transactions contemplated by
the Merger Agreement and the mutual promises and covenants contained herein, the
parties agree as follows:
1. Without the prior written consent of Premier, which consent shall
not be unreasonably withheld, the undersigned shall not transfer, sell, assign,
convey, or encumber any of the Shares during the term of this Agreement except
for transfers (i) by operation of law, by will, or pursuant to the laws of
descent and distribution, (ii) in which the transferee shall agree in writing to
be bound by the provisions of paragraphs 1, 2, and 3 of this Agreement as fully
as the undersigned, or (iii) to Premier pursuant to the terms of the Merger
Agreement. Without limiting the generality of the foregoing, the undersigned
shall not grant to any party any option or right to purchase the Shares or any
interest therein. Further, except with respect to the Merger, the undersigned
shall not during the term of this Agreement approve or ratify any agreement or
contract pursuant to which the Shares would be transferred to any other party as
a result of a consolidation, merger, share exchange, or acquisition.
<PAGE>
2. The undersigned intends to, and will, vote (or cause to be voted)
all of the Shares over which the undersigned has voting authority (other than in
a fiduciary capacity) in favor of the Merger Agreement and the Merger at any
meeting of shareholders of North Fulton called to vote on the Merger Agreement
or the Merger or the adjournment thereof or in any other circumstance upon which
a vote, consent, or other approval with respect to the Merger Agreement or the
Merger is sought. Further, the undersigned intends to, and will, surrender the
certificate or certificates representing the Shares over which the undersigned
has dispositive authority to Premier upon consummation of the Merger as
described in the Merger Agreement and hereby waives any rights of appraisal, or
rights to dissent from the Merger, that the undersigned may have.
3. Except as otherwise provided in this Agreement, at any meeting of
shareholders of North Fulton or at any adjournment thereof or any other
circumstances upon which their vote, consent, or other approval is sought, the
undersigned will vote (or cause to be voted) all of the Shares over which the
undersigned has voting authority (other than in a fiduciary capacity) against
(i) any merger agreement, share exchange, or merger (other than the Merger
Agreement and the Merger), consolidation, combination, sale of substantial
assets, merger, recapitalization, dissolution, liquidation, or winding-up of or
by North Fulton or (ii) any amendment of North Fulton's Articles of
Incorporation or Bylaws or other proposal or transaction involving North Fulton
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent, or nullify the Merger, the
Merger Agreement, or any of the other transactions contemplated thereby.
4. The undersigned acknowledges and agrees that Premier could not be
made whole by monetary damages in the event of any default by the undersigned of
the terms and conditions set forth in this Agreement. It is accordingly agreed
and understood that Premier, in addition to any other remedy which it may have
at law or in equity, shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and specifically to enforce the terms and
provisions hereof in any action instituted in any court of the United States or
in any state having appropriate jurisdiction.
5. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
6. The covenants and obligations set forth in this Agreement shall
expire and be of no further force and effect on the earlier of: (i) November 30,
1999, or such date to which the Merger Agreement is extended; or (ii) the date
on which the Merger Agreement is terminated under Section 10.1 thereof.
2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the undersigned as of the day and year first above written.
As to the undersigned,
signed in the presence of:
____________________________ ______________________________
Name:
__________________________
(Please print or type)
PREMIER BANCSHARES, INC.
By:
_________________________________________
Darrell D. Pittard, Chairman of the
Board and Chief Executive Officer
3
<PAGE>
APPENDIX B
TITLE 14, CHAPTER 2, ARTICLE 13 OF THE
GEORGIA BUSINESS CORPORATION CODE
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
<PAGE>
CHAPTER 2 OF TITLE 14 OF THE GEORGIA BUSINESS CORPORATION CODE
PART 1. Right To Dissent And Obtain Payment For Shares
(S) 14-2-1301. Definitions.
As used in this article, the term:
a. "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.
b. "Corporate Action" means the transaction or other action by the
corporation that creates dissenters' rights under the Code Section 14-2-1302.
c. "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.
d. "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.
e. "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.
f. "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.
g. "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.
h. "Shareholder" means the record shareholder or the beneficial
shareholder.
(S) 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 14-2-1104 or
the articles of incorporation and the shareholder is entitled to
vote on the merger; or
<PAGE>
(B) If the corporation is a subsidiary that is merged with
its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights;
(E) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to
be acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the
shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote to
the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with the procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporation action
was
B-2
<PAGE>
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.
(S) 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.
PART 2. Procedure For Exercise of Dissenters' Rights
(S) 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 dissenter's 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 dissenter's notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken.
B-3
<PAGE>
(S) 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.
(S) 14-2-1322. Dissenters' Notice.
(a) If proposed corporate action created 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.
(S) 14-2-1323. Duty to Demand Payment.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
B-4
<PAGE>
(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.
(S) 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 cancelled or modified by the taking of the proposed corporate action.
(S) 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.
B-5
<PAGE>
(S) 14-2-1326. Failure to Take Action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertified 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.
(S) 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.
B-6
<PAGE>
PART 3. Judicial Appraisal of Shares.
(S) 14-2-1330. Court Action.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia
Civil Practice Act," applies to any proceeding with respect to dissenters'
rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
(S) 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
B-7
<PAGE>
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 asses 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.
(S) 14-2-1332. Limitation of Actions.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
B-8
<PAGE>
Appendix C
[LETTERHEAD OF BROWN, BURKE CAPITAL PARTNERS, INC. APPEARS HERE]
[To be updated]
Board of Directors
North Fulton Bancshares, Inc.
11650 Alpharetta Highway
Roswell, GA 30076
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the
shareholders and optionholders of North Fulton Bancshares, Inc. (the "Company"),
from a financial point of view, of the per share purchase price and terms (the
"Per Share Purchase Price and Terms") provided for in the Agreement and Plan of
Reorganization (the "Merger Agreement") dated April 6, 1999 between the Company
and Premier Bancshares, Inc. ("PMB"). The Merger Agreement provides for a merger
(the "Merger") of the Company and PMB pursuant to which the common shareholders
of the Company will receive 0.8749 PMB common shares (the "Exchange Ratio") for
each fully diluted common share. Optionholders shall receive options to purchase
0.8749 shares of PMB common stock for each option share of the Company currently
held, the exercise price of which shall be the current exercise price divided by
the Exchange Ratio.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to PMB and the Company. We have also reviewed
certain other information, including financial forecasts and budgets, provided
to us by PMB and the Company, and have discussed with the Company's management
the business and prospects of the Company.
We have also considered certain financial and stock market data of PMB and the
Company and we have compared that data with similar data for other publicly
held bank holding companies and we have considered the financial terms of
certain other comparable transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant. In connection with our review, we have not independently verified any
of the foregoing information and have relied on its being complete and accurate
in all material respects. With respect to the financial forecasts and budgets,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of PMB's and the Company's
managements as to the future financial performance of PMB and the Company. In
addition, we have not made
<PAGE>
Board of Directors
North Fulton Bancshares, Inc.
Page 2
an independent evaluation or appraisal of the assets of PMB or the Company and
we have assumed that the aggregate allowances for loan losses for PMB and the
Company are adequate to cover such losses. We have solicited third party
indications of interest in acquiring the Company and have considered the results
of that solicitation in arriving at our opinion.
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof and this opinion does not represent
our view as to what the value of the PMB common stock necessarily will be when
the PMB common stock is issued to the stockholders of the Company upon
consummation of the Merger.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger.
We agree to the inclusion of this opinion letter in the Proxy
Statement/Prospectus relating to the Merger. The opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof, the Per Share Purchase Price and Terms of the Merger are fair to the
common shareholders and optionholders of the Company from a financial point of
view.
Very truly yours,
BROWN, BURKE CAPITAL PARTNERS, INC.
