<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file number 0-19030
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia 58-1856582
(State of incorporation) (I.R.S.Employer Identification No.)
3844 Atlanta Highway, Hiram, Georgia 30141
(Address of principal executive offices)
(770) 445-1014
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes X No__
----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 1,189,108 shares of Common
Stock outstanding as of August 8, 1999.
Transitional Small Business Disclosure Format (check one): Yes___; No X
---
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
Number Number
- ------ ------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
1. Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998 (audited)............ 1
2. Consolidated Statements of Earnings for the three months ended June 30, 1999 and June 30, 1998,
and the six months ended June 30, 1999 and June 30, 1998 (unaudited)............................... 2
3. Consolidated Statements of Comprehensive Income for the three months ended June 30, 1999 and
June 30, 1998, and the six months ended June 30, 1999 and June 30, 1998 (unaudited)................ 3
4. Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30, 1998
(unaudited)........................................................................................ 4
5. Notes to Consolidated Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation........................................... 8
Part II - Other Information................................................................................... 15
Item 1. Legal Proceedings................................................................................... 15
Item 2. Changes in Securities and Use of Proceeds........................................................... 15
Item 3. Defaults upon Senior Securities..................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................................. 16
Item 5. Other Information................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................................................... 16
Signatures.......................................................................................... 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks 7,279,826 4,578,071
Federal funds sold and securities purchased
under resell agreements 0 2,990,000
------------- --------------
Cash and cash equivalents 7,279,826 7,568,071
U. S. Treasury and other U. S. Government agency securities 14,299,259 14,245,888
available for sale
State, county, and municipal securities available for sale 7,909,926 7,202,748
Other investments 614,500 919,400
Loans 84,797,639 74,440,161
Less: Allowance for loan losses (1,145,464) (935,234)
------------- ---------------
Loans, net 83,652,175 73,504,927
Premises and equipment 2,896,210 2,237,830
Accrued interest receivable 1,023,995 1,090,088
Other real estate and repossessions 0 57,415
Other assets 1,611,521 701,905
------------- ---------------
119,287,412 107,528,272
============= ===============
Liabilities and Stockholders' Equity
Deposits:
Demand 14,409,037 11,433,411
Interest-bearing demand 24,664,997 21,197,354
Savings 13,710,366 15,324,527
Time 25,595,979 23,238,422
Time, in excess of $100,000 17,191,376 15,712,815
------------- ---------------
Total deposits 95,571,755 86,906,529
Securities sold under repurchase agreements 1,920,850 0
Accrued interest payable 853,062 953,411
Accrued expenses and other liabilities 204,096 197,129
Federal funds purchased 470,000 0
Federal Home Loan Bank advances and notes payable 5,745,000 5,500,000
------------- ---------------
Total liabilities 104,764,763 93,557,069
Stockholders' equity:
Common stock, $2.50 par value; 5,000,000 shares 2,972,770 2,870,195
authorized; 1,189,108 and 1,148,078 issued
and outstanding
Additional paid-in capital 6,825,664 6,232,554
Retained earnings 4,820,391 4,561,383
Accumulated other comprehensive income (96,176) 307,071
------------- ---------------
Total stockholders' equity 14,522,649 13,971,203
------------- ---------------
119,287,412 107,528,272
============= ===============
</TABLE>
The consolidated balance sheet at December 31, 1998 has been taken from the
audited financial statements. See accompanying notes to consolidated financial
statements.
Page 1 of 17
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,120,926 $1,747,455 $4,112,711 $3,391,359
Interest on federal funds sold 60,665 73,164 87,873 118,635
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 190,579 238,581 399,440 448,829
Other 122,188 88,556 224,239 172,700
---------- ---------- ---------- ----------
Total interest income 2,494,358 2,147,756 4,824,263 4,131,523
Interest expense:
Interest on deposits
Demand 97,852 100,431 194,350 203,080
Savings 85,820 94,925 173,384 192,162
Time 325,111 330,547 638,440 646,962
Time, in excess of $100,000 243,396 231,856 477,234 452,608
Interest expense - other 85,216 71,525 161,256 93,559
---------- ---------- ---------- ----------
Total interest expense 837,395 829,284 1,644,664 1,588,371
---------- ---------- ---------- ----------
Net interest income 1,656,963 1,318,472 3,179,599 2,543,152
Provision for loan losses 131,550 80,320 301,059 170,174
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,525,413 1,238,152 2,878,540 2,372,978
---------- ---------- ---------- ----------
Other income:
Service charges and fees 246,154 241,392 489,133 471,627
Insurance commissions 79,195 77,495 160,781 141,318
Gain (loss) on sales of investment securities 0 6,453 0 30,265
Appraisal fees 45,025 40,300 100,572 76,350
Mortgage banking income 31,005 15,594 58,765 24,941
Equity in earnings of CashTrans 12,364 (13,009) 9,110 (45,251)
Miscellaneous 44,700 28,477 77,750 59,762
---------- ---------- ---------- ----------
Total other income 458,443 396,702 896,111 759,012
Other expenses:
Salaries and employee benefits 865,157 640,828 1,647,180 1,285,529
Occupancy 250,546 182,519 451,395 356,944
Other operating 476,154 385,700 930,146 780,223
---------- ---------- ---------- ----------
Total other expenses 1,591,857 1,209,047 3,028,721 2,422,696
---------- ---------- ---------- ----------
Earnings before income taxes 391,999 425,807 745,930 709,294
Income taxes 107,434 109,290 199,853 200,961
Minority interest in earnings (loss) of
consolidated subsidiary 0 2,701 0 340
---------- ---------- ---------- ----------
Net earnings $ 284,565 $ 313,816 $ 546,077 $ 507,993
========== ========== ========== ==========
Net earnings per common share $ 0.24 $ 0.37 $ 0.47 $ 0.60
========== ========== ========== ==========
Net earnings per common share - assuming dilution $ 0.23 $ 0.35 $ 0.45 $ 0.57
========== ========== ========== ==========
Dividends per common share $ 0.00 $ 0.00 $ 0.25 $ 0.25
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Earnings $ 284,565 $ 313,816 $ 546,077 $ 507,993
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net
of tax of $157,846, $27,648, $246,732, and $18,580, respectively (257,976) 45,185 (403,247) 30,365
Less: Reclassification adjustment for gains included in net
earnings, net of tax of $2,450, and $11,489, respectively 0 (4,003) 0 (18,776)
---------- ---------- ---------- ----------
Other comprehensive income (257,976) 41,182 (403,247) 11,589
---------- ---------- ---------- ----------
Comprehensive income $ 26,589 $ 354,998 $ 142,830 $ 519,582
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 546,077 $ 507,993
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 246,360 205,288
Provision for loan losses 301,059 170,174
Equity in loss (gain) of unconsolidated subsidiary (9,110) 45,251
Net loss (gain) on sale of investment securities 0 (30,265)
Net loss (gain) on sale of other real estate (2,750) 0
Net loss on sale of fixed asset 6,039 0
Net change in:
Interest receivable 66,093 (70,811)
Interest payable (100,349) (47,089)
Other assets (697,701) (118,566)
Accrued expenses and other liabilities 6,967 (133,280)
------------ --------------
Net cash provided by operating activities 362,685 528,695
------------ --------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 1,728,261 1,500,000
Proceeds from sales, calls, and paydowns
of securities available for sale 1,481,461 5,615,574
Purchase of securities available for sale (4,632,117) (7,960,876)
Purchase of other investments 0 (618,300)
Proceeds from sales of other investments 304,900 0
Net increase in loans (10,443,307) (5,044,829)
Purchase of premises and equipment (854,120) (195,693)
Proceeds from sale of other real estate 45,500 90,670
Proceeds from sale of fixed asset 8,800 0
------------ --------------
Net cash used in investing activities (12,360,622) (6,613,454)
------------ --------------
Cash flows from financing activities:
Net change in demand and savings deposits 4,829,108 (3,214,659)
Net change in time deposits 3,836,118 2,010,662
Net change in securities sold under repurchase agreements 1,920,850 0
Net change in federal funds purchased 470,000 0
Net proceeds from Federal Home Loan Bank advances 0 5,500,000
Net proceeds from notes payable 245,000 800,000
Cash dividends paid (287,070) (210,502)
Net proceeds from issuance of common stock 694,110 0
Proceeds from exercise of stock options 1,576 14,336
------------ --------------
Net cash provided by financing activities 11,709,692 4,899,837
------------ --------------
Net change in cash and cash equivalents (288,245) (1,184,922)
Cash and cash equivalents at beginning of period 7,568,071 8,532,304
------------ --------------
Cash and cash equivalents at end of period $ 7,279,826 $ 7,347,382
------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 1,745,013 1,635,460
Income taxes 190,000 205,000
Noncash investing activities:
Transfers of loans to other real estate 0 90,670
Change in other comprehensive income,net of tax (403,247) 11,589
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Community Trust
Financial Services Corporation (the Company) and its wholly-owned subsidiaries,
Community Trust Bank (the Bank), Metroplex Appraisals, Inc. (Metroplex), and
Community Loan Company (CLC). All significant intercompany accounts and
transactions have been eliminated in consolidation. Effective May 16, 1997, the
Company entered into a joint venture with JRH Diversified, Inc. to establish a
non-bank subsidiary that engages in the business of providing retail
establishments with automated teller machines that dispense cash or cash
equivalents. The Company owns 49% of the equity in Cash Transactions, LLC
(CashTrans) which is treated as an unconsolidated subsidiary for financial
reporting purposes, and, accordingly, the Company's interest is reflected in the
consolidated financial statements at its proportionate share. Until July 1999,
the Company had helped finance the operations of CashTrans through a revolving
line of credit, which, at June 30, 1999, had a maximum availability of $750,000,
of which CashTrans had borrowed $738,800. In July, CashTrans paid its loan from
the Company after arranging a line of credit with Bankers Bank in Atlanta,
Georgia. The financial data of the Company is not significantly affected by the
operations of CashTrans.
The consolidated financial information furnished herein reflects all adjustments
which are, in the opinion of management, necessary to present a fair statement
of the Company's financial position as of June 30, 1999 and the results of its
operations and cash flows for the periods covered herein. All such adjustments
are of a normal recurring nature.
2. Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for hedging derivatives and
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 fiscal years beginning
after June 15, 1999, and initial application of the statement must be made as of
the beginning of the quarter. Management believes the adoption of SFAS No. 133
will not have a material impact on the Company's financial position, results of
operation or liquidity.
Page 6 of 17
<PAGE>
3. Earnings Per Share
------------------
Net earnings per share is based on the weighted average number of shares
outstanding during the period while the effects of potential common shares
outstanding during the period are included in diluted earnings per share. The
average market price during the year is used to compute equivalent shares. The
reconciliation of the amounts used in the computation of both "net earnings per
share" and "net earnings per share - assuming dilution" for the three months
ended June 30, 1999 and June 30, 1998, and for the six months ended June 30,
1999 and June 30, 1998 are as follows:
<TABLE>
Net Earnings Common Shares Per Share
For the three months ended June 30, 1999 (Numerator) (Denominator) Amount
- ---------------------------------------- ----------- ------------- ------
<S> <C> <C> <C>
Net earnings per share $ 284,565 1,161,290 $ .24
===
Effect of dilutive securities:
Stock options - 47,032
----------- --------
Net earnings per share - assuming dilution $ 284,565 1,208,322 $ .23
=========== ========= ===
Net Earnings Common Shares Per Share
For the three months ended June 30, 1998 (Numerator) (Denominator) Amount
- ---------------------------------------- ----------- ------------- ------
Net earnings per share $ 313,816 843,318 $ .37
===
Effect of dilutive securities:
Stock options - 45,609
----------- --------
Net earnings per share - assuming dilution $ 313,816 888,927 $ .35
=========== ========= ===
Net Earnings Common Shares Per Share
For the six months ended June 30, 1999 (Numerator) (Denominator) Amount
- -------------------------------------- ----------- ------------- ------
Net earnings per share $ 546,077 1,154,773 $ .47
===
Effect of dilutive securities:
Stock options - 45,675
----------- ---------
Net earnings per share - assuming dilution $ 546,077 1,200,448 $ .45
=========== ========= ===
Net Earnings Common Shares Per Share
For the six months ended June 30, 1998 (Numerator) (Denominator) Amount
- -------------------------------------- ----------- ------------- ------
Net earnings per share $ 507,993 842,499 $ .60
===
Effect of dilutive securities:
Stock options - 45,870
----------- ---------
Net earnings per share - assuming dilution $ 507,993 888,369 $ .57
=========== ========= ===
</TABLE>
Page 7 of 17
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Six Month Period Ended June 30, 1999
Management's discussion and analysis of financial condition and results of
operations analyzes the material changes in the consolidated balance sheets and
statements of earnings presented herein for Community Trust Financial Services
Corporation (the Company). The consolidated financial information herein include
the financial condition and results of operations, for all periods presented, of
the Company and its wholly-owned subsidiaries, Community Trust Bank (the Bank),
and Metroplex Appraisals, Inc. (Metroplex), and Community Loan Company (CLC). In
May 1997, the Company entered into a joint venture with JRH Diversified, Inc. to
establish Cash Transactions, LLC (CashTrans) as another non-bank subsidiary. The
Company's 49% interest in CashTrans is treated as an unconsolidated subsidiary
for financial reporting purposes, and, accordingly, the Company's interest is
reflected in the consolidated financial statements at its proportionate share.
Financial Condition
- -------------------
Gross loans during the first six months of 1999 increased $10,357,478 or 13.91%
over the total gross loans at December 31, 1998, as compared to an increase of
$4,874,470, or 8.52%, for the same six month period ended June 30, 1998.
Management believes that the increase in loan growth was due primarily to an
increase in the Bank's lending personnel, and to the Bank's expansion of its
lending market into Cobb County, Georgia. In 1998, the Bank established a loan
production office in Cobb County for the purpose of generating commercial and
real estate loans. The Bank has since increased its marketing efforts in Cobb
County by opening one full-service branch in early 1999, with another branch due
to be opened later this year. The Bank has now experienced success in
penetrating the Cobb market, attracting new borrowers who often bring full-
service relationships with their business. Additionally, the Bank has been able
to grant larger loan request due to an increase in statutory capital. Management
anticipates continued loan growth at the Bank for the remainder of 1999
primarily due to its increased marketing efforts in adjacent counties such as
Cobb and Douglas. Management continues to strive for increased loan volume while
meeting the criteria set by its loan policy.
During the quarter ended June 30, 1999, the Company purchased assets related to
five consumer finance offices in north Georgia which were owned by Drummond
Association, Inc. These assets primarily consisted of $1,130,152 in loans, which
were then contributed to CLC's portfolio. CLC presently operates from ten
relatively small offices. Consequently, its gross loans, totaling approximately
$3,040,985 at June 30, 1999, or 3.59% of the Company's gross loans, do not
significantly affect the financial data analyzed. Although management
anticipates growth in CLC's total loans, management anticipates that CLC will
have only a minimal impact on the Company's balance sheet.
The Bank's increase in gross loans for the first six months of 1999 was funded
primarily through an increase in deposits. Total deposits during the first six
months of 1999 increased
Page 8 of 17
<PAGE>
approximately $8,665,226 or 9.97%, to $95,571,755 at June 30, 1999 as compared
to $86,906,529 at December 31,1998. This increase in total deposits was due
primarily to the Bank's penetration into the Cobb County market area through its
facilities in that county. Additionally, the Bank has begun an Internet branch
where new customers may open a deposit account with little concern about
geographic location. The Bank has implemented stringent security measures in
order to provide the ease of Internet banking while maintaining safety measures
deemed necessary by management. Additionally, a new product offered by the Bank
allows certain commercial customers the flexibility of employing funds that
might otherwise remain in deposit balances to invest in repurchase agreements so
that the customer may earn interest overnight. Liabilities of the Bank which are
classified as securities sold under repurchase agreements have grown to
$1,920,850 in the first six months of 1999. Management is monitoring core
deposits and customer relationships in an effort to maintain overall deposit
growth.
The Company holds $22,209,185, or 18.62% of its total assets, in securities
consisting of bonds issued by the U. S. Treasury, U. S. Government agencies, or
state and county municipalities. Typically, the securities are held as available
for sale so that they may be a source of liquidity while producing income for
the Company. In accordance with Statement of Financial Accounting Standard No.
115, securities that will be held for indefinite periods of time are accounted
for at market value, thereby creating a component of stockholders' equity for
the unrealized gains or losses on securities, net of deferred taxes. The
aggregate unrealized gain or loss, net of tax, appears as accumulated other
comprehensive income on the Company's balance sheet. Unrealized loss on
securities, net of tax, was $96,176 as of June 30, 1999, as compared to an
unrealized gain, net of tax, of $307,071 as of December 31, 1998, which created
a net loss of $403,247 in other comprehensive income for the six months ended
June 30, 1999. Changes in these unrealized gains or losses are due to market
value fluctuations, which may be caused by changes in market rates, changes in
the slope of the yield curve, or other changes in the bond market. Management
reviews market risk in the securities portfolio on a monthly basis to ensure
that risk is maintained at acceptable levels.
Results of Operations
- ---------------------
Net Interest Income
The Company's net interest income increased approximately 25.03% to $3,179,599
for the period ended June 30, 1999, as compared to $2,543,152 for the period
ended June 30, 1998. Interest income for the first six months of 1999 was
$4,824,263, representing an increase of $692,740, or 16.77%, over the same
period in 1998. This increase in interest income occurred primarily due to a
$16,647,306, or 19.33%, increase in average earning assets for the six months
ended June 30, 1999 as compared to the same period in 1998. Interest expense for
the first six months of 1999 increased $56,293, or 3.54% as compared to the same
period in 1998. This increase in interest expense occurred primarily due to a
$9,627,371, or 13.47%, increase in average interest-bearing deposits and other
interest-bearing liabilities for the six months ended June 30, 1999 as compared
to the same period in 1998.
Page 9 of 17
<PAGE>
The Company continues to seek opportunities to maintain its net interest margin
(net interest income divided by average interest-earning assets). Average
earning assets for the period ended June 30, 1999 were $102,790,675, having a
weighted average yield of 8.59%, resulting in a net interest margin of 5.36%.
This compares to average earning assets for the period ended June 30, 1998 of
$86,143,369, having a weighted average yield of 9.67%, resulting in a net
interest margin of 5.96%. The decrease in net interest margin is attributable
primarily to the drop in yield on earning assets from 9.67% in 1998 to 8.59% in
1999. While the Company has been able to reduce its cost of funds for that same
time period from 4.48% to 4.09%, market pressures have caused a more pronounced
decline in rates earned on the Bank's loans, which make up the largest portion
of the Company's earning assets.
Provision for Loan Losses
The Company does lose some interest income due to non-performing assets, defined
as loans placed on non-accrual status, accruing loans which are contractually
past due ninety days or more, real estate acquired through foreclosure, and
property acquired through repossession. Prior to 1999, accruing loans which are
contractually past due ninety days or more were not included by management as a
component of non-performing assets. Therefore, totals of non-performing assets
for periods prior to 1999 have been restated to include accruing loans which are
contractually past due over ninety days. Management considers the Company's
level of non-performing assets to be at an acceptable level, even though loans
to one borrower have caused the non-performing assets to be unusually high as of
June 30, 1999. The Company's non-performing assets totaled approximately
$2,112,893, or 1.77% of the Company's total assets as of June 30, 1999, as
compared to $516,825, or 0.53% of the Company's total assets as of June 30,
1998. The increase in non-performing assets from 1998 to 1999 was attributable
primarily to an increase in the Bank's loans placed on non-accrual status. The
Bank's loans placed on non-accrual status included six loans to one borrower
totaling $985,147, which are secured by real estate. Management has been closely
monitoring progress of the project funded by these six extensions of credit, and
anticipates full recovery of principal and interest. Additionally, CLC's non-
performing assets increased to $676,508 as of June 30, 1999, as compared to
$292,117 as of June 30, 1998. This 131.59% increase in CLC's non-performing
assets is due primarily to the 68.54% increase in CLC's loan portfolio from June
1998 to June 1999. The Bank had two restructured loans totaling $105,119 as of
June 30, 1999, as compared to one loan totaling $5,890 as of June 30, 1998.
Management considers the totals of delinquent and non-performing assets at the
Bank and CLC to be at acceptable levels at this time; however, factors such as a
downturn in the local economy could cause levels of such assets to rise.
The Georgia Department of Banking and Finance (the Department), the Bank's
primary regulatory authority, requires the Bank to maintain a loan loss
allowance of not less than one percent of all outstanding loans. This allowance
is used to cover future loan losses. The Company's provision for loan losses was
$301,059 for the period ended June 30, 1999, as compared to $170,174 for the
period ended June 30, 1998. The Company's loan loss allowance was $1,145,464, or
1.35% of outstanding loans, as of June 30, 1999. No material loss is anticipated
on non-accrual or restructured loans, therefore no specific reserves or
writedowns were considered necessary by management as of June 30, 1999.
Page 10 of 17
<PAGE>
Non-interest Income
Non-interest income, consisting of service charges on deposits, appraisal fees,
credit life insurance commissions, securities gains, loss in CashTrans and other
miscellaneous income, increased $137,099, or 18.06%, during the first six months
of 1999 as compared to the same period in 1998. The increase in non-interest
income resulted primarily from (i) a $54,361 change in the Company's equity in
the earnings of its unconsolidated subsidiary, CashTrans, (ii) an increase of
$33,824 in mortgage origination fees related to the Bank's mortgage division
which was formed in 1998, (iii) an increase of $24,222 in appraisal fees
collected by Metroplex, and (iv) an increase of $19,463 in insurance commissions
collected.
Non-interest Expenses
Non-interest expenses, consisting of salaries and employee benefits, occupancy
and other miscellaneous expenses, increased $606,025, or 25.01%, during the
first six months of 1999 as compared to the same period in 1998. The increase in
non-interest expense is attributable primarily to an increase in salaries and
employee benefits caused by the Company's need for additional human resources
due to the growing number of locations to be staffed for the Bank and CLC, as
well as routine salary increases. Salaries and employee benefits increased
$361,651, or 28.13%, for the period ended June 30, 1999, as compared to the same
period in 1998. Occupancy expense increased by approximately $94,451, or 26.46%,
for the period ended June 30, 1999, as compared to the same period in 1998,
primarily due to increases in expenses associated with the Bank's addition of a
loan production office and two full service branches in Cobb County, and to
CLC's addition of six offices. Other operating expense increased by
approximately $149,923, or 19.22%, for the period ended June 30, 1999, as
compared to the same period in 1998, primarily due to increased operating costs
of the Company caused by general cost increases.
Capital
The Company is subject to regulatory capital requirements imposed by the
Department and by the Board of Governors of the Federal Reserve System. Under
federal law, the Company and the Bank are required to maintain a ratio of total
capital to risk weighted assets of at least 8.0%, of which at least one-half
must be so-called Tier 1 capital. Under applicable federal regulations and
interpretations thereof, the Bank's ratio of total capital to risk weighted
assets at June 30, 1999, was 12.71%, and its ratio of Tier 1 capital to risk
weighted assets was 11.46%. Under applicable federal regulations and
interpretations thereof, the Company's ratio of total capital to risk weighted
assets at June 30, 1999, was 16.65%, and its ratio of Tier 1 capital to risk
weighted assets was 15.40%. Additionally, under federal law, all but the most
highly rated banks and bank holding companies are required to maintain a minimum
ratio of Tier 1 capital to total average assets (Tier 1 leverage ratio) of 4.0%
to 5.0%, including the most highly rated banks and bank holding companies that
are anticipating or experiencing significant growth. Three percent is the
minimum Tier 1 leverage ratio required for the most highly rated banks and bank
holding companies with no plans to expand. The Bank substantially exceeds its
Tier 1 leverage ratio
Page 11 of 17
<PAGE>
requirement with a Tier 1 leverage ratio of 8.98% as of June 30, 1999. The
Company also substantially exceeds its Tier 1 leverage ratio requirement with a
Tier 1 leverage ratio of 12.18% as of June 30, 1999. Through its policy of
controlled growth, the Company intends to maintain capital in excess of the
required minimum in order to support future growth.
Liquidity
Liquidity represents the Company's ability to meet both loan commitments and
deposit withdrawals. Liquidity is monitored monthly by management in order to
ensure compliance with the Bank's policy of maintaining adequate liquidity. The
Bank relies primarily on deposit gathering in order to fund its lending and
investing activities. In addition, the Company obtains funds from loan principal
repayments, proceeds from sales of loan participations and investment
securities, and other borrowings. Loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and sales of loan participations
and investment securities are significantly influenced by prevailing interest
rates, economic conditions and the Company's asset and liability management
strategies. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of other sources of funds or on a longer term
basis to support expanded lending activities and for other general business
purposes.
The Bank maintains two lines of credit to borrow fed funds that total $5,300,000
in order to enhance liquidity. At June 30, 1999, the Bank had $470,000 in
borrowed funds on one of these lines of credit. The Bank is a member of the
Federal Home Loan Bank of Atlanta and borrowings are also available through that
relationship. The amount of credit available from the Federal Home Loan Bank
fluctuates based on criteria set by that institution. As of June 30, 1999, the
Bank had $5,500,000 in borrowings outstanding under this facility, and
approximately $722,000 remained available to be borrowed.
The Company has a $3,500,000 revolving credit facility with Bankers Bank,
Atlanta, Georgia, which is intended to enhance the Company's liquidity. As of
June 30, 1999, the Company had $245,000 in borrowed funds outstanding under this
facility. Additionally, CLC has established a $1,500,000 revolving credit
facility with Bankers Bank in July 1999, which is intended to provide a source
of funds for the lending activities of that subsidiary. As of July 1999, the
operations of CashTrans are funded principally through a $1,000,000 credit
facility with Bankers Bank. Under these revolving credit facilities with Bankers
Bank, interest only is due and payable on the first business day of each
calendar quarter. The Company's credit facility (i) accrues interest at a
floating rate equal to the "prime" rate of interest as published from time to
time in The Wall Street Journal minus 1%, and (ii) the principal shall be paid
----------------------
in eight annual installments beginning July 2001. CLC's and CashTrans' credit
facilities (i) accrue interest at a floating rate equal to the prime rate minus
0.75%, and (ii) are due in full on July 1, 2000. Amounts outstanding under the
three credit facilities are guaranteed by the Company and collateralized by the
stock in the Bank. CLC's loan is also collateralized by its loan receivables.
CashTrans' loan is personally guaranteed by James R. Henderson, the principal of
JRH Diversified, Inc.
Page 12 of 17
<PAGE>
Year 2000
The Company has a Year 2000 plan in place. This plan is necessary because many
existing computer programs use only two digits, rather than four digits, to
identify a year. Such programs were designed and developed without considering
the impact of the upcoming change in the century. Since many computer
applications could fail or create erroneous results by or at Year 2000 if these
problems are not corrected, management has implemented a plan to ensure that the
Company and each of its subsidiaries is prepared to continue operations without
interruption through the upcoming change in the century. This plan is in
accordance with applicable guidelines and regulations of the Federal Financial
Institutions Examination Council as adopted by the Department and the Federal
Deposit Insurance Corporation. Year 2000 issues relating to the Company's
businesses, its operations, and its relationships with customers, suppliers, and
other constituents are reviewed by a committee consisting of management and
operations and technical staff. A committee of the Board of Directors reviews
management's progress in execution of its plan. All levels of the Company's
management and its Board of Directors are aware of the issues presented by the
Year 2000 century change and the serious effects it could have on the Company
and its customers. Goals of the Company's plan include evaluation of systems,
prioritization of necessary updates or replacements, responsibility assignments,
and establishment of a timeline for review, implementation, and testing. The
plan includes steps to be taken by the Company to (i) identify, assess,
evaluate, test, and validate its own date sensitive systems, (ii) amend its loan
underwriting policies to include assessments, as appropriate, regarding Year
2000 readiness by commercial loan applicants, (iii) offer education to business
customers regarding Year 2000 issues in their own businesses, and (iv) inform
the Company's customers as to the Company's Year 2000 compliance process.
Management believes that, to date, the goals of the plan have been met, and the
testing phase is completed. The Company has tested the systems it has identified
as "critical" to conducting its businesses, and has found those systems to be
ready for the Year 2000. The Bank, its third-party data processor, and its
correspondent bank, participated in testing of the Bank's core processing
system, and the correspondent's system, with the Federal Reserve Bank of
Atlanta, to ensure that communications between those entities concerning
transaction processing will not be affected by any dates that have been
determined to be Year 2000 sensitive. The Bank has conducted its testing with
close regulatory supervision by state and federal agencies. Additionally, the
Bank engaged the services of a firm to provide independent review concerning its
preparation for Year 2000, and such review was completed in the first quarter of
1999. The Bank received satisfactory results from this review, and management
learned even more about certain factors in preparation of Y2K. Customer
awareness training has been provided to the Bank's employees, which will equip
them to respond to customer inquiries about the Bank's Year 2000 readiness. The
Company estimates that its total costs of Year 2000 compliance will be $70,000
to $105,000. Costs incurred in 1998 were approximately $36,800, of which $9,000
was capitalized, and $27,800 was charged to expense. Management estimates that,
in 1999, an additional $13,000 will be capitalized, and $34,000 will be charged
to operations expense. Management does not anticipate that the implementation of
the Company's Year 2000 plan will materially impact future operating results.
Page 13 of 17
<PAGE>
Contingency plans have been developed to mitigate the potential effects of a
disruption in normal business operations. Contingency planning includes
developing alternative solutions should a vendor not become compliant, as well
as plans for the resumption of business if, despite the Company's best efforts,
a business operation disruption occurs. Management intends to test contingency
planning during the third quarter of 1999. The Year 2000 risks arising from
relationships with borrowers and depositors are under review by management.
Appropriate risk controls have been put in place to manage and mitigate Year
2000 customer risks, and contingency plans have been developed to address these
risks.
Management does not believe that Year 2000 will have a significant impact on the
Company. However, there can be no assurances that the Company's Year 2000 plans
will be able to successfully address each of the ways in which the Year 2000
problem may impact the Company, since the Company has limited ability to monitor
or influence the Year 2000 preparedness of its customers, borrowers, vendors,
and others upon whom it relies in transacting business.
Forward-Looking Statement
Some of the foregoing statements are forward-looking statements which reflect
significant assumptions and subjective judgements believed by management to be
reasonable as of the date of this report. They do not constitute a forecast or
prediction of actual results, and actual performance and financial results may
differ materially from those anticipated due to a variety of factors, including
but not limited to (i) increased competition with other financial institutions,
(ii) lack of sustained growth in the local economy, (iii) rapid fluctuations in
interest rates, and (iv) changes in the legislative and regulatory environment.
The foregoing statements should not be construed as exhaustive and the Company
disclaims any obligation to subsequently update or revise any forward-looking
statements after the date of this report.
Page 14 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
-------------------------------------------------
June 2, 1999, the Company purchased certain assets related to five
consumer finance offices in north Georgia which were owned by Drummond
Association, Inc. (the "Seller"). These assets primarily consisted of
$1,130,152 in loans, along with furniture and equipment. All of the
assets were then contributed to CLC as an investment in that
subsidiary. The purchase price totaled $1,494,121.04 and was paid in a
combination of cash and common stock in the Company. Due to this
transaction, the Company issued 40,830 shares of common stock valued at
$694,110 to the Seller. The Purchase Agreement dated May 1, 1999
between the Company, the Seller, and Danny Drummond, President of
Drummond Association, Inc. is included as Exhibit 2.01 with this
filing.
The above-described issuance of unregistered securities was affected by
the Company in reliance upon one or more exemptions from registration
under the Securities Act of 1933, as amended , including, but not
necessarily limited to, Section 4(2) thereof. Pursuant to Section 7.11
of the Purchase Agreement, the Seller and Mr. Drummond represented to
the Company in connection with the transaction that, among other
things: (i) the Seller was acquiring the shares with investment
intent and not with an the intent of participating directly or
indirectly in the distribution of the stock; (ii) the Seller, wither
alone or with its sale representative, had sufficient knowledge and
experience to make an informed investment decision and to protect its
interests in connection with the issuance of shares; (iii) the Seller
and/or its sale representative had receiced and reviewed such
information, including financial information, as the Seller, of its
sale representative, deemed necessary in connection with the issuance
of shares; and (iv) that the Seller understood that the shares had not
been registered under federal or state securities laws.
Item 3. Defaults upon Senior Securities
---------------------------------------
Not applicable
Page 15 of 17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company held its Annual Meeting of stockholders on April 21, 1999. Shares
voted totaled 666,783, or 58.06% of the outstanding shares. Set forth
below is a brief description of the matters voted upon at the Annual
Meeting:
Proposal 1: Proposal to elect three Directors for terms ending
in 2002.
Proposal 2: Proposal to ratify the appointment of Porter,
Keadle, Moore, LLP as independent accountants of the Company
for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
Votes Cast Votes Cast Votes
For Against Withheld Abstentions
---------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Proposal 1:
-----------
Directors
---------
J. Calvin Earwood 665,863 0 920 0
W. A. Foster III 665,863 0 920 0
Tommie R. Graham Jr. 665,863 0 920 0
Proposal 2: 664,863 1,920 0 0
-----------
</TABLE>
Item 5. Other Information
-------------------------
The Board of Directors of the Company agreed on June 15, 1999 to amend
the Company's Employment Agreement with Ronnie Austin, CEO. The
contract was amended to alter the Company's determination of base
salary and annual incentive formula for Mr. Austin.
Item 6.a Exhibits
-----------------
Exhibit
Number Description
------ -----------
2.1 Purchase Agreement dated May 1, 1999, between the
Company and Drummond Association Inc.
10.10 Amended Employment Agreement dated January 1, 1998, between
the Company and Ronnie Austin
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
Item 6.b Reports on Form 8-K
----------------------------
A report on Form 8-K was filed with the SEC on May 5, 1999. The Form
8-K reported information under Item 5 concerning letters mailed to all
stockholders of the Company which explained the Company's relationship
with Knox Wall. Knox Wall is a division of Morgan Keegan & Company,
Inc., and Morgan Keegan became a market maker in the stock of the
Company.
Page 16 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Trust Financial Services Corporation
----------------------------------------------
(Registrant)
DATE: August 9, 1999 /s/Ronnie L. Austin
-------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 9, 1999 /s/Angel J. Byrd
----------------
Angel J. Byrd
(Principal Accounting Officer)
Page 17 of 17
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
------------------------
This Purchase Agreement is made and entered into as of the 1st day of
May 1999, by and between Community Trust Financial Services Corporation, a
Georgia corporation ("Purchaser"); Drummond Association, Inc., a Georgia
corporation ('Seller"); and Danny H. Drummond, an individual resident of the
State of Georgia and shareholder of Seller ("Drummond").
W I T N E S S E T H
WHEREAS, Seller operates consumer finance offices located in the
following Georgia cities: Cartersville (two offices), Dahlonega, Griffin and
Rome (these five offices collectively referred to as the DAI offices);
WHEREAS, Seller desires to sell and Purchaser desires to acquire:
(a) Certain fixed assets, furnishings, equipment and certain
other personal property located at the DAI offices;
(b) Certain loans of Seller, including all "P&L" loans, which are
loans that have been charged off but are in the process of collection; and
(c) ownership of all insurance reserve accounts held at Life of
the South in the name of Drummond Association, Inc.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the sum of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, Purchaser and Seller agree as follows:
ARTICLE I
Defined Terms
-------------
1.01 Definitions. The following defined terms used in this Agreement
-----------
shall have the meanings specified below:
(a) "Closing" means the closing of the purchase of the assets,
assumption of liabilities, transfer of loans and other transactions contemplated
hereby, which shall take place at such time and place as shall be fixed by the
parties pursuant to Section 6.01 below.
(b) "Closing Date" means the date of the closing.
<PAGE>
(c) "Transferred Loans" means all Gross Loans of Seller (other
than the so-called P&L loans which are referred to in Section 4.01 hereof) to be
transferred, sold and conveyed to Purchaser pursuant to this Agreement.
(d) "Gross Loan" means the entire unpaid balance of principal,
interest, insurance, and any other charges and fees payable or collectible on a
loan, whether such items are earned or unearned, or rebatable or not.
ARTICLE II
Assumption of Liabilities
-------------------------
2.01 No Assumption of Liabilities. It is understood and agreed that
----------------------------
except to the extent specifically set forth in the last sentence of this Section
2.01, Purchaser shall not assume or become liable for the payment of any debts,
liabilities, accounts payable, bank indebtedness, mortgages, or other
obligations of Seller, whether the same are known or unknown, now existing or
hereafter arising, of whatever nature or character, whether absolute or
contingent, liquidated or disputed. Purchaser specifically agrees to assume
Seller's liabilities identified on Exhibit 2. 01 attached hereto and
incorporated herein by this reference and any and all liabilities and
obligations of any kind arising from the operation, business or ownership of the
Other Assets (as hereinafter defined) , the Transferred Loans or the DAI offices
after the Closing Date.
2.02 Other Liabilities Not Assumed. In addition to the other
-----------------------------
provisions of this Agreement (including, but not limited to, Section 2.01
hereof), and not in limitation thereof, Purchaser and Seller agree that
Purchaser shall not assume any liabilities or obligations of Seller with respect
to any litigation, suits, claims, demands or governmental proceedings commenced
or made known to Seller prior to the Closing that are related to the DAI offices
or the Transferred Loans or that are commenced or made known to Seller on or
after Closing with respect to the operation of the DAI offices or the making,
handling or administration of the Transferred Loans prior to Closing; provided,
however, that if Purchaser receives notice of, or through any means becomes
aware of, any litigation, suits, claims, demands or proceedings that have, or
may have, arisen out of the operation of the DAI offices or the making, handling
or administration of the Transferred Loans, prior to Closing, it will notify
Seller thereof as soon as reasonably practicable.
Notwithstanding anything in this Agreement to the contrary, the
Purchaser shall hold harmless, defend and indemnify Seller from any and all
demands, damages, losses, expenses, liabilities or obligations incurred or paid
by Seller as a result of a claim of any kind arising from the operation,
business or ownership of the Other Assets, the Transferred Loans or the DAI
offices after the closing Date, provided that such demand, damage, loss,
expense, liability or obligation does not arise out of an act or omission of
Seller.
<PAGE>
ARTICLE III
Transfer of Loans
-----------------
3.01 Loan Transfers. At the closing, Seller will transfer to
--------------
Purchaser the Transferred Loans described in Exhibit 3.01, which Exhibit is
attached hereto, subject to adjustment as provided herein. At the Closing,
Seller will transfer to Purchaser all of Seller's right, title and interest in
and to all property and assets that secures any of the Transferred Loans. The
total Gross Loans to be transferred were, as of January 8, 1999, approximately
One Million Two Hundred Thirteen Thousand Two Hundred Twenty-Nine and 59/100
Dollars ($1,213,229.59) and are more fully identified in Exhibit 3.01. The exact
------------
amount of Transferred Loans to be transferred shall be fixed and shall be
updated at the Closing to identify and indicate the exact amounts of the
Transferred Loans to be transferred as of the Closing Date.
3.02 No Funding to Pay Transferred Loans. Seller agrees that it will
-----------------------------------
not, in the period commencing with the date hereof and ending two years after
the Closing Date, directly or indirectly fund the payment in whole or in part of
any Transferred Loans. For the purposes hereof: (a) a direct funding shall be
regarded as an extension of credit by Seller to a borrower who uses the proceeds
of such credit to pay in full or in part the borrower's Transferred Loan
obligations; and (b) an indirect funding shall be regarded as an extension of
credit by Seller, with actual knowledge on the part of Seller or its agents of
the borrower's purpose for such credit extension, to a borrower who uses the
proceeds of such credit to pay in full or in Part an obligation such borrower
had obtained from another lender for the purposes of paying in full or in part
the borrower's Transferred Loan obligations.
3.03 Basis of Transferred Loan Sales. All Transferred Loans are to be
-------------------------------
sold and transferred, without recourse (subject to the representations and
warranties in Section 7.04), to, and assumed by, Purchaser.
All payments or property received by Seller on account of the
Transferred Loans shall be held by Seller in trust for Purchaser and paid over
to Purchaser promptly upon receipt.
ARTICLE IV
Sale of Other Assets
--------------------
4.01 Other Assets Sold. Seller agrees to sell, transfer, convey,
-----------------
assign, and deliver to Purchaser, and Purchaser agrees to purchase and accept
from Seller, at the Closing upon the terms and subject to the conditions
hereinafter set forth, the following assets, properties and rights (the "Other
Assets"): All of Seller's right, title and interest in and to (i) the fixed
assets, personal property, furniture, furnishings, and equipment located in and
used in connection with the operation of the DAI offices, as described in
Exhibit 4.01(a) attached hereto and incorporated herein, together with any
- ---------------
manufacturer's warranties on any of the foregoing that are assignable and in
effect, but excluding those items of personal property described in Exhibit 4.
----------
01 (b) attached hereto, (ii) all insurance accounts held in the name of Seller,
- ------
and (iii) all so-called P&L
<PAGE>
loans of Seller including, but not limited to, those described on Exhibit
-------
4.01(c) attached hereto. It is understood and agreed that Purchaser will not
- -------
assume any real or personal property lease obligations of Seller except as
specifically set forth in Section 2.0l hereof.
ARTICLE V
Purchase Price
--------------
5.01 Purchase Price. The purchase price to be paid by Purchaser to
--------------
Seller for the Transferred Loans and the Other Assets is $1,577,198.46, subject
to adjustment as provided in this Agreement. This purchase price has been
determined based upon an outstanding balance of total loans to be transferred as
of January 8, 1999 of $1,213,229.59.
5.02 Manner of Payment. Payment shall be made at the Closing in a
-----------------
combination of immediately available funds in the amount of $800,000, plus
Common Stock ($2.50 par value per share) of Purchaser ("CTFS Shares"). For the
purpose of establishing the purchase price under this Agreement, the value of
the CTFS Shares shall be deemed to be $17.00 per share. Such deemed value is an
arbitrary value established by the parties solely for the purpose of
establishing the purchase price, without regard to any other transactions
involving CTFS Shares or any prices quoted or hereafter quoted on any exchange
or quotation system. The parties acknowledge that from time to time the actual
fair market value of the CTFS Shares may be more or less than the deemed value
hereunder.
5.03 Post Closing Adjustment. The purchase price amount set forth in
-----------------------
Section 5.01 hereof shall be adjusted in accordance with an updated
determination of the amount of Transferred Loans as of the Closing such that the
purchase price shall be adjusted upward or downward, as the case may be, by
$1.00 for each $1.00 adjustment in the outstanding loan balances of Transferred
Loans as of the Closing Date. For example, if the outstanding loan balances of
Transferred Loans as of the Closing Date total $1,214,229.59, the purchase price
would be increased by $1,000.00. Within fifteen (15) days after the Closing
Date, an adjustment shall be made. Such adjustment shall be made by increasing
or decreasing the number of CTFS Shares issued as part of the purchase price,
based on a deemed value of $17.00 per share, without regard for the actual value
of the CTFS Shares at the time of adjustment. If the purchase price is adjusted
upward, CTFS shall issue a certificate for additional CTFS Shares. If the
purchase price is adjusted downward, Seller shall return the certificate for
CTFS Shares it received at Closing to CTFS for cancellation, and CTFS shall
issue a new certificate for CTFS in the adjusted amount of CTFS Shares.
5.04 Purchase Price Allocation. The purchase price shall be allocated
-------------------------
among the assets acquired by Purchaser as set forth on a certificate to be
provided by Purchaser to Seller within sixty (60) days following the Closing.
Purchaser and Seller acknowledge and agree that the allocation certificate to be
delivered by Purchaser pursuant to this Section 5.04 will be jointly negotiated
and agreed to by them. Purchaser and Seller agree they shall each fully comply
with the requirements of IRC Section 1060 and the regulations thereunder.
Purchaser and the Seller further agree to use said allocation certificate as the
basis for completing Form 8594 entitled
<PAGE>
"Asset Acquisition Statement Under Section 1060," which shall be filed on a
timely basis with the Internal Revenue Service. Purchaser and the Seller further
agree to file their income tax returns on the basis of this allocation and
neither Purchaser nor the Seller shall thereafter take a return position
inconsistent with such respective returns.
ARTICLE VI
Closing
-------
6.01 Time and Place of Closing. The Closing shall take place no later
-------------------------
than the close of business on the last day of the month in which all regulatory
approvals contemplated by Sections 10.01 and 11.01 hereof have been issued and
after all requisite waiting periods have elapsed, but prior to the opening of
business on the first business day of the following month, or such other
mutually agreed date, at a time and in a location mutually agreeable to both
parties.
ARTICLE VII
Representations and Warranties of Seller and Drummond
-----------------------------------------------------
Seller and Drummond, jointly and severally, represent and warrant to
Purchaser as follows:
7.01 Seller's Status. Seller is a corporation duly organized, validly
---------------
existing and in good standing under the laws of the State of Georgia.
7.02 Authority. Seller has the full corporate right, power, capacity
---------
and authority to: own and operate its properties; conduct its business in the
manner in which it is presently being conducted; and execute, deliver, perform
and carry out all the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement and each of the documents
and instruments contemplated hereby and the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Seller, and upon execution and delivery, this Agreement and each of the
documents and instruments contemplated hereby will be valid and binding
obligations of Seller and Drummond enforceable against Seller and Drummond in
accordance with their respective terms.
7.03 Condition of Personal Property. The personal property that
------------------------------
constitutes part of the Other Assets will be, at the time of closing, in
substantially the same operating condition and repair as on the date hereof,
subject only to ordinary wear and tear. Seller owns, and will own at the
Closing, all of the personal property to be transferred to Purchaser free and
clear of all mortgages, liens, charges, encumbrances, or other defects of title
of any nature whatsoever.
7.04 Status of Loans. Except as otherwise provided on Exhibit 7.04,
---------------
with respect to each of the Transferred Loans; the loan is a valid loan; Seller
is the sole owner thereof, no participation therein having been sold; the loan
is not pledged or encumbered; the principal
<PAGE>
balance of the loan as shown on Seller's book and records is true and correct as
of the last date shown thereon; to the best of Seller's knowledge all purported
signatures on and executions of any document in connection with such loan are
genuine; to the best of Seller's knowledge all loan documentation has been
actually signed or executed by all necessary parties; and Seller has custody of
all documents or microfilm record thereof related to such loan.
7.05 No Violations. The execution, delivery and performance of this
-------------
Agreement and of all other instruments and documents contemplated hereby and the
performance of the transactions contemplated hereby and thereby do not and will
not conflict with, violate, breach or cause a default under the Articles of
Incorporation or bylaws of Seller, or, to Seller's knowledge, any contract
(except such contracts as Purchaser is a party to or Seller has previously
disclosed and delivered to Purchaser) , agreement, right, lease, pledge lien,
security interest, instrument, indenture, mortgage, charge, or encumbrance to
which Seller is a party or by which it or any of its property is bound or any
order, writ, judgment, injunction, decree or award of any court, arbitrator,
government or governmental agency by which Seller or any of its property is
bound; or result in the creation of any lien, charge or encumbrance upon the
assets of Seller or any part thereof; and, subject to obtaining all regulatory
approvals, do not and will not conflict with or violate any provisions of any
law, ordinance, rule or regulations of any governmental authority to which
Seller is subject.
7.06 Obligations to Employees. No obligations for payment to
------------------------
employees of Seller shall be outstanding or pending at the Closing Date and
there is no employment agreement in effect with respect to any of the employees
of Seller in the DAI offices.
7.07 No Suits or Proceedings. There is no pending or, to Seller's
-----------------------
knowledge, threatened adverse claims, suits or judicial or administrative
proceedings which would affect the transactions contemplated by this Agreement.
7.08 No Liabilities. There are no other liabilities, contingent,
--------------
direct, indirect or otherwise, affecting the DAI offices other than those
liabilities specifically described herein, including the pro rated items set
forth in Section 16.02 hereof.
7.09 True Statement. Neither this Agreement nor any certificate,
--------------
document or other information furnished or to be furnished to Purchaser by or on
behalf of Seller in connection with this Agreement or the transactions
contemplated hereby contains or will contain any misstatement of a material
fact, or omits or will omit to state a material fact necessary in order to make
the representations and warranties and other statements herein or therein
contained not misleading, in the circumstances in which made.
7.10 Insurance. Seller has furnished to Purchaser true and correct
---------
copies of all casualty and hazard insurance policies in effect on the date
hereof with respect to the DAI offices.
7.11 Securities Representations.
--------------------------
<PAGE>
(a) Seller is acquiring the CTFS Shares for investment for its
account only, with the intent of holding the CTFS Shares for investment and
without the intent of participating directly or indirectly in the distribution
of the CTFS Shares.
(b) Seller has received and reviewed the following documents
filed with the United States Securities and Exchange Commission: (i) Form 10-KSB
f/y/e December 31, 1997; (ii) Form 10-QSB f/q/e March 31, 1998; (iii) Form 10-
QSB f/q/e June 30, 1998; (iv) Form 10-QSB f/q/e September 30, 1998; (v) Form 8-K
filed April 17, 1998; (vi) Form 8-K filed August 5, 1998; (vii) Form S-2
Registration Statement, originally filed April 6, 1998, as amended; (viii)
Schedule 13-D filed September 8, 1998; and (ix) Schedule 13-D filed September
18, 1998.
(c) Seller acknowledges that the CTFS Shares to be issued
hereunder are "restricted securities" under the rules of the Securities and
Exchange Commission, and may not be sold or transferred for a period of one year
from the date of the issuance of the shares, and thereafter, only in accordance
with Rule 144 promulgated under the Securities Act of 1933.
(d) Seller has asked Purchaser for all information Seller desires
in order to make an informed investment decision regarding the CTFS Shares. In
connection with such inquiry, Purchaser has furnished all such information
requested. Seller further acknowledges that Purchaser has made its officers and
key employees available to discuss any matter regarding Purchaser or the CTFS
Shares Seller desires to discuss in order for Seller to make an informed
investment decision.
ARTICLE VIII
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to Seller as follows:
8.01 Corporate Status. Purchaser is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Georgia.
8.02 Authority. Purchaser has the full corporate right, power,
---------
capacity and authority to own and operate their respective properties and to
conduct their respective businesses in the manner in which they are presently
being conducted, and they have the corporate power, capacity and authority to
execute, deliver and perform this Agreement and to carry out all of the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement and each of the documents and instruments
contemplated hereby and the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of Purchaser,
and upon execution and delivery, this Agreement and each of such other documents
and instruments will be valid and binding obligations of Purchaser, enforceable
against them in accordance with their respective terms.
8.03 No Violations. The execution, delivery and performance of this
-------------
Agreement and of all other instruments and documents contemplated thereby and
the performance of the
<PAGE>
transaction contemplated thereby do not and will not conflict with, violate,
breach or cause a default under the Charter or Bylaws of Purchaser, or any
contract, agreement, or other instrument to which Purchaser is a party or by
which it is bound or any order, writ, judgment, injunction, decree or award of
any court, arbitrator, government or governmental agency by which Purchaser is
bound; and do not and will not conflict with or violate any provisions of any
law, ordinance, rule or regulation of any governmental authority to which
Purchaser is subject.
8.04 No Suits or Proceedings. Purchaser is not aware of any pending
-----------------------
or threatened adverse claims, suits or judicial or administrative proceedings
which would affect the transactions contemplated by this Agreement.
8.05 True Statement. Neither this Agreement nor any certificate,
--------------
document or other information furnished or to be furnished to Seller by or on
behalf of Purchaser in connection with this Agreement or the transactions
contemplated hereby contains or will contain any misstatement of a material
fact, or omits or will omit to state a material fact necessary in order to make
the representations and warranties and other statements herein or therein
contained not misleading, in the circumstances in which made.
8.06 Securities Representations.
--------------------------
(a) The CTFS Shares have not been registered under the Securities
Act of 1933, or the securities laws of any state, and are being offered and sold
in reliance on exemptions from the registration requirements of said Act and
such laws. The CTFS Shares may not be transferred or resold except as permitted
under applicable securities laws pursuant to registration or exemption
therefrom.
(b) No persons have been authorized in connection with this
transaction to give any information or make any representation other than those
contained in this Agreement or in those documents filed with the Securities and
Exchange Commission.
ARTICLE IX
Covenants
---------
9.01 Access to Properties and Records. From and after the date of
--------------------------------
this Agreement, Seller agrees that, upon notice and in the presence of a Seller
representative, it will afford full access to employees, agents and
representatives of Purchaser to inspect the real and personal property, deposit
account records, loan records and all other assets, properties, books and
records that are the subject of this Agreement or that relate to the Transferred
Loans or the Other Assets during normal business hours, provided that such
inspection shall not disrupt or unduly interfere with the conduct of Seller's
business, and Seller shall furnish representatives of Purchaser during such
period with all such information concerning the affairs of the DAI offices as
Purchaser may reasonably request. Purchaser stall be entitled to have an
observer on the premises of the DAI offices at any mutually agreeable time.
<PAGE>
9.02 Conduct of Business Pending Closing. Seller agrees that from the
-----------------------------------
date of this Agreement to the date of Closing, it will:
(a) use its reasonable, good faith efforts to promote the
successful operations of the DAI offices and avoid any act that would have a
material adverse effect upon the value of the Transferred Loans or the Other
Assets;
(b) operate the business of the DAI offices only in the ordinary
and usual manner and use its reasonable, good faith efforts to preserve intact
its present business organization, to keep available the services of its present
employees and to preserve its relations with customers having business dealings
with the DAI offices;
(c) at its expense, maintain all of the property at the DAI
offices in customary repair, order and condition, reasonable wear and tear
excepted, and maintain casualty and hazard insurance on all of the property at
the DAI offices at the same levels as maintained on the date of this Agreement;
(d) maintain its books of account and records concerning the DAI
offices and the Transferred Loans in the ordinary and usual manner, in
accordance with generally accepted accounting principles applied on a basis
consistent with prior years;
(e) not take any action which would cause any representation or
warranty made herein to be untrue at the date of Closing;
(f) not make any changes in its management policies or pricing,
without the concurrence of Purchaser, which shall not be unreasonably withheld
provided the changes suggested by Seller are consistent with competitive market
conditions;
(g) not directly compete for or solicit business originated from,
carried on the books of, or maintained or serviced by, the DAI offices in any
manner inconsistent with or adverse to Purchaser's interests.
9.03 Employee Information. Prior to the Closing Date, Seller shall,
--------------------
upon request, provide Purchaser with pertinent personnel information regarding
employees of the DAI offices; provided, however, that neither this section nor
any other provision of this Agreement shall be construed as an agreement,
consideration, inducement, or creation of any responsibility or liability on the
part of Purchaser, or as affecting in any manner or to any extent whatsoever the
rights or obligations of Purchaser, with respect to the employment of any
employee of Seller.
9.04 Transition Period. Each party shall make available to the other
-----------------
party personnel for consultation and the performance of services reasonably
necessary for an orderly transition during normal business hours for a period of
sixty (60) calendar days after the Closing.
9.05 Regulatory Approvals. Each party shall promptly apply for all
--------------------
regulatory approvals necessary for its consummation of the transactions
contemplated by this Agreement and shall exercise its reasonable, good faith
efforts to obtain such approvals.
<PAGE>
9.06 Notices of Transactions. All notices, including, without
-----------------------
limitation, notices to the public, customers or employees, issued by Seller or
Purchaser concerning the transactions contemplated by this Agreement shall be
approved in advance by both Seller and Purchaser.
9.07 Payments Accepted After Closing. Seller agrees to forward
-------------------------------
promptly to Purchaser:
(a) any payments which are accepted by Seller or after the
Closing Date that relate in any way to the Transferred Loans and to provide
sufficient information so that any such payments may be properly applied to the
extent such information is available to Seller; and
(b) any notices or other correspondence which are received on or
after the Closing Date that relate in any way to the Transferred Loans.
9.08 Documentation at Closing and Further Assurances.
-----------------------------------------------
(a) At the Closing, Seller shall transfer, assign and deliver to
Purchaser all existing records, books, papers, collateral and agreements of
Seller relating to the Transferred Loans and the Other Assets and any other
assets, obligations or liabilities being purchased or assumed by Purchaser
hereunder, including, but not limited to, promissory notes, security agreements,
pledge agreements and all lease agreements referred to in Section 2.01 hereof.
(b) Seller agrees that it will, at the Closing and at any time
and from time to time after the Closing, upon the request of Purchaser, do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers, conveyances
and assurances as may be reasonably required to complete the process of
assigning, transferring, granting, conveying, assuring and confirming to
Purchaser any or all of the Transferred Loans and other Assets and any other
assets or liabilities purchased or assumed by Purchaser hereunder and the
performance of any or all obligations of Seller hereunder. Seller agrees to
notify the Insurance Commissioner of the State of Georgia of this transaction
within fifteen days of the date of Closing.
9.09 Solicitation of Other Proposals. From and after the date of this
-------------------------------
Agreement until the earlier of Closing or the termination of this Agreement,
neither Drummond, the Seller, nor any officer, director, employee or agent of
Drummond or the Seller, shall solicit, encourage or authorize any person to
solicit, directly or indirectly, discussions or proposals for or enter into any
discussions or agreements with any other person relating to a merger,
consolidation, tender offer, acquisition or similar transaction concerning the
assets or securities of the Seller, or furnish or cause to be furnished to any
person other than Purchaser or its agents, information to be used by such person
or any other person for the purpose of evaluating or determining whether to make
any such inquiries, discussions or proposals.
ARTICLE X
<PAGE>
Conditions Precedent to the Obligations of Purchaser
----------------------------------------------------
The obligation of Purchaser to close under this Agreement and to carry
out the transactions contemplated by this Agreement is subject to the
satisfaction and fulfillment, or waiver by Purchaser, at or prior to the
Closing, of each of the following conditions:
10.01 Regulatory Approvals. Purchaser and Seller shall have received
--------------------
from all necessary governmental and regulatory authorities all necessary
consents to and authorizations and approvals of this Agreement and the
transactions contemplated by this Agreement; provided, however, that approval of
the Georgia Department of Insurance shall not be a condition to Closing.
10.02 Obligations Performed. Seller shall have performed and
---------------------
complied, in all material respects, with all the terms, covenants an conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date.
10.03 Representations and Warranties True. The representations and
-----------------------------------
warranties made by Seller in this Agreement shall have been true and correct, in
all material respects, when made and shall be true and correct, in all material
respects, on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of such date. A duly
authorized officer of Seller shall certify the foregoing and the substance of
Section 10.05 to Purchaser as of the Closing Date.
10.04 Receipt of Documents and Certificates. Purchaser shall have
-------------------------------------
received from Seller, duly executed and delivered by Seller, in form and
substance satisfactory to Purchaser, the following:
(a) a Warranty Bill of Sale in the form attached hereto as
Exhibit 10.04 (a), conveying ownership to the personal property described in
- -----------------
Exhibit 4.01 (a) free and clear of all mortgages, liens, charges, encumbrances,
- ---------------
or other defects of title of any nature whatsoever;
(b) a schedule, certified by an officer of Seller as complete
and correct, listing the Transferred Loans, and an Assignment of the Transferred
Loans in the form of Exhibit 10.04 (b);
-----------------
(c) consents from each lessor of the assignment to, and
assumption by, Purchaser of each of the leases referred to in Section 2.01
hereof;
(d) such other instruments, agreements, certificates or other
documents as Purchaser may reasonably request to evidence compliance with the
conditions hereunder or to effect the transactions contemplated hereby.
10.05 No Adverse Litigation. No action, suit or proceeding shall have
---------------------
been instituted or threatened against Seller or Purchaser by or before any court
or governmental agency to restrain
<PAGE>
or prohibit, or to obtain damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby which in the opinion of Purchaser makes it inadvisable to
proceed to Closing under this Agreement.
10.06 Damage or Destruction. Any damage or destruction to the DAI
---------------------
offices or the Other Assets occurring between the date of this Agreement and the
Closing Date, other than ordinary wear and tear, stall have been repaired or
replaced by Seller, or Seller shall provide, on the Closing Date, funds,
including the assignment of any insurance proceeds owing to Seller, sufficient
to enable Purchaser to make such repairs or replacements.
ARTICLE XI
Conditions Precedent to the Obligations of Seller
-------------------------------------------------
The obligations of Seller to carry out the transactions contemplated by
this Agreement are subject to the fulfillment, or waiver by Seller, at or prior
to the Closing Date, of each of the following conditions:
11.01 Regulatory Approvals. Purchaser and Seller shall have received
--------------------
from all necessary governmental and regulatory authorities all necessary
consents to and authorizations and approvals of this Agreement and the
transactions contemplated by this Agreement; provided, however, that approval of
the Georgia Department of Insurance shall not be a condition to Closing.
11.02 Obligations Performed. Purchaser shall have performed and
---------------------
complied with the terms, covenants and conditions required by this Agreement to
be performed or complied with by it on or prior to the Closing Date.
11.03 Representations and Warranties True. The representations and
-----------------------------------
warranties made by Purchaser in this Agreement shall have been true and correct
when made and shall be true and correct on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of such date. A duly authorized officer of Purchaser shall
certify the foregoing and the substance of Section 11.04 to Seller as of the
Closing Date.
11.04 No Adverse Litigation. No action, suit or proceeding shall have
---------------------
been instituted or threatened against Seller or Purchaser by or before any court
or governmental agency to restrain or prohibit, or to obtain damages in respect
of, or which is related to or arises out of, this Agreement or the consummation
of the transactions contemplated hereby which in the opinion of Seller makes it
inadvisable to proceed to Closing under this Agreement.
ARTICLE XII
Cooperation and Further Assurances
----------------------------------
<PAGE>
12.01 Reasonable, Good Faith Efforts; Cooperation. Subject to the
-------------------------------------------
terms and conditions herein provided, each of the parties hereto agrees to use
its reasonable good faith efforts promptly 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 and regulations, or otherwise, including,
without limitation, attempting to obtain all necessary consents and waivers and
regulatory approvals, to consummate and make effective, as soon as practicable,
the transactions contemplated by this Agreement. The officers of each party
shall fully cooperate with officers, employees, accountants, counsel and other
representatives of the other party in all matters contemplated by this
Agreement.
12.02 Further Assurances. Each party will execute and deliver all
------------------
additional documents and instruments reasonably requested by the other party to
further evidence or assure the sales, transfers, and assignments contemplated by
this Agreement.
12.03 Customer Disputes. In the event of any dispute between either
-----------------
party and a borrower under a Transferred Loan, each party shall cooperate with
and make its records available to the other to the extent reasonably requested.
ARTICLE XIII
Termination
-----------
13.01 Methods of Termination. This Agreement may be terminated upon
----------------------
the occurrence of any of the following events and circumstances in any of the
following ways:
(a) at or prior to the Closing, by the mutual consent in
writing of Purchaser and Seller;
(b) at the Closing, by Purchaser in writing, if the conditions
set forth in Article X of this Agreement shall not have been met;
(c) at the Closing, by Seller in writing, if the conditions set
forth in Article XI of this Agreement shall not have been met;
(d) at any time at or prior to the Closing, by Purchaser or
Seller in writing if the other shall have been in breach of any representation
or warranty in any material respect (as if such representation or warranty had
been made on and as of the date hereof and on the date of the notice of breach
referred to in Section 13.02 below), or in breach of any covenant, undertaking
or obligation contained herein and such breach has not been cured by the earlier
of ten (10) days after the giving of notice to the breaching party of such
breach or the Closing Date;
(e) by Seller or Purchaser in writing at any time after any of
the regulatory authorities has denied any application of Seller or Purchaser for
approval of the transactions referred to in Sections 10.01 or 11.01 hereof or
otherwise contemplated herein; and
<PAGE>
(f) by either party, in writing, if the necessary regulatory
approvals have not for any reason been received on or before May 1, 1999.
13.02 Procedure Upon Termination. In the event of termination pursuant
--------------------------
to Section 13.01 hereof, written notice thereof shall forthwith be given to the
other party in accordance with Section 16.03 of this Agreement, and this
Agreement shall terminate immediately unless an extension is consented to by the
party having the right to terminate. If this Agreement is terminated as provided
herein:
(a) each party will return all documents, work papers and other
materials of the other party relating to this transaction, whether obtained
before or after the execution hereof, to the party furnishing the same; and
(b) all information received by either party hereto with
respect to the business of the other party (other than information which is a
matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any governmental authority) shall not at any time be used for
any business purpose by such party or disclosed by such party to third persons.
ARTICLE XIV
Survival of Representations, Warranties and Covenants
----------------------------------------------------
Reimbursement for Losses; Remedies
----------------------------------
14.01 Survival of Representations, Warranties and Covenants. Unless
-----------------------------------------------------
otherwise expressly provided herein, the respective representations, warranties
and covenants of the parties hereto shall survive the Closing for a period of
twelve (12) months.
14.02 Reimbursement for Losses. Upon discovery by Purchaser that any
------------------------
of the representations or warranties set forth in Section 7.04 hereof were
untrue as of the Closing Date with respect to any Transferred Loan, Purchaser
shall reassign such loan to Seller without recourse and Seller shall pay to
Purchaser at the time of reassignment the full amount of principal and interest
owed on any such loan.
14.03 Remedies. Each party shall be entitled to all remedies at law
or in equity for a default hereunder by the other party, including the remedy of
specific performance.
ARTICLE XV
Indemnification
---------------
<PAGE>
15.01 Indemnification. Purchaser agrees to and does indemnify and hold
---------------
harmless Seller and its affiliates and their officers, directors, agents,
servants, attorneys and employees from and against any and all claims, actions,
demands, enforcement proceedings, causes of action, damages, liabilities,
expenses (including reasonable attorney's fees), costs and fines which may be
incurred, suffered, sustained or paid by Seller, arising out of or related to
the inaccuracy or breach by Purchaser of any representation, warranty, covenant
or agreement in this Agreement.
Seller and Drummond, jointly and severally, agree to and do indemnify
and hold harmless Purchaser and its affiliates and their officers, directors,
agents, servants, attorneys and employees from and against any and all claims,
actions, demands, enforcement proceedings, causes of action, damages,
liabilities, expenses (including reasonable attorney's fees), costs and fines
which may be incurred, suffered, sustained or paid by Purchaser, arising out of
or related to the inaccuracy or breach by Seller of any representation,
warranty, covenant or agreement in this Agreement. In addition to any other
remedy under law or equity, Purchaser may offset any amounts due Purchaser
hereunder from Seller against the CTFS Shares to be issued hereunder. Seller
hereby appoints Purchaser its attorney in-fact to execute and deliver any and
all instruments on Seller's behalf to effect such transfer, including without
limitation endorsement of certificates, and execution and delivery of stock
powers and bills of sale.
ARTICLE XVI
Miscellaneous
-------------
16.01 Expenses. Except as otherwise specifically provided herein, each
--------
party to this Agreement shall bear and pay its own costs and expenses in
connection with the preparation, execution and delivery of this Agreement and
the transactions contemplated thereby, including all 1egal and accounting fees
and expenses.
16.02 Proration of Certain Items.
--------------------------
(a) Utilities; ad valorem taxes; maintenance contracts;
rentals, both payable and/or receivable; and equipment, alarm, and other service
agreement costs with respect to the Other Assets shall be prorated as of the
Closing Date and will be credited against or added to the amount due at Closing,
as applicable.
(b) Any items susceptible of being prorated, but which cannot
be prorated on the Closing Date because of lack of information, shall be
prorated as soon as the requisite information is available. Such post-Closing
adjustments shall take place at a mutually agreeable time and place within 60
days after the Closing Date.
16.03 Notices. All notices or other communications provided for or
-------
required under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered or mailed (registered or certified mail, postage
prepaid) addressed as follows:
<PAGE>
If to Seller:
Drummond Association, Inc.
108 West Main Street
Cartersville, Georgia 30120
Attention: Mr. Danny Drummond
with a copy to:
_______________________
_______________________
If to Purchaser:
Community Loan Company
P. O. Box 1700
3844 Atlanta Highway
Hiram, Georgia 30141
Attention: Mr. Ronnie Austin
with a copy to:
Miller & Martin LLP
100 Galleria Parkway, N.W.
Twelfth Floor
Atlanta, Georgia 30339-3122
Attn: Mr. Stephen L. Camp
16.04 Modifications and Waivers. This Agreement may not be amended or
-------------------------
modified except by a written instrument duly executed by Seller and Purchaser.
Any waiver of any term of this Agreement must be in writing.
16.05 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Georgia.
16.06 Assignability. This Agreement shall not be assigned by either
-------------
party except with the express written consent of the other.
16.07 No Broker or Finder. Seller and Purchaser each represents and
-------------------
warrants to the other that it has not employed, used or incurred any liability
to any broker or finder in connection with this Agreement or the transactions
contemplated by this Agreement.
16.08 Severability. If any part of this Agreement shall be adjudged
------------
by any court of competent jurisdiction to be invalid, such judgment shall not
affect or impair any other provision and the remaining provisions of this
Agreement shall remain in effect.
<PAGE>
16.09 Entire Agreement. This Agreement, including any exhibits hereto,
----------------
represents the entire agreement of the parties relating to the subject matter
hereof. All prior negotiations and understandings between the parties are merged
into this Agreement, and there are no understandings or agreements other than
those incorporated herein.
16.10 Binding Effect. All terms of this Agreement shall be binding
--------------
upon, and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
16.11 Public Announcements. Each party agrees that, unless approved by
--------------------
the other party in advance, such party will not make any public announcement,
including announcements to employees, or issue any press release or other
publicity or confirm any statements by third parties concerning the transactions
contemplated hereby until the Closing, except as otherwise required by law.
16.12 Time of the Essence. The parties hereto acknowledge that time is
-------------------
of the essence with respect to the performance of this Agreement.
16.13 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation
hereof. The use of the singular in this Agreement shall be deemed to be or
include the plural (and vice versa), whenever appropriate.
16.14 Counterparts. This Agreement is being executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the day and year
first above written.
SELLER:
Drummond Association, Inc.
By: /s/Danny H. Drummond
--------------------------------
Title: President
----------------------------
/s/Bobbie D. Hippensteel
- ---------------------------
Secretary
/s/Troy Smith
- ---------------------------
Witness
/s/Mary J. Jones
- ---------------------------
Notary Public
DRUMMOND:
/s/Danny H. Drummond
-----------------------------------
Danny Drummond
/s/Troy Smith
- ---------------------------
Witness
/s/Mary J. Jones
- ---------------------------
Notary Public
PURCHASER:
Community Trust Financial
Services Corporation
By: /s/Ronnie Austin
--------------------------------
Title: President
-----------------------------
/s/Angel J. Byrd
- ---------------------------
Secretary
/s/Casandra Grogan
- ---------------------------
Witness
/s/Jan R. Whittle
- ---------------------------
Notary Public
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into as
of January 1, 1998, by and between RONNIE AUSTIN, a resident of the State of
Georgia ("Employee"), and COMMUNITY TRUST FINANCIAL SERVICES CORPORATION, a
Georgia bank holding company ("CTFS").
W I T N E S S E T H:
-------------------
WHEREAS, CTFS wishes to obtain assurances from Employee that CTFS will have
the benefit of Employee's services on the terms and subject to the conditions
set forth herein; and
WHEREAS, Employee wishes to obtain assurances from CTFS on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, CTFS and Employee agree as follows:
1. Employment. CTFS hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform services for CTFS , for the period
and upon the other terms and conditions set forth in this Agreement.
2. Term. The term (the "Term") of Employee's employment hereunder shall
----
be for a period of five (5) years, commencing as of the date of this Agreement
and ending on December 31, 2002, subject to earlier termination as hereinafter
specified.
3. Position and Duties.
-------------------
3.01 Service with CTFS. During the term of this Agreement,
-----------------
Employee shall serve as, and his title shall be, President and Chief Executive
Officer of CTFS. In such position, Employee agrees to perform such employment
duties consistent with such position as the Board of Directors of CTFS shall
assign to him from time to time. Employee also agrees to serve, during the Term
hereof, as requested by the Board of Directors of CTFS, and without any
additional compensation, as a Director of CTFS and as an executive officer
and/or director of any corporations or other entities affiliated with CTFS.
3.02 Performance of Duties. Employee agrees to serve CTFS
---------------------
faithfully and to the best of his ability and to devote all of his time, energy
and skill during regular and assigned business hours to such employment. During
the Term hereof, Employee shall not serve as an officer, director or employee of
any other entity not affiliated with CTFS without the prior written consent of
CTFS' Board of Directors. Notwithstanding the foregoing, (i) Employee may pursue
such personal investment and financial matters as do not conflict with his
obligations and commitments to CTFS, (ii) Employee may participate in
charitable, religious or civic activities such as serving on a school board,
church board or community fund committee and (iii) Employee may participate in
such other activities as the Board of Directors of CTFS may from time
<PAGE>
to time approve in writing. Employee hereby confirms that he is under no
contractual commitments inconsistent with his obligations set forth in this
Agreement.
4. Compensation.
------------
Section 4.01 Base Salary. As compensation for all services to be rendered
-----------
by Employee under this Agreement, CTFS shall pay to Employee an initial annual
base salary for the period from January 1, 1998 through and including December
31, 1998, of $119,025.00. The base salary shall be subject to an annual cost of
living increase, or, at the discretion of CTFS, an increase which exceeds the
scheduled cost of living increase. The cost of living increase shall be an
amount equal to the product of (i) the "CPI Adjustment" (hereinafter defined)
multiplied by (ii) the base salary in effect immediately prior to such increase.
The effective date of all such increases shall be retroactive to January 1 of
the year in which the adjustment takes effect notwithstanding the fact that the
CPI Adjustment generally will not be capable of being calculated until some time
in February or March of such year. The base salary described in this Section
4.01, as it may be increased from time to time, is referred to herein as the
"Base Salary." The Base Salary shall be paid in bi-weekly installments in
accordance with CTFS' normal payroll procedures and policies.
For purposes of this Section 4.01, "CPI Adjustment" shall mean the lesser
of (i) 7.5% or (ii) the percentage increase, if any, in the "CPI-U Index"
(hereinafter defined) between (a) the average CPI-U Index for the year
immediately preceding the year in which the Base Salary adjustment in question
is to take effect and (b) the average CPI-U Index for the immediately preceding
year. "CPI-U Index" shall mean the "Consumer Price Index For All Urban
Consumers, Atlanta, Georgia (1982-84=100) as published by the Bureau of Labor
Statistics of the United States Department of Labor. If the CPI Adjustment is
zero or a negative number, the amount of the CPI Adjustment shall, for purposes
of this Section 4.01, be deemed to be zero.
By way of example, if: (i) Employee's Base Salary in effect on December 31,
1998 is $119,025; (ii) the average CPI-U Index for 1998 (as published by the
Bureau of Labor Statistics in February, 1999) is 158.4; and (iii) the average
CPI-U Index for 1997 (as published by the Bureau of Labor Statistics in
February, 1998) is 156.0, then, effective January 1, 1999, the Base Salary
increase would be calculated as follows:
CPI Adjustment = 1.54% (158.4 - 156.0 = 2.4;
2.4/156.0 = 1.54%)
Base Salary Increase = $1,833 ($119,025 x 1.54%)
New Base Salary = $120,858 ($119,025 + 1,833)
4.02 Incentive Compensation; Stock Option Programs.
---------------------------------------------
(a) For each full fiscal year of CTFS that this agreement remains in
effect, Employee shall receive, subject to meeting performance goals set
annually by CTFS for CTFS and its subsidiaries, in addition to the Base Salary
described in Section 4.01, annual incentive compensation.
-2-
<PAGE>
The maximum amount of annual incentive compensation shall be fifteen (15)
percent of the Base Salary in effect on the last day of the fiscal year for
which CTFS is paying incentive compensation.
In the event this Agreement is terminated pursuant to Section 10.01(d) or
10.01(e) hereof and such termination occurs during, as opposed to at the end of,
a fiscal year of CTFS, Employee shall be entitled to a pro rata portion of the
incentive compensation that Employee would have received had this Agreement
remained in effect through the end of such fiscal year. The pro rata portion to
which Employee is entitled shall be determined by multiplying such incentive
compensation by a fraction, the numerator of which is the number of days during
the fiscal year in question that this Agreement was in effect and the
denominator of which is the total number of days in such fiscal year.
(b) On each January 1 during the term of this Agreement, CTFS shall cause
to be granted to Employee an option to acquire 1,000 shares of CTFS common
stock, provided that there are a sufficient number of shares available to
support such a grant under CTFS' 1993 Stock Option Plan (or a successor plan).
Each such option shall be granted pursuant to, and shall be subject to all of
the terms and conditions of, CTFS' 1993 Stock Option Plan (or a successor plan).
4.03 Automobile. CTFS shall provide Employee with use of a late
----------
model automobile which shall be used by Employee for business purposes and which
also may be used by Employee for personal use. CTFS shall also reimburse
Employee for all fuel and maintenance expenses associated with such automobile.
Employee shall be solely responsible for payment of any and all federal, state
and local taxes (including, but not limited to, income taxes) associated with or
attributable to personal use of such automobile.
4.04 Participation in Benefit Plans. Employee shall also be
------------------------------
entitled to participate, on a comparable basis with other senior executives of
CTFS, in all employee benefit plans or programs of CTFS in effect from time to
time including, but not limited to, medical, dental, life and disability
insurance programs. Employee's participation in any such plan or program shall
be subject to all provisions, rules and regulations applicable thereto.
Notwithstanding anything in this Section 4.04 to the contrary, Employee's
participation in bonus or incentive compensation programs and stock option
programs shall be governed by the specific provisions of Section 4.02 hereof and
not by this Section 4.04.
4.05 Expenses. In accordance with CTFS' policies established from
--------
time to time, CTFS shall pay or reimburse Employee for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the presentment of appropriate vouchers
and receipts.
5. Confidentiality.
---------------
5.01 General. In Employee's position as an employee of CTFS ,
Employee has had and will have access to confidential information, trade secrets
and other proprietary information of
-3-
<PAGE>
vital importance to CTFS, to Community Trust Bank, CTFS' wholly-owned subsidiary
(the Bank) and to subsidiaries and affiliates of CTFS and the Bank, and Employee
has and will also develop relationships with customers, employees and others who
deal with CTFS and the Bank (and their subsidiaries and affiliates) which are of
value to CTFS and the Bank. CTFS requires as a condition to Employee's
employment with CTFS that Employee agree to certain restrictions on Employee's
use of the proprietary information and valuable relationships developed during
Employee's employment with CTFS . In consideration of the terms and conditions
contained herein, the parties hereby agree as follows:
5.02 Fiduciary Responsibility. CTFS and Employee mutually agree and
------------------------
acknowledge that CTFS and the Bank (and their subsidiaries and affiliates) may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various "Business Opportunities" (hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that, as an
essential incident of Employee's employment with CTFS, Employee shall bear a
fiduciary responsibility to CTFS to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder.
5.03 Definitions. For the purposes of this Agreement, the following
-----------
definitions shall apply:
(a) "Trade Secret" means information, without regard to form, including,
but not limited to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product plans, or lists of actual or potential
customers or suppliers, which (i) are not commonly known by or available to the
public, (ii) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use and (iii)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Trade Secret also shall include any other information
defined as a "trade secret" under the Georgia Trade Secrets Act of 1990,
O.C.G.A. 10-1-760 through 10-1-767.
(b) "Confidential Information" shall mean any data or information, other
than Trade Secrets, which is material to CTFS or to the Bank or to Community
Loan Company, an industrial loan company subsidiary of CTFS ("CLC"), and which
is not generally known by the public. Confidential Information shall include,
but not be limited to, data or information related to (i) the taking of
deposits, making loans and extensions of credit, cashing checks, and other
operations incident to the business of banking ("Business of Bank"), (ii) the
loaning of money in amounts of $3,000 or less pursuant to the Georgia Industrial
Loan Act (O.C.G.A. 7-3-1 et seq.) ("Business of CLC"), (iii) any information
-- ---
pertaining to the identity of the customers, depositors or borrowers served by,
or Business Opportunities (hereinafter defined) of, the Bank or CLC, (iv) the
details of this Agreement, CTFS', the Bank's and CLC's respective business,
marketing and acquisition plans and (v) financial statements and projections,
and the costs of the services the Bank or CLC may offer or provide to the
customers, depositors or borrowers they serve, to the extent such information is
material to CTFS, the Bank or CLC and not generally known by the public.
-4-
<PAGE>
(c) "Business Opportunities" shall mean any specialized information or
plans of CTFS, the Bank or CLC concerning the business of CTFS, the Bank or CLC,
including, but not limited to, the financing of or investment in, by CTFS, the
Bank or CLC, any target person, business or project, together with all related
information concerning the specifics of any contemplated financing, investment,
acquisition or purchase (including pricing, terms, and the identity of such
person, business or project) regardless of whether CTFS, the Bank or CLC has
entered any agreement, made any commitment, or issued any bid or offer to such
person, business or project.
(d) Notwithstanding the definitions of Trade Secrets, Confidential
Information and Business Opportunities set forth above, Trade Secrets,
Confidential Information and Business Opportunities shall not include any
information:
(i) that is or becomes generally known to the public (other than
as a result of a breach of this Agreement by Employee);
(ii) that is developed by Employee after termination of
employment through entirely independent efforts;
(iii) that Employee obtains from an independent source having a
bona fide right to use and disclose such information;
(iv) that is required to be disclosed by law, except to the extent
eligible for special treatment under an appropriate
protective order; or
(v) that the respective Boards of Directors of CTFS, the Bank or
CLC approve for unrestricted release by express written
authorization.
5.04 Trade Secrets. Employee shall not, without the prior written
-------------
consent of the Board of Directors of CTFS , during his employment with CTFS and
for so long thereafter as the information or data remain Trade Secrets, use or
disclose, or negligently permit any unauthorized person who is not an employee
of CTFS, the Bank or CLC to use, disclose, or gain access to, any Trade Secrets
of CTFS or the Bank or CLC, or of any of their subsidiaries or affiliates, or of
any other person or entity making Trade Secrets available for CTFS' or the
Bank's or CLC's (or any of their subsidiaries' or affiliates') use.
5.05 Confidential Information. Employee shall not, without the
------------------------
prior written consent of the Board of Directors of CTFS , during his employment
with CTFS and for a period of two (2) years after termination of his employment
for any reason, as long as the information or data remain competitively
sensitive, use or disclose, or negligently permit any unauthorized person who is
not employed by CTFS, the Bank or CLC to use, disclose, or gain access to, any
Confidential Information to which the employee obtained access by virtue of his
employment with CTFS.
5.06 Observance of Security Measures. During Employee's employment
-------------------------------
with CTFS , Employee is required to observe all security measures adopted to
protect Trade Secrets, Confidential Information and Business Opportunities of
CTFS or the Bank or CLC.
6. Solicitation of Customers, Borrowers or Depositors
--------------------------------------------------
-5-
<PAGE>
6.01 After Termination of Employment. Upon termination of this
-------------------------------
Agreement for any reason, Employee shall not, directly or indirectly, as
principal, agent, trustee or consultant or through the agency of any
corporation, partnership, association, trust or other entity or person, on
Employee's own behalf or for others, within two (2) years after such termination
actively solicit, divert, or take away, or attempt to actively solicit, divert,
or take away any customers, depositors or borrowers of CTFS, the Bank or CLC
whom Employee had served during his term of employment for the purpose of
providing services which constitute the Business of Bank or Business of CLC (in
each case as defined above).
6.02 During Employment. During Employee's employment with CTFS,
-----------------
Employee shall not, except on behalf of CTFS, the Bank or CLC, solicit, divert,
take away or accept the business of, or attempt to solicit, divert or take away
the business of, any of the customers, depositors or borrowers of CTFS, the Bank
or CLC for the purpose of performing the Business of Bank or Business of CLC for
such customers, depositors or borrowers.
7. Non-Interference with Personnel Relations.
-----------------------------------------
Employee shall not, during his employment with CTFS and for a period of two
(2) years after the termination of his employment with CTFS for any reason,
knowingly solicit, entice or persuade any other employees or agents of CTFS, the
Bank or CLC (or of any of their subsidiaries or affiliates) to leave the
services of CTFS, the Bank or CLC (or such subsidiary or affiliate).
8. Notification of Subsequent Employment.
-------------------------------------
During a period of two (2) years after the termination of Employee's
employment with CTFS, Employee shall notify CTFS in writing, within thirty (30)
days after accepting employment with any other corporation, partnership,
association, person, organization or other entity, of the name and address of
Employee's new employer and Employee's functions with his new employer.
9. Covenant Not to Compete.
-----------------------
9.01 General. For purposes of this Section 9, CTFS, the Bank, CLC
-------
and employee conduct the following business in the following territories:
(a) CTFS is engaged in the business of transacting business as a holding
company with (i) the Bank as its subsidiary bank which accepts deposits, makes
loans, cashes checks and otherwise engages in the business of banking and (ii)
CLC as its subsidiary industrial loan company which loans money in amounts of
$3,000 or less pursuant to the Georgia Industrial Loan Act (O.C.G.A. 7-3-1- et
--
seq. (collectively, the "Business of CTFS") .
- ---
(b) CTFS (through the Bank and CLC) actively conducts the Business of
CTFS in the geographic areas of Georgia at the business locations of the Bank's
and CLC's offices set forth on Exhibit "A" to this Agreement, which Exhibit "A"
---------- ----------
is incorporated herein by this reference.
-6-
<PAGE>
(c) Employee has established business relationships and performs the
duties required of Employee under this Agreement in the geographic area covered
by a circle having a radius of twenty (20) miles from the main office location
of the Bank and a circle having a radius of fifteen (15) miles from the location
of each branch office of the Bank and each office of CLC, all as set forth on
Exhibit "A" to this Agreement, and will work exclusively in such areas while in
- ----------
the employ of CTFS.
9.02 Non-Competition. Employee covenants and agrees that for a
---------------
period of one (1) year after the termination of his employment with CTFS for any
reason, Employee shall not directly or indirectly, as principal, agent, trustee,
consultant or through the agency of any corporation, partnership, association,
trust or other entity or person, on Employee's own behalf or for others, provide
services that are the same as or similar to the services provided by Employee
under this Agreement to or for the benefit of any entity or person conducting
the Business of CTFS or the Business of Bank or the Business of CLC within the
geographic area covered by a circle having a radius of twenty (20) miles from
the location of the main office of the Bank and a circle having a radius of
fifteen (15) miles from the location of each branch office of the Bank and each
office of CLC, all as set forth on Exhibit "A" to this Agreement.
----------
9.03 Amendment of Exhibit "A". Employee and CTFS shall periodically
------------------------
amend this Agreement by updating and initialing Exhibit "A" attached hereto so
----------
that it at all times lists the then current location of (i) the Bank's main
office, (ii) each branch office of the Bank and (iii) each office of CLC.
10. Termination.
-----------
10.01 Grounds for Termination. This Agreement shall terminate
-----------------------
prior to the expiration of the initial Term set forth in Section 2 or any
extension thereof in the event that at any time during such initial Term or any
extension thereof:
(a) CTFS shall give notice to Employee that CTFS is terminating this
Agreement without cause, which notice shall specify the effective date of
Employee's termination;
(b) Employee shall die or the Board of Directors of CTFS shall
determine that Employee has become disabled (as defined in Section 10.02); or
(c) The Board of Directors of CTFS shall determine that Cause
exists. "Cause" means (i) having been convicted under the laws of any
governmental jurisdiction of (A) a felony or (B) a criminal offense which is not
a felony but which has a material adverse effect on CTFS (or any of its
subsidiaries or affiliates) or on the ability of Employee to carry out his
duties hereunder (provided, however, that in no event shall minor traffic
violations constitute "Cause"), (ii) having committed any action constituting
theft or fraud against CTFS (or any of its subsidiaries or affiliates), (iii)
the breach of any of the Employee's covenants or obligations hereunder, (iv) the
knowing failure of the Employee to follow specific directives of the Board of
Directors of CTFS
-7-
<PAGE>
consistent with Employee's duties or (v) the termination by Employee of his
employment hereunder prior to the expiration of the term of this Agreement,
unless such termination is pursuant to Section 10.01(d) or 10.01(e) hereof.
(d) Employee shall determine that CTFS has breached this Agreement
in any material respect (including, but not limited to, CTFS' failure to make
any payment required under this Agreement), which breach is not cured by CTFS
within thirty (30) days after written notice of such breach is delivered to CTFS
by the Employee.
(e) Employee, within thirty (30) days following the occurrence of
a "Change in Control" (as defined in Section 10.03), notifies CTFS, in writing,
that he is electing to terminate this Agreement pursuant to this Section
10.01(e).
Notwithstanding any termination of this Agreement, in consideration of his
employment hereunder to the date of such termination, to the extent specifically
provided for herein, the Employee shall remain bound by the provisions of this
Agreement which specifically relate to periods subsequent to the termination of
Employee's employment hereunder.
10.02 "Disability" Defined. The Board of Directors of CTFS may, in
-------------------
its discretion reasonably exercised, determine that Employee has become
disabled, for the purpose of Section 10.01(b) of this Agreement, in the event
that Employee shall fail, in one or more material respects, because of illness
or other physical or mental incapacity, to render services of the character
contemplated by this Agreement for an aggregate of more than ninety (90)
calendar days during any period of twelve (12) consecutive months.
10.03 "Change in Control" Defined. For purposes of this Agreement, a
--------------------------
"Change in Control" shall be deemed to have occurred if more than fifty percent
(50%) of CTFS' outstanding common stock or equivalent in voting power of any
class or classes of outstanding securities of CTFS entitled to vote in elections
of its Directors, shall be acquired by any person or group of persons acting in
concert. Additionally, a Change in Control? shall be deemed to have occurred if
(i) more than fifty percent (50%) of the Bank's outstanding common stock or
equivalent in voting power of any class or classes of outstanding securities of
the Bank entitled to vote in elections of its Directors, shall be acquired
by any person or group of persons acting in concert or (ii) substantially all of
--
the assets of the Bank shall be sold to another person and (iii) at the time of
---
the occurrence of (i) or (ii), Employee is serving as President and Chief
Executive Officer of the Bank.
10.04 Surrender of Records and Property. Upon the request of CTFS
---------------------------------
and, in any event, upon termination of his employment with CTFS , Employee shall
deliver promptly to CTFS all records, manuals, books, blank forms, documents,
letters, memoranda, notes, notebooks, reports, data, tables, calculations or
copies thereof, which are the property of CTFS, the Bank or CLC (or any of their
subsidiaries of affiliates) and which relate in any way to the business,
products, practices or techniques of CTFS, the Bank or CLC (or any of their
subsidiaries or affiliates), and all other property, Trade Secrets and
Confidential Information of CTFS, the Bank or CLC (or any of their
-8-
<PAGE>
subsidiaries or affiliates), including, but not limited to, all documents which
in whole or in part contain any Trade Secrets or Confidential Information of
CTFS, the Bank or CLC (or any of their subsidiaries or affiliates), which in any
of these cases are in his possession or under his control.
11. Compensation Upon Termination.
-----------------------------
(a) In the event this Agreement is terminated pursuant to Section
10.01(a), 10.01(d) or 10.01(e) hereof, Employee will receive a lump sum payment
equal to the "Severance Amount" (hereinafter defined), in addition to (i)
payment to Employee of semi-monthly installments of his then current Base Salary
through the effective date of termination and (ii) reimbursement of expenses
incurred by Employee in accordance with Section 4.05 hereof. Additionally, in
the event this Agreement is terminated pursuant to Section 10.01(d) or 10.01(e)
hereof, Employee shall be entitled to receive any bonus, or pro rata portion
thereof, to which Employee may be entitled pursuant to Section 4.02 hereof,
provided that any such bonus shall be paid in accordance with Section 4.02, and
not upon Employee's termination, and provided, further, that Employee
acknowledges and agrees that Employee is not entitled to any such bonus, or pro
rata portion thereof, for the fiscal year in which this Agreement is terminated
if this Agreement is terminated pursuant to Section 10.01(a). For purposes of
this Section 11(a) "Severance Amount" shall mean an amount equal to the annual
Base Salary in effect on the date of termination.
(b) In the event this Agreement is terminated pursuant to any provision
hereof other than Sections 10.01(a), 10.01(d) or 10.01(e), Employee shall not be
entitled to any compensation other than (i) semi-monthly installments of his
then current Base Salary accrued through the effective date of termination and
(ii) reimbursement of expenses incurred by Employee in accordance with Section
4.05 hereof, and all rights of Employee to further compensation shall thereupon
cease and be terminated.
12. Assignment and Inurement. This Agreement shall enure to the benefit
------------------------
of and be binding upon the parties hereto and their respective heirs,
successors, administrators, and permitted assigns. This is a personal service
contract and, except to the extent specifically contemplated hereby, may not be
assigned by Employee without the prior written consent of CTFS.
13. Injunctive Relief. Employee agrees that it would be difficult to
-----------------
compensate CTFS fully for damages for any violation of the provisions of this
Agreement, including without limitation the provisions of Sections 5, 6, 7, 8, 9
and 10.04. Accordingly, Employee specifically agrees that CTFS shall be entitled
to temporary and permanent injunctive relief to enforce the provisions of this
Agreement. This provision with respect to injunctive relief shall not, however,
diminish the right of CTFS to claim and recover damages in addition to
injunctive relief.
Notwithstanding anything in Section 15 hereof to the contrary, any party to
this Agreement may petition the Superior Court of Paulding County, Georgia for
temporary injunctive relief. All disputes, controversies or claims arising out
of or related to this Agreement, other than a request for temporary injunctive
relief, shall be resolved in accordance with the provisions of Section 15
hereof.
-9-
<PAGE>
The parties hereby agree that jurisdiction and venue for any action seeking
temporary injunctive relief pursuant to this Section 13 shall lie in the
Superior Court of Paulding County, Georgia. The parties hereby agree, further,
that any temporary restraining order entered pursuant to this Section 13 shall
remain in effect until the dispute giving rise thereto is resolved pursuant to
the provisions of Section 15 and the parties agree to enter into any and all
consent orders required to maintain such temporary restraining order in effect
until such time.
14. Miscellaneous.
-------------
14.01 Governing Law. This Agreement is made under and shall be
-------------
governed by and construed in accordance with the laws of Georgia.
14.02 Prior Agreements. This Agreement contains the entire
----------------
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
14.03 Withholding Taxes. CTFS may withhold from any benefits
-----------------
payable under this Agreement all federal, state, city and other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
14.04 Amendments. No amendment, modification or waiver of this
----------
Agreement or any provision hereof shall be deemed effective unless made in
writing signed by the party against whom enforcement of the amendment,
modification or waiver is sought. Any written waiver shall not be deemed a
continuing waiver unless specifically stated and shall operate only as to the
specific term or condition waived.
14.05 Notices. Any notice, request, demand or other document to be
-------
given hereunder shall be in writing, and shall be delivered personally or sent
by registered, certified or express mail or facsimile followed by mail as
follows:
If to CTFS:
1784 Atlanta Highway
Hiram, Georgia 30141
Attention: Chairman
If to Employee:
8008 Ponderosa Drive
Dallas, Georgia 30132
-10-
<PAGE>
or to such other address as either party hereto may hereafter duly give to the
other.
14.06 Severability. To the extent any provision of this Agreement
------------
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation of
the foregoing, should the duration or geographical extent of, or business
activities covered by any provision of this Agreement be in excess of that which
is valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may validly
and enforceably be covered. Employee acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
15. Arbitration. Any and all disputes, controversies or claims
-----------
arising out of or related to this Agreement (other than a request for a
temporary restraining order pursuant to Section 13 hereof), shall be resolved by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). Judgement upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. In the
event of any inconsistency between the provisions of this Section 15 and AAA's
Commercial Arbitration Rules, the provisions of this Section 15 shall govern.
Any party may initiate arbitration by serving written notice of its intention to
arbitrate on the other parties. The venue of any such arbitration shall be
Atlanta, Georgia. The arbitration panel shall consist of three arbitrators
selected as follows. Within thirty (30) days following the date on which the
arbitration provision of this Section 15 is invoked by a party, Employee, on the
one hand, and CTFS , on the other, shall each select an arbitrator from a list
of arbitrators provided by AAA. The lists from which Employee and CTFS select
their respective arbitrators shall be identical. If either Employee or CTFS
fails to select its arbitrator within the time required, the other shall be
entitled to select its arbitrator for it. Within fifteen (15) days following the
selection of the last to be selected of the two (2) arbitrators, the two (2)
arbitrators so selected shall select a third arbitrator. A preliminary
arbitration hearing shall be held within thirty (30) days following the
selection of the third arbitrator for the purpose of scheduling discovery and
the evidentiary hearing(s). The first evidentiary hearing shall be held within
thirty (30) days following the preliminary hearing. The arbitration panel shall
deliver its award in writing, including findings of facts, to the parties within
thirty (30) days following the final arbitration hearing. Evidence and testimony
shall be admitted in accordance with the Federal Rules of Evidence. The
arbitration panel shall have authority to grant temporary or permanent
injunctive relief or other equitable remedies. Each party shall bear its own
costs and expenses of the arbitration proceeding.
/s/ WAF /s/ RA
- -------- --------
CTFS Employee
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
RONNIE AUSTIN
/s/ Ronnie Austin
-----------------------------
COMMUNITY TRUST FINANCIAL
SERVICES CORPORATION
By: /s/ W.A. Foster III
--------------------------
Title: Chairman
-12-
<PAGE>
EXHIBIT "A"
Main Office Location of Bank
3844 Atlanta Highway
Hiram, Georgia 30141
Location of Bank Branch Offices
Dallas Office
100 Hardee Street
Dallas, Georgia 30132
Kroger Office
4215 Jimmy Lee Smith Parkway, Suite 4
Hiram, Georgia 30141
Brownsville Office
105 Brownsville Road, Suite 1
Powder Springs, Georgia 30073
Location of CLC Offices
Woodstock Office
702 South Main Street
Woodstock, Georgia 30188
Rockmart Office
1101A North Piedmont Avenue
Rockmart, Georgia 30153
Rossville Office
203 Chickamauga Avenue
Rossville, Georgia 30741
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,279,826
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,209,185
<INVESTMENTS-CARRYING> 22,209,185
<INVESTMENTS-MARKET> 22,209,185
<LOANS> 84,797,639
<ALLOWANCE> 1,145,464
<TOTAL-ASSETS> 119,287,412
<DEPOSITS> 95,571,755
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,448,008
<LONG-TERM> 5,745,000
0
0
<COMMON> 2,972,770
<OTHER-SE> 11,549,879
<TOTAL-LIABILITIES-AND-EQUITY> 119,287,412
<INTEREST-LOAN> 4,112,711
<INTEREST-INVEST> 623,679
<INTEREST-OTHER> 87,873
<INTEREST-TOTAL> 4,824,263
<INTEREST-DEPOSIT> 1,483,408
<INTEREST-EXPENSE> 1,644,664
<INTEREST-INCOME-NET> 3,179,599
<LOAN-LOSSES> 301,059
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,028,721
<INCOME-PRETAX> 745,930
<INCOME-PRE-EXTRAORDINARY> 546,077
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546,077
<EPS-BASIC> .47
<EPS-DILUTED> .45
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
