AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
REGISTRATION NO. 333-61803
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
Post-Effective Amendment No. 1
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------
FLAG FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Georgia 6719 58-2094179
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
101 NORTH GREENWOOD STREET
LAGRANGE, GEORGIA 30240
(706) 845-5000
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
J. Daniel Speight, Jr.
President and Chief Executive Officer
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
(706) 845-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service) with copies to:
Walter G. Moeling, IV F. Sheffield Hale, Esq.
Powell, Goldstein, Frazer & Murphy LLP Kilpatrick Stockton LLP
Suite 1600 Suite 2800
191 Peachtree Street, N.E. 1100 Peachtree Street
Atlanta, Georgia 30303 Atlanta, Georgia 30309
(404) 572-6600 (404) 815-6500
--------------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____________________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
- ----------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
EMPIRE BANK CORP.
115 East Dame Avenue
Homerville, Georgia 31634
To the Shareholders of _______________, 1998
Empire Bank Corp.
You are cordially invited to attend a Special Meeting of the
Shareholders (the "Special Meeting") of Empire Bank Corp. ("Empire") to be held
at the main office of Empire Banking Company, located at 115 East Dame Avenue,
Homerville, Georgia, on [Tuesday, September 29, 1998,] at 2:00 p.m., local time,
notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger, dated as of July 30, 1998
(the "Merger Agreement"), by and between Empire and FLAG Financial Corporation
("FLAG") pursuant to which Empire will merge with and into FLAG (the "Merger").
Upon consummation of the Merger, each share of Empire common stock issued and
outstanding at the effective time of the Merger (except for certain shares held
by Empire or FLAG, or their respective subsidiaries, in each case other than
shares held in a fiduciary capacity or in satisfaction of debts previously
contracted, and excluding shares held by Empire shareholders who perfect their
dissenters' rights) will be exchanged for 42.5 shares of FLAG common stock, with
cash being paid in lieu of issuing fractional shares.
Enclosed are the Notice of Meeting, Proxy Statement/Prospectus and
Proxy, FLAG's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
and FLAG's Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. The Proxy Statement/Prospectus includes a description
of the proposed Merger and provides other specific information concerning the
Special Meeting. Please read these materials carefully and consider thoughtfully
the information set forth in them.
The Merger Agreement has been approved by your Board of Directors and
is recommended by the Board to you for approval. Your Board believes that, among
other benefits, the Merger will result in a company with greater financial
strength and increased opportunity and flexibility for profitable expansion and
diversification. Consummation of the Merger is subject to certain conditions,
including approval of the Merger Agreement and the transactions contemplated
therein by Empire shareholders and approval of the Merger by various regulatory
agencies.
It is important to understand that approval of the Merger Agreement
will require the affirmative vote of a majority of the issued and outstanding
shares of Empire common stock. Accordingly, whether or not you plan to attend
the special meeting, you are urged to complete, sign, and promptly return the
enclosed proxy card. If you attend the special meeting, you may vote in person
if you wish, even if you previously have returned your proxy card. The proposed
Merger with FLAG is a significant step for Empire shareholders and your vote on
this matter is of great importance.
On behalf of the board of directors, I urge you to vote FOR approval of
the Merger Agreement and the transactions contemplated therein by marking the
enclosed proxy card "FOR" item one.
We look forward to seeing you at the Special Meeting.
Sincerely,
--------------------------------
Leonard H. Bateman
President and Chief Executive Officer
<PAGE>
EMPIRE BANK CORP.
115 East Dame Avenue
Homerville, Georgia 31634
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [SEPTEMBER 29, 1998]
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Special Meeting") of Empire Bank Corp. ("Empire") will be held at the main
office of Empire Banking Company, located at 115 East Dame Avenue, Homerville,
Georgia, on [Tuesday, September 29, 1998,] at 2:00 p.m., local time, for the
following purposes:
1. Merger. To consider and vote upon a proposal to approve an Agreement
and Plan of Merger, dated as of July 30, 1998 (the "Merger Agreement"), by and
between Empire and FLAG Financial Corporation ("FLAG"), pursuant to which, among
other matters, Empire will merge with and into FLAG (the "Merger"). Each share
of Empire common stock issued and outstanding at the effective time of the
Merger will be converted into the right to receive 42.5 shares of FLAG common
stock, as more fully described in the accompanying Proxy Statement/Prospectus. A
copy of the Merger Agreement is set forth as Appendix A to the accompanying
Proxy Statement/Prospectus.
2. Other Business. To transact such other business as may come properly
before the Special Meeting.
Only shareholders of record at the close of business on August ___,
1998, will be entitled to receive notice of and to vote at the Special Meeting
or any adjournment or postponement thereof. Approval of the Merger Agreement and
the transactions contemplated therein requires the affirmative vote of a
majority of the issued and outstanding shares of Empire common stock.
The Board of Directors of Empire recommends that shareholders vote FOR
approval of the Merger Agreement.
BY ORDER OF THE BOARD OF DIRECTORS
Leonard H. Bateman
President and Chief Executive Officer
Homerville, Georgia
___________________ , 1998
Whether or not you plan to attend the Special Meeting, please complete,
date, and sign the enclosed form of proxy and promptly return it in
the enclosed postage paid return envelope in order
to ensure that your shares will be represented at the Special Meeting.
--------------------
Each shareholder has the right to dissent from the Merger Agreement and
demand payment of the fair value of his shares if the merger is consummated. The
right of any shareholder to receive such payment is contingent upon strict
compliance with the requirements of Title 14, Chapter 2, Article 13 of the
Georgia Business Corporation Code. The full text of Title 14, Chapter 2, Article
13 setting forth the right to dissent is set forth in Appendix B to the
accompanying Proxy Statement/Prospectus. See "DESCRIPTION OF MERGER--Dissenters'
Rights" in the accompanying Proxy Statement/Prospectus.
<PAGE>
PROSPECTUS
FLAG FINANCIAL CORPORATION
1,124,125 Shares of Common Stock, $1.00 Par Value
--------------------
PROXY STATEMENT
EMPIRE BANK CORP.
Special Meeting Of Shareholders
To Be Held On [September 29, 1998]
This Prospectus of FLAG Financial Corporation, a bank holding company
organized and existing under the laws of the State of Georgia ("FLAG"), relates
to up to 1,124,125 shares of common stock, par value $1.00 per share, of FLAG
("FLAG Common Stock") which are issuable to the shareholders of Empire Bank
Corp., a bank holding company organized and existing under the laws of the State
of Georgia ("Empire"), upon consummation of the proposed merger of Empire with
and into FLAG (the "Merger"), pursuant to the terms of the Agreement and Plan of
Merger, dated as of July 30, 1998 (the "Merger Agreement"), by and between FLAG
and Empire.
At the effective time of the Merger (the "Effective Time"), except as
described herein, each issued and outstanding share of common stock, par value
$10.00 per share, of Empire ("Empire Common Stock") will be converted into and
exchanged for 42.5 shares of FLAG Common Stock (the "Exchange Ratio"). See
"DESCRIPTION OF MERGER." Holders of Empire Common Stock who intend to dissent
will lose their dissenters' rights if they vote for the Merger. See "DESCRIPTION
OF MERGER--Dissenters' Rights" and Appendix B.
This Prospectus also serves as a Proxy Statement of Empire, and is
being furnished to the shareholders of Empire in connection with the
solicitation of proxies by the Board of Directors of Empire for use at its
special meeting of shareholders to be held on [Tuesday, September 29, 1998]
(including any adjournment or postponement thereof, the "Special Meeting"). At
the Special Meeting, the shareholders of Empire will consider and vote upon the
Merger Agreement and the transactions contemplated thereby. This Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") is being mailed to
shareholders of Empire on or about , 1998.
On May 29, 1998, the last day prior to public announcement of the
proposed merger between FLAG and Empire, the last reported sale price per share
of FLAG Common Stock on The Nasdaq Stock Market's National Market ("Nasdaq
National Market") was $15.33, as adjusted for the 3-for-2 stock split effective
June 3, 1998, (or equivalent pro forma per share of Empire Common Stock (based
on the 42.5 Exchange Ratio) of $651.53). On ________ __, 1998, the last reported
sale price per share of FLAG Common Stock as reported on the Nasdaq National
Market was $______ (or equivalent pro forma per share of Empire Common Stock of
$______).
For a discussion of the risks associated with an investment in FLAG
Common Stock, please refer to the "RISK FACTORS" section of this Proxy
Statement/Prospectus beginning on page 14.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is
_____________, 1998.
<PAGE>
AVAILABLE INFORMATION
FLAG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy and information statements, and
other information with the Securities and Exchange Commission (the "SEC").
Copies of such reports, proxy and information statements, and other information
can be obtained, at prescribed rates, from the SEC by addressing written
requests for such copies to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such
reports, proxy and information statements, and other information can be
inspected at the public reference facilities referred to above and at the
regional offices of the SEC at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as FLAG that file electronically with the SEC. The address of
the SEC Web site is http://www.sec.gov.
This Proxy Statement/Prospectus constitutes part of the Registration
Statement on Form S-4 of FLAG (including any exhibits and amendments thereto,
the "Registration Statement") filed with the SEC under the Securities Act of
1933, as amended (the "Securities Act"), relating to the securities offered
hereby. This Proxy Statement/Prospectus does not include all of the information
contained in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. For further
information about FLAG and the securities offered hereby, reference is made to
the Registration Statement. The Registration Statement may be inspected and
copied, at prescribed rates, at the SEC's public reference facilities at the
addresses set forth above.
Certain financial and other information relating to FLAG is contained
in the documents indicated below under "DOCUMENTS INCORPORATED BY REFERENCE."
All information contained in this Proxy Statement/Prospectus or
incorporated herein by reference with respect to FLAG was supplied by FLAG, and
all information contained in this Proxy Statement/Prospectus with respect to
Empire was supplied by Empire.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus, and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy Statement/Prospectus
in any jurisdiction to or from any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities being offered
pursuant to this Proxy Statement/Prospectus shall, under any circumstances,
create an implication that there has been no change in the affairs of FLAG or
Empire or the information set forth herein since the date of this Proxy
Statement/Prospectus
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by FLAG pursuant
to the Exchange Act are hereby incorporated by reference herein:
(a) FLAG's Amendment No. 1 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1997;
i
<PAGE>
(b) FLAG's Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
(c) FLAG's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998; and
(d) FLAG's Current Reports on Form 8-K dated February 18, 1998, April 18,
1998, May 12, 1998, May 14, 1998, May 18, 1998, May 28, 1998, June 1, 1998,
August 10, 1998 and August 11, 1998.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
Accompanying this Proxy Statement/Prospectus is a copy of FLAG's
Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and a copy of FLAG's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request from Investor Relations, FLAG Financial Corporation, 101
North Greenwood Street, LaGrange, Georgia (telephone: (706) 845-5000). In order
to ensure timely delivery of the documents, any request should be made by
_____________, 1998.
ii
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY......................................................................1
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS............1
THE PARTIES...............................................................2
MEETING OF EMPIRE SHAREHOLDERS; RECORD DATE; VOTE REQUIRED................3
THE MERGER................................................................4
RISK FACTORS..............................................................8
COMPARATIVE PER SHARE DATA................................................8
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA..................9
SELECTED FINANCIAL DATA..................................................10
RECENT DEVELOPMENTS......................................................13
RISK FACTORS................................................................14
LIMITED MARKET FOR SHARES OF FLAG COMMON STOCK...........................14
RESTRICTIONS ON DIVIDENDS................................................14
POSSIBLE COSTS ASSOCIATED WITH THE INTEGRATION OF
FLAG'S PENDING ACQUISITIONS...........................................14
GOVERNMENTAL REGULATION..................................................14
COMPETITION..............................................................14
CONTROL BY MANAGEMENT....................................................15
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF
FLAG'S ARTICLES OF INCORPORATION, BYLAWS AND THE GBCC.................15
YEAR 2000" ISSUES........................................................15
MEETING OF EMPIRE SHAREHOLDERS..............................................15
DATE, PLACE, TIME, AND PURPOSE...........................................15
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND
REVOCABILITY OF PROXIES...............................................16
DESCRIPTION OF MERGER.......................................................17
GENERAL..................................................................17
BACKGROUND OF AND REASONS FOR THE MERGER.................................17
FAIRNESS OPINION.........................................................20
EFFECTIVE TIME OF THE MERGER.............................................25
DISTRIBUTION OF FLAG CERTIFICATES........................................25
CONDITIONS TO CONSUMMATION OF THE MERGER.................................27
REGULATORY APPROVALS.....................................................28
WAIVER, AMENDMENT, AND TERMINATION.......................................28
DISSENTERS' RIGHTS.......................................................29
CONDUCT OF BUSINESS PENDING THE MERGER...................................32
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS
OF CERTAIN PERSONS IN THE MERGER......................................34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................35
ACCOUNTING TREATMENT.....................................................37
EXPENSES AND FEES........................................................37
RESALES OF FLAG COMMON STOCK.............................................38
DESCRIPTION OF FLAG COMMON STOCK............................................38
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS..............................39
AUTHORIZED CAPITAL STOCK.................................................39
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS........................40
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING...........41
REMOVAL OF DIRECTORS.....................................................42
INDEMNIFICATION..........................................................42
iii
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS.........................................43
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING................................43
MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS.............................44
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS........................44
DIVIDENDS................................................................45
COMPARATIVE MARKET PRICES AND DIVIDENDS.....................................46
BUSINESS OF EMPIRE..........................................................47
GENERAL..................................................................47
MANAGEMENT STOCK OWNERSHIP...............................................47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR EACH OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.............61
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS..........................63
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF EMPIRE...................63
YEAR 2000 ISSUES.........................................................64
BUSINESS OF FLAG............................................................64
GENERAL..................................................................64
DIRECTORS AND EXECUTIVE OFFICERS.........................................65
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................................70
SHAREHOLDER PROPOSALS.......................................................77
EXPERTS.....................................................................77
LEGAL MATTERS...............................................................78
OTHER MATTERS...............................................................78
INDEX TO EMPIRE FINANCIAL DATA...............................................1
APPENDIX A -- AGREEMENT AND PLAN OF MERGER BY AND BETWEEN
FLAG FINANCIAL CORPORATION AND EMPIRE BANK CORP.......................A-1
APPENDIX B --DISSENTERS' RIGHTS............................................B-1
APPENDIX C -- OPINION OF THE CARSON MEDLIN COMPANY.........................C-1
iv
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement/Prospectus and the documents incorporated herein by reference.
This summary is not intended to be a complete description of the matters covered
in this Proxy Statement/Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere or incorporated by reference in this
Proxy Statement/Prospectus. Shareholders are urged to read carefully the entire
Proxy Statement/Prospectus, including the Appendices. As used in this Proxy
Statement/Prospectus, the terms "FLAG" and "Empire" refer to those entities,
respectively, and, where the context requires, to those entities and their
respective subsidiaries.
Special Cautionary Notice Regarding Forward-Looking Statements
Certain statements contained in this Proxy Statement/Prospectus, the
exhibits hereto and in documents incorporated by reference herein which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). In
addition, certain statements in future filings by FLAG with the Securities and
Exchange Commission, in press releases, and in oral and written statements made
by or with the approval of FLAG which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of FLAG or its management or Board of Directors, including
those relating to products or services; (iii) statements of future economic
performance; and (iv) statements of assumptions underlying such statements.
Words such as "believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from those in such statements. Facts
that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (i) the strength of
the U.S. economy in general and the strength of the local economies in which
operations are conducted; (ii) the effects of and changes in trade, monetary and
fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (iii) inflation, interest rate, market
and monetary fluctuations; (iv) the timely development of and acceptance of new
products and services and perceived overall value of these products and services
by users; (v) changes in consumer spending, borrowing and saving habits; (vi)
technological changes; (vii) acquisitions; (viii) the ability to increase market
share and control expenses; (ix) the effect of changes in laws and regulations
(including laws and regulations concerning taxes, banking, securities and
insurance) with which FLAG and its subsidiaries must comply; (x) the effect of
changes in accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting Standards Board; (xi)
changes in FLAG's organization, compensation and benefit plans; (xii) the costs
and effects of litigation and of unexpected or adverse outcomes in such
litigation; and (xiii) the success of FLAG at managing the risks involved in the
foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and FLAG undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
1
<PAGE>
The Parties
Empire. Empire is a bank holding company headquartered in Homerville,
Georgia, with two banking offices located in Homerville and Waycross, Georgia.
As of June 30, 1998, Empire had total consolidated assets of approximately $69.8
million, total consolidated deposits of approximately $58.8 million, and total
consolidated shareholders' equity of approximately $7.2 million. Through its
wholly-owned banking subsidiary, Empire Banking Company ("Empire Bank"), Empire
offers a broad range of banking and banking-related services. E.B.C. Financial
Services, Inc., a Georgia corporation and a wholly-owned subsidiary of Empire,
provides various insurance products.
Empire Bank was organized under the laws of the State of Georgia and
commenced operations in 1945. Empire is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Empire's
principal executive office is located at 115 East Dame Avenue, Homerville,
Georgia 31634, and its telephone number at such address is (912) 487-5355.
Additional information with respect to Empire and its subsidiaries
is included in this Proxy Statement/Prospectus. See "BUSINESS OF EMPIRE."
FLAG. FLAG is a multi-bank holding company headquartered in LaGrange,
Georgia. FLAG is the sole shareholder of the following depository institutions:
Citizens Bank ("Citizens"), Bank of Milan ("Milan") and First Federal Savings
Bank of LaGrange ("First Federal"). FLAG acquired Citizens through a merger with
Middle Georgia Bankshares, Inc. and acquired Milan through a merger with Three
Rivers Bancshares, Inc. ("Three Rivers"), which mergers were consummated in
March 1998 and May 1998, respectively. Citizens and Milan are state banks
organized under the laws of the State of Georgia, with ten banking offices
located in the cities of Unadilla, Vienna, Byromville, Montezuma, Oglethorpe,
Cordele, Pinehurst, Milan and McRae. First Federal is a federal savings bank
organized under the laws of the United States, with five offices located in
LaGrange, Georgia, which serve markets located in western Georgia. As of June
30, 1998, FLAG had total consolidated assets of approximately $442.8 million,
total consolidated deposits of approximately $339.2 million and total
consolidated shareholders' equity of approximately $38.5 million. FLAG offers a
full array of deposit accounts and retail and commercial banking services,
engages in small business lending, residential and commercial real estate
lending, mortgage banking services, brokerage services and performs real estate
appraisal services through its subsidiaries, First Federal, Citizens and Milan,
as well as First Federal's wholly-owned subsidiary, Piedmont Mortgage Services,
Inc. ("Piedmont"). FLAG indirectly owns CB Financial Group, Inc. ("CB
Financial"), a wholly-owned subsidiary of Citizens, which provides pawn, title
pawn and check cashing services. CB Financial is currently winding up its
business operations.
FLAG was organized under the laws of the State of Georgia and commenced
operations in 1993 as a registered savings and loan holding company under the
Home Owners' Loan Act of 1933, as amended ("HOLA"). FLAG became a registered
bank holding company under the BHC Act in March 1998 upon the merger of Middle
Georgia with and into FLAG. FLAG's principal executive office is located at 101
North Greenwood Street, LaGrange, Georgia 30240, and its telephone number at
such address is (706) 845-5000.
Effective June 3, 1998, FLAG declared a 3-for-2 stock split. All per
share amounts and prices have been adjusted to reflect this stock split.
As a routine part of its business, FLAG evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy
Statement/Prospectus, discussions and, in some cases, negotiations and due
diligence activities looking toward or culminating in the execution of
preliminary or definitive documents respecting potential acquisitions may occur
2
<PAGE>
or be in progress. These transactions may involve FLAG acquiring such financial
institutions in exchange for cash or capital stock, and depending upon the terms
of these transactions, they may have a dilutive effect upon the FLAG Common
Stock to be issued to holders of Empire Common Stock in the Merger.
Additional information with respect to FLAG and its subsidiaries is
included in this Proxy Statement/Prospectus, and in documents incorporated by
reference in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION,"
"DOCUMENTS INCORPORATED BY REFERENCE," and "BUSINESS OF FLAG."
Meeting Of Empire Shareholders; Record Date; Vote Required
This Proxy Statement/Prospectus is being furnished to the holders of
Empire Common Stock in connection with the solicitation by the Empire Board of
Directors of proxies for use at the Special Meeting at which Empire shareholders
will be asked to vote upon a proposal to approve the Merger Agreement and the
transactions contemplated therein. The Special Meeting will be held at the main
office of Empire Bank, located at 115 East Dame Avenue, Homerville, Georgia, on
[Tuesday, September 29, 1998,] at 2:00 p.m., local time. See "MEETING OF EMPIRE
SHAREHOLDERS--Date, Place, Time, and Purpose."
Empire's Board of Directors has fixed the close of business on August
__, 1998, as the record date (the "Empire Record Date") for determination of the
shareholders entitled to notice of and to vote at the Special Meeting. Only
holders of record of shares of Empire Common Stock on the Empire Record Date
will be entitled to notice of and to vote at the Special Meeting. Each share of
Empire Common Stock is entitled to one vote. Shareholders who execute proxies
retain the right to revoke them at any time prior to their being voted at the
Special Meeting. On the Empire Record Date, there were 26,450 shares of Empire
Common Stock issued and outstanding and entitled to vote at the Special Meeting,
which shares were held by 154 holders of record.
Approval of the Merger Agreement and the transactions contemplated
therein requires the affirmative vote by holders of a majority of the shares of
Empire Common Stock entitled to vote at the Special Meeting. As of the Empire
Record Date, all directors and executive officers of Empire as a group (11
persons) were entitled to vote approximately 5,207 shares of Empire Common
Stock, constituting approximately 19.7% of the total number of shares of Empire
Common Stock outstanding at that date, and have committed to vote their shares
of Empire Common Stock in favor of the Merger. As of the Empire Record Date,
FLAG and its affiliates held no shares of Empire Common Stock. See "MEETING OF
EMPIRE SHAREHOLDERS--Record Date, Voting Rights, Required Vote, and Revocability
of Proxies; Empire" and "BUSINESS OF EMPIRE--Management."
EMPIRE'S SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE
MERGER AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF EMPIRE
COMMON STOCK BY FOLLOWING THE PROCEDURES DESCRIBED IN TITLE 14, CHAPTER 2,
ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE ("GBCC"). SEE "DESCRIPTION
OF MERGER--DISSENTERS' RIGHTS" AND APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS.
3
<PAGE>
The Merger
General. The Merger Agreement provides for the acquisition of Empire by
FLAG pursuant to the Merger of Empire with and into FLAG. A copy of the Merger
Agreement is set forth at Appendix A to this Proxy Statement/Prospectus, and the
Merger Agreement is incorporated herein by reference.
Consideration and Exchange Ratio. At the Effective Time, each share of
Empire Common Stock then issued and outstanding (excluding shares held by
Empire, FLAG, or their respective subsidiaries, in each case other than shares
held in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by Empire shareholders who perfect their statutory
dissenters' rights) will be converted into and exchanged for the right to
receive 42.5 shares of FLAG Common Stock.
No fractional shares of FLAG Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Empire shareholder would otherwise be entitled upon consummation of
the Merger, in an amount equal to such fractional part of a share of FLAG Common
Stock multiplied by the last sale price of FLAG Common Stock on the Nasdaq
National Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by FLAG) on the last trading
day preceding the Effective Time. No Empire shareholder who would have been
entitled to receive fractional shares of FLAG Common Stock will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares. See "DESCRIPTION OF MERGER--General."
As of the Empire Record Date, there were 26,450 shares of Empire Common
Stock issued and outstanding. Based on the number of shares of Empire Common
Stock outstanding on the Empire Record Date and the Exchange Ratio of 42.5, it
is anticipated that upon consummation of the Merger, FLAG would issue
approximately 1,124,125 shares of FLAG Common Stock to holders of Empire Common
Stock. Accordingly, FLAG would then have issued and outstanding approximately
6,298,932 shares of FLAG Common Stock, based on the number of shares of FLAG
Common Stock issued and outstanding on June 30, 1998. Following the Merger, and
assuming no exercise of dissenters' rights, the current shareholders of Empire
will beneficially own approximately 17.85% of the FLAG Common Stock that will
then be outstanding.
Reasons for the Merger, Recommendation of the Board of Directors of
Empire. The Empire Board of Directors believes that the Merger is in the best
interests of Empire and its shareholders, has unanimously approved the Merger
Agreement and unanimously recommends that the shareholders vote "FOR" approval
of the Merger Agreement. In deciding to approve the Merger Agreement and the
consummation of the transactions contemplated therein, the Empire Board of
Directors considered a number of factors, including, among other matters, the
diversification of lending risks, increased stock liquidity, the market
characteristics of the markets in which FLAG currently operates, and a shared
vision for future expansion.
The FLAG Board of Directors believes that the Merger is in the best
interests of FLAG and its shareholders, has unanimously approved the Merger
Agreement. In deciding to approve the Merger Agreement and the consummation of
the transactions contemplated therein, including the issuance of shares of FLAG
Common Stock pursuant to the Merger Agreement, the FLAG Board of Directors
considered a number of factors, including the financial condition of Empire, the
likelihood of the Merger being approved by regulatory authorities without undue
conditions or delay, the financial and nonfinancial terms of the Merger, and the
compatibility of the community bank orientation of the operations of FLAG and
Empire.
4
<PAGE>
The Boards of Directors of Empire and FLAG believe that the Merger will
result in a company with expanded opportunities for profitable growth and that
the combined resources and capital of Empire and FLAG will provide an enhanced
ability to compete in the changing and competitive financial services industry.
See "DESCRIPTION OF MERGER--Background of and Reasons for the Merger."
Fairness Opinion. The Carson Medlin Company ("Carson Medlin") has
rendered an opinion to Empire that, based on and subject to the procedures,
matters and limitations described in its opinion and such other matters as it
considered relevant, as of the date of its opinion, the terms of the Merger are
fair, from a financial point of view to the shareholders of Empire. Carson
Medlin's opinion is attached as Appendix C to this Proxy Statement/Prospectus.
Shareholders are urged to read the opinion in its entirety for a description of
the procedures followed, matters considered, and limitations on the reviews
undertaken in connection therewith. See "DESCRIPTION OF MERGER--Fairness
Opinion."
Effective Time. Subject to the conditions to the obligations of the
parties to effect the Merger, the Effective Time will occur on the date and at
the time that the certificate of merger, which is to be executed by FLAG and
filed with the Secretary of State of the State of Georgia relating to the Merger
(the "Certificate of Merger"), becomes effective with the Secretary of State of
the State of Georgia. Unless otherwise agreed upon by Empire and FLAG, and
subject to the terms and conditions contained in the Merger Agreement, the
parties will use their reasonable efforts to cause the Effective Time to occur
on the fifth business day following the last to occur of (i) the effective date
(including the expiration of any applicable waiting period) of the last consent
required by the Merger Agreement of any regulatory authority having authority
over and approving or exempting the Merger, and (ii) the date on which the
shareholders of Empire have approved the Merger Agreement. See "DESCRIPTION OF
MERGER--Effective Time of the Merger," "--Conditions to Consummation of the
Merger," and "--Waiver, Amendment, and Termination."
No assurance can be provided that the necessary shareholder and
regulatory approvals can be obtained or that the other conditions precedent to
the Merger can or will be satisfied. Empire and FLAG anticipate that all
conditions to the consummation of the Merger will be satisfied so that the
Merger can be consummated by the end of the third quarter of 1998. However,
delays in the consummation of the Merger could occur.
Exchange of Stock Certificates. Promptly after the Effective Time, FLAG
will cause its transfer agent, acting in its capacity as exchange agent for FLAG
(the "Exchange Agent"), to mail to each holder of record of a certificate or
certificates (collectively, the "Empire Certificates") which, immediately prior
to the Effective Time, represented outstanding shares of Empire Common Stock,
appropriate transmittal materials and instructions for use in effecting the
surrender and cancellation of the Empire Certificates in exchange for
certificates representing shares of FLAG Common Stock ("FLAG Certificates").
Cash will be paid to the holders of Empire Common Stock in lieu of the issuance
of any fractional shares of FLAG Common Stock.
Holders of Empire common stock should not send in their Empire
Certificates until they receive the appropriate transmittal materials and
instructions.
In no event will the holder of any surrendered Empire Certificate(s) be
entitled to receive interest on any cash to be issued to such holder, and in no
event will FLAG or the Exchange Agent be liable to any holder of Empire Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property, escheat, or similar law.
5
<PAGE>
Regulatory Approvals and Other Conditions. The Merger is subject to
approval by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") and the Georgia Department of Banking and Finance (the "GDBF").
Applications have been filed with the Federal Reserve and GDBF for the requisite
approvals. There can be no assurance that such regulatory approvals will be
obtained or as to the timing of any such approvals. There also can be no
assurance that any such approvals will not impose conditions or restrictions
that are deemed by FLAG or Empire to materially adversely affect the economic or
business benefits of the transactions contemplated by the Merger Agreement.
Consummation of the Merger is subject to various other conditions,
including receipt of the required approval of the Merger Agreement by Empire
shareholders, receipt of an opinion of counsel as to the tax-free nature of
certain aspects of the Merger, receipt of a letter from the independent
accountants of FLAG that the Merger will qualify for pooling-of-interests
accounting treatment, and certain other conditions. See "DESCRIPTION OF
MERGER--Conditions to Consummation of the Merger."
Conduct of Business Pending the Merger. Each party has agreed in the
Merger Agreement to: (i) operate its business only in the usual, regular and
ordinary course; (ii) preserve intact its business organization and assets and
maintain its rights and franchises; and (iii) take no action that would (a)
materially adversely affect the ability of any party to the Merger Agreement to
obtain any consents required for the transactions contemplated by the Merger
Agreement without the imposition of certain materially adverse conditions or
restrictions as contemplated by the Merger Agreement, or (b) materially
adversely affect the ability of any party to the Merger Agreement to perform its
covenants and agreements under the Merger Agreement. In addition, each party to
the Merger Agreement has agreed not to take certain actions relating to the
operation of their respective businesses pending consummation of the Merger
without the prior written consent of the other party, except as otherwise
permitted by the Merger Agreement. See "DESCRIPTION OF MERGER--Conduct of
Business Pending the Merger."
Waiver, Amendment, and Termination. The Merger Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time by
mutual consent of Empire and FLAG, or by either Empire or FLAG under certain
circumstances, including if the Merger is not consummated by December 31, 1998,
unless the failure to consummate by such time is due to a breach of the Merger
Agreement by the party seeking to so terminate. Pursuant to the Merger
Agreement, in certain instances, including a breach of a representation,
warranty, covenant or agreement or failure of the Empire shareholders to approve
the Merger Agreement, either FLAG or Empire, as the case may be, will be
required to pay the non-breaching party the lesser of $100,000 or actual costs
of the non-breaching party incurred in connection with the Merger. If for any
reason the Merger is not consummated, FLAG will continue to operate as a bank
holding company under its present management and Empire will continue to operate
as a bank holding company under its present management. See "DESCRIPTION OF
MERGER--Waiver, Amendment, and Termination," and "? Expenses and Fees."
Dissenters' Rights. Each holder of Empire Common Stock who perfects his
rights is entitled to the rights and remedies of a dissenting shareholder under
Title 14, Chapter 2, Article 13 of the GBCC, subject to compliance with the
procedures set forth therein. Among other things, a dissenting shareholder who
has perfected his dissenter's rights is entitled to receive an amount in cash
equal to the "fair value" of such holder's shares. A copy of Title 14, Chapter
2, Article 13 of the GBCC is set forth in Appendix B of this Proxy
Statement/Prospectus and a summary thereof is included under "DESCRIPTION OF
MERGER--Dissenters' Rights." To perfect dissenters' rights, a shareholder must
comply with Title 14, Chapter 2, Article 13 of the GBCC which requires, among
other things, that the shareholder deliver to Empire, prior to the vote of the
shareholders of Empire at the Special Meeting, written notice of such holder's
intention to demand payment for his shares if the Merger is effectuated and that
such shareholder not vote such holder's shares in favor of the merger agreement.
Any Empire shareholder who returns a signed proxy but fails to provide
instructions as to the manner in which such holder's shares are to be voted or
6
<PAGE>
to revoke such proxy will be deemed to have voted in favor of the Merger
Agreement and thus will not be entitled to assert dissenters' rights.
Interests of Certain Persons in the Merger. Certain members of Empire's
management and Board of Directors have interests in the Merger in addition to
their interests as shareholders of Empire generally. The Merger Agreement states
that, as a condition to consummating the Merger, FLAG will provide Leonard
Bateman, President and Chief Executive Officer of Empire, with a Separation
Agreement. Pursuant to the proposed terms of the Separation Agreement, which the
parties have not yet finalized, Mr. Bateman will receive severance payments
equal to his annual base salary and bonus paid over the previous three fiscal
years in the event Mr. Bateman is involuntarily terminated, as such term is
defined in the Separation Agreement. In addition, pursuant to the proposed terms
of the Separation Agreement, Mr. Bateman will make certain covenants not to
compete with FLAG during the term of the Separation Agreement and for a 12-month
period following the termination of the Separation Agreement or the termination
of Mr. Bateman's status as an employee of FLAG. The Merger Agreement provides
that Mr. Bateman will be appointed to the Board of Directors of FLAG upon
consummation of the Merger. Mr. Bateman will also continue to serve as President
of Empire Bank. The Merger Agreement also contains provisions relating to the
indemnification of Empire directors and officers by FLAG, and provisions
relating to the eligibility of the officers and employees of Empire for certain
FLAG employee benefits. As of the Empire Record Date, none of the directors and
officers of Empire beneficially owned any shares of FLAG Common Stock. See
"DESCRIPTION OF MERGER--Management and Operations After the Merger; Interests of
Certain Persons in the Merger."
Certain Federal Income Tax Consequences of the Merger. Consummation of
the Merger is conditioned on the receipt by Empire and FLAG of an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to FLAG, to the effect that,
among other things, (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) the exchange in the Merger of Empire Common Stock for shares of
FLAG Common Stock will not result in gain or loss to the shareholders of Empire,
except that gain or loss will be recognized to the extent of any cash received
by such Empire shareholders in the Merger, and (iii) Empire shareholders who
perfect their dissenters' rights and receive solely cash in redemption of their
Empire Common Stock will be subject to federal income tax on any income or gain
recognized. For a further discussion of the federal income tax consequences of
the Merger, see "DESCRIPTION OF MERGER--Certain Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER CIRCUMSTANCES, EACH
HOLDER OF EMPIRE COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISORS
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS).
Accounting Treatment. It is intended that the Merger will be accounted for
as a pooling-of-interests for accounting and financial reporting purposes. See
"DESCRIPTION OF MERGER--Accounting Treatment."
Certain Differences in Shareholders' Rights. At the Effective Time,
Empire shareholders, whose rights are governed by Empire's Articles of
Incorporation and Bylaws and by the GBCC, will automatically become FLAG
shareholders, and their rights as FLAG shareholders will be determined by FLAG's
Articles of Incorporation and Bylaws and by the GBCC. The rights of FLAG
shareholders differ from the rights of Empire shareholders in certain important
respects, some of which constitute additional anti-takeover provisions provided
7
<PAGE>
for in FLAG's governing documents. See "EFFECT OF THE MERGER ON RIGHTS OF
SHAREHOLDERS."
Comparative Market Prices of Common Stock; Dividends. FLAG Common Stock
is traded in the over-the-counter market and quoted on the Nasdaq National
Market under the symbol "FLAG." Empire Common Stock is not traded in any
established market. On May 29, 1998, the last day prior to public announcement
of the proposed merger between FLAG and Empire, the last reported sale price per
share of FLAG Common Stock on the Nasdaq National Market was $15.33, as adjusted
for the 3-for-2 stock split effective June 3, 1998, and the resulting equivalent
pro forma price per share of Empire Common Stock (based on the 42.5 Exchange
Ratio) was $651.53. On ___________, 1998, the latest practicable date prior to
the mailing of this Proxy Statement/Prospectus, the last reported sale price per
share of FLAG Common Stock on the Nasdaq National Market was $______, and the
resulting equivalent pro forma price per share of Empire Common Stock was
$______. The equivalent per share price of a share of Empire Common Stock at
each specified date represents the closing sale price of a share of FLAG Common
Stock on such date multiplied by the Exchange Ratio of 42.5. To the knowledge of
Empire, the most recent trade of Empire Common Stock prior to May 29, 1998, the
last day prior to public announcement of the proposed merger between FLAG and
Empire, was a sale of 400 shares on April 17, 1998 for a purchase price of
$271.26 per share. To the knowledge of Empire, there have been no trades since
the announcement of the Merger. There can be no assurance as to what the market
price of the FLAG Common Stock will be if and when the Merger is consummated.
See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
Risk Factors
In considering whether to approve the Merger Agreement and the
transactions contemplated thereby, the shareholders of Empire should consider
the various risks associated with an investment in FLAG Common Stock. For a
discussion of the risks associated with the Merger and the securities associated
therewith, see "RISK FACTORS."
Comparative Per Share Data
The following table sets forth certain unaudited comparative per share
data relating to income, cash dividends, and book value on (i) an historical
basis for FLAG and Empire; (ii) a pro forma combined basis per share of FLAG
Common Stock, giving effect to the Merger; and (iii) an equivalent pro forma
basis per share of Empire Common Stock, giving effect to the Merger. The Empire
and FLAG pro forma combined information and the Empire pro forma equivalent
information give effect to the Merger on a pooling-of-interests accounting basis
and reflect the Exchange Ratio of 42.5 shares of FLAG Common Stock for each
share of Empire Common Stock. See "DESCRIPTION OF MERGER--Accounting Treatment."
The pro forma data are presented for information purposes only and are not
necessarily indicative of the results of combined operations or financial
position that would have resulted had the Merger been consummated at the dates
or during the periods indicated, nor are they necessarily indicative of future
results of combined operations or financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of FLAG and
Empire contained or incorporated by reference herein, including the respective
notes thereto, and the pro forma financial information contained herein,
including the notes thereto. See "DOCUMENTS INCORPORATED BY REFERENCE,"
"--Selected Financial Data," "--Selected Condensed Consolidated Pro Forma
Financial Data," "BUSINESS OF EMPIRE --Management's Discussion and Analysis of
Financial Condition and Results of Operations," "EMPIRE FINANCIAL DATA," and
"PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
8
<PAGE>
<TABLE>
<CAPTION>
Comparative Per Share Data
As of and for the
-----------------
Six Months Ended
June 30, Year Ended December 31,
-------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Per Common Share
FLAG Historical $ .41 $ .38 $ .73 $ .25 $ .68
Empire historical 15.90 13.77 26.85 9.50 21.09
FLAG and Empire pro forma combined (1) .40 .37 .71 .25 .65
Empire pro forma equivalent (2) 17.00 15.73 30.18 10.63 27.63
Dividends Declared Per Common Share
FLAG historical $ .08 $ .11 $ .15 $ .14 $ .13
Empire historical 1.70 1.60 3.20 3.20 3.20
FLAG and Empire pro forma combined (1) (4) .08 .11 .15 .14 .13
Empire pro forma equivalent (3) 3.40 4.68 6.38 5.95 5.53
c
Book Value Per Common Share (period end)
FLAG historical $ 7.52 $ 6.77 $ 7.11 $ 6.47 $ 6.48
Empire historical 276.95 252.31 264.46 240.02 234.30
FLAG and Empire pro forma combined (1) 7.32 6.60 6.95 6.33 6.30
Empire pro forma equivalent (2) 311.10 281.35 295.38 269.03 267.75
</TABLE>
(1) Represents the pro forma combined information of FLAG and Empire as if
the Merger was consummated at the beginning of the period, and were accounted
for as a pooling-of-interests.
(2) Represents the pro forma combined per common share amounts multiplied
by the Exchange Ratio of 42.5 shares of FLAG Common Stock for each share of
Empire Common Stock.
(3) Represents historical dividends declared per share by FLAG multiplied
by the Exchange Ratio of 42.5 shares of FLAG Common Stock for each share of
Empire Common Stock.
(4) Represents historical dividends paid by FLAG, as it is assumed that
FLAG will not change its dividend policy as a result of the Merger.
Selected Condensed Consolidated Pro Forma Financial Data
The following selected unaudited pro forma financial data give effect
to the Merger as of the dates and for the periods indicated, assuming the Merger
is accounted for as a pooling of interests. The selected unaudited pro forma
financial data are presented for informational purposes only and are not
necessarily indicative of the combined financial position or results of
operations which actually would have occurred if the transactions had been
consummated at the date and for the periods indicated or which may be obtained
in the future. The information should be read in conjunction with the unaudited
pro forma financial information appearing elsewhere in this Proxy
Statement/Prospectus. See "COMPARATIVE PER SHARE DATA" and "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION."
9
<PAGE>
<TABLE>
<CAPTION>
Selected Pro Forma Financial Data
(Dollars in thousands, except per share amounts)
For the
Six Months Ended For the Year Ended
June 30, December 31,
-------- ------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Data
Interest income $ 20,479 $ 17,011 $ 35,902 $ 32,438 $ 31,472
Interest expense 10,129 8,004 17,290 15,411 15,221
Net interest income 10,350 9,007 18,612 17,027 16,251
Provision for loan losses 479 578 1,016 4,375 1,418
Noninterest income 3,985 2,835 5,873 5,071 4,058
Noninterest expense 10,281 7,997 17,139 15,822 13,195
Income taxes 1,043 963 1,888 370 1,677
Net earnings 2,532 2,304 4,442 1,531 4,019
Earnings per common share .40 .37 .71 .25 .65
</TABLE>
As of
June 30, 1998
-------------
Balance Sheet Data
Total assets $ 512,699
Federal funds sold 13,270
Investment securities 88,038
Loans, net 354,924
Deposits 398,071
Other borrowings 59,235
Stockholders' equity 45,908
Selected Financial Data
The following tables present certain selected historical financial
information for FLAG and Empire and are derived from the respective consolidated
financial statements of FLAG and Empire including the respective notes thereto,
contained or incorporated by reference herein. The data should be read in
conjunction with the historical financial statements, including the respective
notes thereto, and other financial information concerning FLAG and Empire
contained or incorporated by reference herein. Interim unaudited data for the
six month periods ended June 30, 1998 and 1997, of FLAG and Empire reflect, in
the opinion of the respective managements of FLAG and Empire, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the six month periods ended June 30, 1998
and 1997 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole. See "AVAILABLE INFORMATION,"
"DOCUMENTS INCORPORATED BY REFERENCE" and "EMPIRE FINANCIAL DATA."
10
<PAGE>
<TABLE>
<CAPTION>
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
Six Months
Ended June 30, As of and For the Year Ended December 31,
-------------- -----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FLAG
Balance Sheet Data
Total assets $442,879 $370,141 $411,285 $350,519 $337,857 $326,229 $293,935
Loans, net 306,527 254,849 279,286 239,652 216,204 207,715 191,029
Deposits 339,245 312,461 324,852 294,420 270,853 251,828 242,062
Stockholders' equity 38,889 34,936 36,771 33,415 32,254 28,741 28,785
Statement of Earnings Data
Net interest income $ 8,996 $ 7,684 $ 15,997 $ 14,757 $ 13,933 $ 11,824 $ 10,253
Provision for loan losses 444 407 765 3,744 775 490 955
Noninterest income 3,718 2,562 5,332 4,637 3,706 2,915 2,938
Noninterest expense 9,226 6,941 15,020 14,018 11,687 9,578 8,400
Net earnings 2,115 1,948 3,749 1,286 3,472 3,117 3,175
Per Share Data
Book value (period end) $ 7.52 $ 6.77 $ 7.11 $ 6.47 $ 6.48 $ 5.61 $ 5.60
Net earnings .41 .38 .73 .25 .68 .61 .62
Dividends .11 .08 .15 .14 .13 .13 .11
Total shares outstanding 5,175 5,162 5,172 5,164 4,979 5,120 5,143
Weighted average shares outstanding 5,172 5,164 5,167 5,121 5,088 5,110 5,143
Ratios
Return on average assets .99% 1.08% 1.01% .39% 1.05% 1.00% 1.12%
Return on average stockholders' equity 11.23 11.40 10.68 3.97 11.07 10.76 11.42
Average equity to average assets 8.82 9.48 9.49 9.72 9.53 9.28 9.79
Average loans to average deposits 88.21 81.48 83.81 81.92 82.62 83.47 85.00
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
Six Months
Ended June 30, As of an For the Year Ended December 31,
-------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Empire
Balance Sheet Data
Total assets $69,820 $64,361 $70,002 $60,589 $51,479 $47,583 $45,736
Loans, net 48,396 44,267 45,462 39,785 36,628 32,504 29,670
Deposits 58,826 53,953 59,295 50,621 42,523 40,846 40,455
Stockholders' equity 7,218 6,523 6,832 6,195 6,089 5,517 5,022
Statement of Earnings Data
Net interest income $ 1,354 $ 1,323 $ 2,616 $ 2,269 $ 2,319 $ 2,102 $ 2,131
Provision for loan losses 35 171 251 631 643 131 56
Noninterest income 267 273 541 434 352 336 331
Noninterest expense 1,054 1,056 2,119 1,804 1,509 1,478 1,434
Net earnings 418 357 693 246 548 671 749
Per Share Data
Book value (period end) $272.89 $252.31 $264.46 $240.02 $234.30 $212.32 $193.23
Net earnings 15.80 13.77 26.85 9.50 21.09 25.80 28.83
Dividends 1.70 1.60 3.20 3.20 3.20 3.20 3.20
Total shares outstanding 26,450 25,852 25,832 25,812 25,987 25,987 25,987
Weighted average shares outstanding 26,279 25,842 25,822 25,900 25,987 25,987 25,987
Ratios
Return on average assets 1.20% 1.12% 1.05% 0.42% 1.08% 1.44% 1.70%
Return on average stockholders' equity 5.90% 5.64% 10.64% 4.01% 9.44% 12.73% 15.98%
Average equity to average assets 10.14% 9.91% 9.88% 10.60% 11.39% 11.29% 10.63%
Average loans to average deposits 79.59% 81.23% 80.71% 81.11% 84.68% 76.47% 74.40%
</TABLE>
12
<PAGE>
Recent Developments
FLAG's Pending Acquisitions. Effective July 24, 1998, FLAG and The
Brown Bank ("Brown") entered into an Agreement and Plan of Merger (the "Brown
Agreement") pursuant to which Brown will merge with and into FLAG's wholly-owned
bank subsidiary, Citizens. The Brown Agreement provides that FLAG will exchange
1.5 shares of FLAG Common Stock for each share of Brown Common Stock
outstanding, with approximately 262,500 shares of FLAG Common Stock expected to
be issued to Brown shareholders. The parties expect the merger to be accounted
for as a pooling of interests and expect to consummate the transaction during
the fourth quarter of 1998, subject to approval of Brown shareholders in
accordance with applicable law, approval of various regulatory authorities and
other customary conditions of closing.
Brown is a federal savings bank located in Cobbtown, Georgia. Brown has
three bank offices located in Cobbtown, Reidsville and Metter, Georgia.
Effective ____________, 1998, FLAG and Heart of Georgia Bancshares,
Inc. ("Heart") entered into an Agreement and Plan of Merger (the "Heart
Agreement") pursuant to which Heart will merge with and into FLAG. The Heart
Agreement provides that FLAG will exchange 2.025 shares of FLAG Common Stock for
each share of Heart Common Stock outstanding, with approximately 445,500 shares
of FLAG Common Stock expected to be issued to Heart shareholders. The parties
expect the merger to be accounted for as a pooling of interests and expect to
consummate the transaction during the fourth quarter of 1998, subject to
approval of Heart shareholders in accordance with applicable law, approval of
various regulatory authorities and other customary conditions of closing.
Heart is a bank holding company located in Mount Vernon, Georgia and is
the sole shareholder of Mount Vernon Bank. Mount Vernon Bank has one office
located in Mount Vernon, Georgia.
Additional information with respect to the Brown transaction and the
Heart transaction is set forth in FLAG's Current Reports on Form 8-K dated May
14, 1998, May 28, 1998 and August 11, 1998 (the "FLAG 8-Ks"). The FLAG 8-Ks
include or incorporate by reference certain forward looking statements,
estimates, and projections concerning the transactions with Brown and Heart
which are subject to various uncertainties and risks. Estimates and projections
concerning the future financial performance of FLAG following the transactions
with Brown and Heart are predicated on certain assumptions and depend upon
future events, the course of which cannot be ascertained with certainty, and
therefore such estimates and projections should be considered only as estimates
and understood to be uncertain and subject to risks of inaccuracy. Future events
may cause FLAG's actual experience to differ materially from such estimates and
projections.
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RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, THE SHAREHOLDERS OF EMPIRE SHOULD CONSIDER
THE VARIOUS RISKS ASSOCIATED WITH AN INVESTMENT IN FLAG COMMON STOCK, INCLUDING
BUT NOT LIMITED TO THE FOLLOWING:
Limited Market For Shares Of FLAG Common Stock
While FLAG Common Stock is listed and traded on the Nasdaq National
Market, there has only been limited trading activity of FLAG Common Stock. The
average daily trading volume of FLAG Common Stock over the six-month period
ending June 30, 1998 was approximately 5,720 shares, and on some days the
trading volume for shares of FLAG Common Stock was zero. It is not anticipated
that the merger of Empire with and into FLAG will cause any significant change
in the average daily trading volumes for FLAG Common Stock.
Restrictions On Dividends
Although FLAG has regularly paid cash dividends in the past, dividends
will be payable on FLAG Common Stock only when, as and if declared by the Board
of Directors of FLAG out of funds available therefor. Any dividends to be
declared by the FLAG Board of Directors must comply with the GBCC and the
applicable rules and regulations of the appropriate regulatory authorities. In
addition, FLAG's only source of income will be dividends and other payments made
to FLAG by First Federal, Citizens, Milan, Empire Bank and the other
subsidiaries of FLAG and Empire, and certain statutory and regulatory
restrictions exist on the payment of dividends by those subsidiaries.
Possible Costs Associated With The Integration Of FLAG's Pending Acquisitions
The ability of FLAG, as the surviving corporation, to perform with
financial success is dependent upon the integration of Empire, Brown, Heart and
their subsidiaries (the "Acquirees") into FLAG, as the surviving corporation.
There may be significant, unanticipated costs associated with the integration of
the Acquirees with and into FLAG. See "SUMMARY - Recent Developments."
Governmental Regulation
FLAG, Empire, and their respective subsidiaries are currently subject
to extensive governmental regulation. FLAG and Empire, as bank holding
companies, are primarily regulated by the Federal Reserve. Citizens and Milan
are primarily regulated by the Federal Deposit Insurance Corporation (the
"FDIC") and the GDBF. First Federal, as a savings bank is primarily regulated by
the Office of Thrift Supervision (the "OTS"). The Federal and State regulators
of these entities have the ability, should the situation so require, to place
significant regulatory and operational burdens upon FLAG and its subsidiaries,
which could affect the profitability of those entities.
Competition
FLAG and its subsidiaries will compete directly with financial
institutions which are well established, many of which will have significantly
greater resources and lending limits than FLAG and its subsidiaries. As a result
of those greater resources, the large financial institutions with which FLAG
will compete may be able to provide a broader range of services to their
customers than FLAG and may be able to afford newer and more sophisticated
technology than FLAG. The long-term success of FLAG will be dependent on the
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ability of its subsidiaries to compete successfully with other financial
institutions in their service areas.
Control By Management
The directors and executive officers of FLAG beneficially own
approximately 1,293,863 shares of FLAG Common Stock, or approximately 24.0% of
the total outstanding shares and, as a result, FLAG's management has significant
control of FLAG.
Anti-Takeover Effects Of Certain Provisions Of FLAG's Articles Of Incorporation,
Bylaws And The GBCC
The Board of Directors of FLAG is empowered to issue preferred stock
without shareholder action. The existence of this ability could render more
difficult or discourage an attempt to obtain control of FLAG by means of a
tender offer, merger, proxy contest or otherwise. See "DESCRIPTION OF FLAG
COMMON STOCK" and "EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS -- Authorized
Capital Stock." FLAG's Articles of Incorporation and Bylaws divide the Board of
Directors of FLAG into three classes, as nearly equal in size as possible, with
staggered three-year terms. One class is elected each year. The classification
of the Board of Directors could have the effect of making it more difficult for
a third party to acquire control of FLAG. See "EFFECT OF THE MERGER ON RIGHTS OF
SHAREHOLDERS -- Classified Board of Directors and Absence of Cumulative Voting."
FLAG is also subject to certain provisions of the GBCC and the FLAG Articles of
Incorporation which relate to business combinations with interested
shareholders. See "EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS -- Mergers,
Consolidations, and Sales of Assets."
Year 2000 Issues
It is possible that FLAG's and Empire's currently installed computer
systems, software products or other business systems, or those of FLAG's or
Empire's suppliers or customers, will not always accept input of, store,
manipulate and output dates in the years 1999, 2000 or thereafter without error
or interruption. FLAG and Empire have conducted reviews of their business
systems, including their computer systems, to attempt to identify ways in which
their systems could be affected by problems in correctly processing date
information. In addition, FLAG and Empire are requesting assurances from all
software vendors from which they have purchased or from which they may purchase
software that the software sold to FLAG and Empire will correctly process all
date information at all times, and FLAG and Empire are querying their customers
and suppliers as to their progress in identifying and addressing problems that
their computer systems will face in correctly processing date information as the
year 2000 approaches and is reached. However, there can be no assurance that
FLAG and Empire will identify all date-handling problems in their business
systems or those of their customers and suppliers in advance of their
occurrence, or that FLAG and Empire will be able to successfully remedy problems
that are discovered. The expenses of FLAG's and Empire's efforts to identify and
address such problems, or the expenses or liabilities to which FLAG and Empire
may become subject as a result of such problems, could have a material adverse
effect on FLAG's results of operations and financial condition.
MEETING OF EMPIRE SHAREHOLDERS
Date, Place, Time, And Purpose
This Proxy Statement/Prospectus is being furnished to the holders of
Empire Common Stock in connection with the solicitation by the Empire Board of
Directors of proxies for use at the Special Meeting at which Empire shareholders
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will be asked to vote upon a proposal to approve the Merger Agreement. The costs
associated with the solicitation of proxies for the Special Meeting will be
borne by Empire. The Special Meeting will be held at the main office of Empire
Bank, located at 115 East Dame Avenue, Homerville, Georgia, on [Tuesday,
September 29, 1998,] at 2:00 p.m., local time.
Record Date, Voting Rights, Required Vote, And Revocability Of Proxies
The close of business on August ___, 1998, has been fixed as the Empire
Record Date for determining holders of outstanding shares of Empire Common Stock
entitled to notice of and to vote at the Special Meeting. Only holders of Empire
Common Stock of record on the books of Empire at the close of business on the
Empire Record Date are entitled to notice of and to vote at the Special Meeting.
As of the Empire Record Date, there were 26,450 shares of Empire Common Stock
issued and outstanding and entitled to vote at the Special Meeting, which shares
were held by 154 holders of record.
Holders of Empire Common Stock are entitled to one vote on each matter
considered and voted upon at the Special Meeting for each share of Empire Common
Stock held of record as of the Empire Record Date. The vote required for the
approval of the Merger Agreement is a majority of the issued and outstanding
shares of Empire Common Stock entitled to vote at the Special Meeting.
Consequently, with respect to the proposal to approve the Merger Agreement,
abstentions and broker non-votes will be counted as part of the base number of
votes to be used in determining if the proposal has received the requisite
number of base votes for approval. Thus, an abstention or a broker non-vote will
have the same effect as a vote "against" such proposal.
Shares of Empire Common Stock represented by properly executed proxies,
if such proxies are received in time and not revoked, will be voted in
accordance with the instructions indicated on the proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT
AND, IN THE DISCRETION OF THE PROXY HOLDER, AS TO ANY OTHER MATTER WHICH MAY
PROPERLY COME BEFORE THE SPECIAL MEETING, AND THE HOLDERS WILL NOT BE ENTITLED
TO ASSERT DISSENTERS' RIGHTS. SEE "DESCRIPTION OF MERGER -- DISSENTERS' RIGHTS."
If necessary, the proxy holder may vote in favor of a proposal to adjourn the
Special Meeting in order to permit further solicitation of proxies in the event
there are not sufficient votes to approve the foregoing proposal at the time of
the Special Meeting. No proxy that is voted against the approval of the Merger
Agreement will be voted in favor of an adjournment of the Special Meeting in
order to permit further solicitation of proxies.
FAILURE EITHER TO VOTE BY PROXY OR IN PERSON AT THE SPECIAL MEETING
WILL HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE MERGER AGREEMENT.
An Empire shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of Empire, (ii) properly submitting to Empire a duly
executed proxy bearing a later date, or (iii) attending the Special Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Empire
Bank Corp., 115 East Dame Avenue, Homerville, Georgia 31634; Attention:
Leonard H. Bateman.
As of the Empire Record Date, all directors and executive officers of
Empire as a group (11 persons) were entitled to vote approximately 5,207 shares
of Empire Common Stock, constituting approximately 19.7% of the total number of
shares of Empire Common Stock outstanding at that date, and have committed to
vote their shares of Empire Common Stock in favor of the Merger Agreement. None
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of FLAG or any of its directors and executive officers beneficially owned, as of
the Empire Record Date, any shares of Empire Common Stock. See "BUSINESS OF
EMPIRE -- Management."
DESCRIPTION OF MERGER
The following information describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Merger Agreement, which is
attached as Appendix A to this Proxy Statement/Prospectus and incorporated
herein by reference. All shareholders are urged to read the Appendices in their
entirety.
General
Upon consummation of the Merger, Empire will merge with and into FLAG.
FLAG will survive the Merger and the separate existence of Empire will cease.
Empire Bank will become a wholly-owned subsidiary of FLAG following the
consummation of the Merger. As soon as practicable after the Effective Time of
the Merger, FLAG plans to cause Empire Bank to merge with and into Citizens. At
the Effective Time, each share of Empire Common Stock then issued and
outstanding (excluding shares held by Empire, FLAG, or their respective
subsidiaries, in each case other than shares held in a fiduciary capacity or in
satisfaction of debts previously contracted, and excluding shares held by Empire
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for the right to receive 42.5 shares of FLAG Common Stock.
No fractional shares of FLAG Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Empire shareholder would otherwise be entitled upon consummation of
the Merger, in an amount equal to such fractional part of a share of FLAG Common
Stock multiplied by the last sale price of FLAG Common Stock on the Nasdaq
National Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by FLAG) on the last trading
day preceding the Effective Time.
As of the Empire Record Date, Empire had 26,450 shares of Empire Common
Stock issued and outstanding. Based on the number of shares of Empire Common
Stock outstanding on the Empire Record Date and the Exchange Ratio of 42.5, it
is anticipated that upon consummation of the Merger, FLAG would issue
approximately 1,124,125 shares of FLAG Common Stock to holders of Empire Common
Stock. Accordingly, FLAG would then have issued and outstanding approximately
6,298,932 shares of FLAG Common Stock based on the number of shares of FLAG
Common Stock issued and outstanding on June 30, 1998. Following the Merger, and
assuming no exercise of dissenters' rights, the current shareholders of Empire
will beneficially own approximately 17.85% of the FLAG Common Stock that will
then be outstanding.
Background Of And Reasons For The Merger
Background of the Merger. On March 11, 1998, certain shareholders of
Empire granted an option to purchase an aggregate of 7,200 shares or
approximately 27% of Empire Common Stock to Habersham Bancorp, a bank holding
company located in Cornelia, Georgia. Thereafter, Empire began to assess its
strategic alternatives and contacted a number of potential merger partners,
including FLAG. Executive officers of Empire began discussions with such
potential merger partners, including FLAG, in early May 1998. Representatives
from FLAG met with the Board of Directors of Empire on May 20, 1998 to discuss a
combination of Empire and FLAG.
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In negotiating the final Exchange Ratio, Empire and FLAG considered the
relative book value and earnings of each entity, as well as certain special
factors relating to historical performance, market growth potential, ancillary
businesses and future growth plans. Empire and FLAG did not follow a precise
formula in the negotiation of the final Exchange Ratio, which was based on a
determination by management of each institution (as well as by Habersham Bancorp
as to Empire) that the Exchange Ratio fairly represented equivalent value for
the shareholders of each institution participating in the merger.
The Board of Directors of Empire met on July 13, 1998, to discuss the
Merger Agreement and related agreements that were finalized on that date. After
review of the matters considered by the Board of Directors and Executive
Committee of Empire, the Board of Directors of Empire unanimously approved the
Merger Agreement and authorized the President and Chief Executive Officer of
Empire to take the appropriate actions necessary to execute the Merger
Agreement.
The Board of Directors of FLAG met on July 20, 1998, to discuss the
Merger Agreement and related agreements. After review of the matters considered
by the Board of Directors and Executive Committee of FLAG, the Board of
Directors of FLAG unanimously approved the Merger Agreement and authorized the
President and Chief Executive Officer of FLAG to take the appropriate actions
necessary to execute the Merger Agreement in substantially the form approved by
the Board.
The Merger Agreement was executed as of July 30, 1998. FLAG and Empire
each conducted a due diligence review of the material financial, operating and
legal information relating to the other party.
Empire's Reasons for the Merger and Recommendation of Directors. The
Empire Board of Directors, with the assistance of outside legal advisors,
evaluated the financial, legal and market considerations bearing on the decision
to recommend the Merger to the shareholders of Empire. In reaching its
conclusion that the Merger Agreement is in the best interests of Empire and its
shareholders, the Empire Board of Directors carefully considered the following
material factors:
(a) the business, operations, earnings and financial
condition, including the capital levels and asset quality, of FLAG on
an historical, prospective, and pro forma basis and in comparison to
other financial institutions in the area;
(b) the demographic, economic and financial characteristics of
the markets in which FLAG operates, including the similarity to the
markets in which Empire operates, existing competition, history of the
market areas with respect to financial institutions, and average demand
for credit, on an historical and prospective basis;
(c) the local autonomy that FLAG provides its subsidiary
banking operations;
(d) the results of Empire's due diligence review of FLAG and a
variety of factors affecting and relating to the overall strategic
focus of Empire, including Empire's desire to expand into markets
\ outside the general vicinity of its core markets;
(e) the opinion from Carson Medlin that the terms of the
Merger are fair, from a financial point of view, to the shareholders of
Empire;
(f) the potential increases in access to the public capital
markets and stock liquidity;
(g) the vision shared by Empire and FLAG relating to future
expansion; and
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(h) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay.
While each member of the Empire Board of Directors individually
considered the foregoing and other factors, the Empire Board of Directors did
not collectively assign any specific or relative weights to the factors
considered and did not make any determination with respect to any individual
factor. The Empire Board of Directors collectively made its determination with
respect to the Merger based on the unanimous conclusion reached by its members,
in light of the factors that each of them consider as appropriate, that the
Merger is in the best interests of the Empire shareholders.
The terms of the Merger, including the Exchange Ratio, were the result
of arm's-length negotiations between representatives of Empire and
representatives of FLAG. Based upon its consideration of the foregoing factors,
the Board of Directors of Empire approved the Merger Agreement and the Merger as
being in the best interests of Empire and its shareholders.
THE EMPIRE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT EMPIRE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
FLAG's Reasons for the Merger. Since the completion of the merger of
Middle Georgia with FLAG in March 1998, FLAG has explored opportunities that
would further FLAG's goal of building a strong presence in Georgia through a
partnership of community banks. The FLAG Board of Directors, with the assistance
of outside legal advisors, evaluated the financial, legal and market
considerations relating to the Merger. In reaching its conclusion that the
Merger Agreement is in the best interests of FLAG and its shareholders, the FLAG
Board of Directors carefully considered the following material factors:
(a) the information presented to the directors by the
management of FLAG concerning the business, operations, earnings, asset
quality, and financial condition of Empire, including the composition
of the earning assets portfolio of Empire;
(b) the financial terms of the Merger, including the
relationship of the value of the /*consideration issuable in the Merger
to the market value, tangible book value, and earnings per share of
Empire Common Stock;
(c) the nonfinancial terms of the Merger, including the
treatment of the Merger as a tax-free exchange of Empire Common Stock
for FLAG Common Stock for federal income tax purposes;
(d) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay;
(e) the opportunity for reducing the noninterest expense of
the operations of Empire and the ability of the operations of Empire
after the Effective Time to contribute to the earnings of FLAG;
(f) the attractiveness of the Empire franchise, the market
position of Empire in Homerville and Waycross, the compatibility of the
franchise of Empire with the operations of FLAG and the ability of
Empire to contribute to the business strategy of FLAG;
(g) the compatibility of the community bank orientation of the
operations of Empire to that of FLAG; and
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(h) the opportunity to leverage the infrastructure of FLAG.
While each member of the FLAG Board of Directors individually
considered the foregoing and other factors, the Board of Directors did not
collectively assign any specific or relative weights to the factors considered
and did not make any determination with respect to any individual factor. The
FLAG Board of Directors collectively made its determination with respect to the
Merger based on the unanimous conclusion reached by its members, in light of the
factors that each of them consider as appropriate, that the Merger is in the
best interests of the FLAG shareholders.
The terms of the Merger, including the Exchange Ratio, were the result
of arm's-length negotiations between representatives of FLAG and representatives
of Empire. Based upon its consideration of the foregoing factors, the Board of
Directors of FLAG approved the Merger Agreement and the Merger as being in the
best interests of FLAG and its shareholders.
Fairness Opinion
Pursuant to an engagement letter dated June 1, 1998, Carson Medlin
was engaged to provide the Board of Directors of Empire with a written opinion
regarding the fairness of the Merger from a financial point of view. Empire
selected Carson Medlin as its financial adviser on the basis of Carson Medlin's
experience and expertise in representing community banks in acquisition
transactions. Carson Medlin is an investment banking firm which specializes in
the securities of financial institutions located in the southeastern United
States. As part of its investment banking activities, Carson Medlin is regularly
engaged in the valuation of financial institutions and transactions relating to
their securities.
As part of its engagement, representatives of Carson Medlin attended
the meeting of Empire's Board held on July 13, 1998, at which meeting the terms
of the proposed Merger were discussed and considered. Carson Medlin delivered
its written opinion dated July 30, 1998 to the Board of Directors of Empire
stating that the aggregate consideration to be provided for in the Agreement is
fair, from a financial point of view, to the shareholders of Empire (the "Carson
Medlin Opinion").
The full text of the Carson Medlin Opinion written opinion is attached
as Appendix C to this Proxy Statement/Prospectus and should be read in its
entirety with respect to the procedures followed, assumptions made, matters
considered and qualification and limitation on the review undertaken by Carson
Medlin in connection with its opinion. The Carson Medlin Opinion is addressed to
Empire's Board of Directors and is substantially identical to the verbal opinion
delivered to Empire's Board on July 13, 1998. The summary of the opinion of
Carson Medlin set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion. The Carson Medlin
Opinion addresses only the fairness of the Exchange Ratio from a financial point
of view and does not constitute an endorsement of the Merger or a recommendation
to any shareholder of Empire as to how such shareholder should vote with respect
to the Merger.
No limitations were imposed by the Board of Directors or management of
Empire upon Carson Medlin with respect to the investigations made or the
procedures followed by Carson Medlin in rendering its opinion.
The preparation of a fairness opinion involves various determinations
as to the most appropriate methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, is not readily
susceptible to partial analysis or summary description. In connection with
rendering its opinion, Carson Medlin performed a variety of financial analyses.
Carson Medlin believes that its analyses must be considered together as a whole
and that selecting portions of such analyses and the facts considered therein,
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without considering all other factors and analyses, could create an incomplete
or inaccurate view of the analyses and the process underlying the Carson Medlin
Opinion. In its analyses, Carson Medlin made numerous assumptions with respect
to industry performance, business and economic conditions, and other matters,
many of which are beyond the control of FLAG and Empire and which may not be
realized. Any estimates contained in Carson Medlin's analyses are not
necessarily predictive of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which such
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Carson Medlin were assigned a greater
significance by Carson Medlin than any other.
Carson Medlin has relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for purpose of its
opinion. Carson Medlin did not undertake any independent evaluation or appraisal
of the assets and liabilities of FLAG or Empire, nor was it furnished with any
such appraisals. Carson Medlin is not expert in the evaluation of loan
portfolios, including under-performing or non-performing assets, charge-offs or
the allowance for loan losses. It has not reviewed any individual credit files
of FLAG or Empire. Instead, it has assumed that the allowances for each of FLAG
and Empire are in the aggregate adequate to cover such losses. Carson Medlin's
opinion is necessarily based on economic, market and other conditions existing
on the date of its opinion, and on information as of various earlier dates made
available to it. Carson Medlin reviewed certain financial projections prepared
by FLAG and Empire. Carson Medlin assumed that these projections were prepared
on a reasonable basis using the best and most current information available to
the managements of FLAG and Empire, and that such projections will be realized
in the amounts and at the times contemplated thereby. Neither FLAG nor Empire
publicly discloses internal management projections of the type provided to
Carson Medlin. Such projections were not prepared for, or with a view toward,
public disclosure. Carson Medlin assumed that the Merger will be recorded as a
pooling-of-interests under generally accepted accounting principles.
In connection with its opinion Carson Medlin reviewed: (i) the
Agreement; (ii) the annual reports to shareholders of FLAG, including the
audited financial statements for the five years ended December 31, 1997; (iii)
audited financial statements of Empire for the five years ended December 31,
1997; (iv) the unaudited and proforma interim financial statements of FLAG for
the five months ended May 31, 1998; (v) the unaudited interim financial
statements of Empire for the five months ended May 31, 1998; (vi) certain
financial and operating information with respect to the business, operations and
prospects of FLAG and Empire; and (vii) this Proxy Statement/Prospectus. In
addition, Carson Medlin: (a) held discussions with members of the senior
management of FLAG and Empire regarding the historical and current business
operations, financial condition and future prospects of their respective
companies; (b) reviewed the historical market prices and trading activity for
the common stock of FLAG and Empire and compared them with those of certain
publicly traded companies which it deemed to be relevant; (c) compared the
results of operations of FLAG and Empire with those of certain financial
institutions which it deemed to be relevant; (d) compared the financial terms of
the Merger with the financial terms, to the extent publicly available, of
certain other recent business combinations of financial institutions; (e)
analyzed the pro forma financial impact of the Merger on FLAG; and (f) conducted
such other studies, analyses, inquiries and examinations as Carson Medlin deemed
appropriate.
Valuation Methodologies
The following is a summary of the principal analyses performed by
Carson Medlin in connection with Carson Medlin Opinion.
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Summary of Proposal. Carson Medlin reviewed the terms of the proposed
Merger, including the form of consideration, the Exchange Ratio, the closing
price of FLAG's Common Stock as of July 29, 1998, and the resulting price per
share of Empire Common Stock pursuant to the proposed Merger. Under the terms of
the Agreement, each outstanding share of Empire Common Stock will be converted
into 42.5 shares of FLAG's Common Stock resulting in an indicated value of
$738.44 per share based on the closing price of FLAG's Common Stock on July 29,
1998 of $17 3/8 per share. Carson Medlin calculated that the indicated value
represented 279% of stated book value at May 31, 1998, 326% of normalized book
value (based on an equity to assets ratio of 8%), 22.6 times 1998 estimated
earnings, a 26.9% core deposit premium (defined as the aggregate transaction
value minus stated book value divided by core deposits) and 28.2% of total
assets of Empire at May 31, 1998.
Industry Comparative Analysis. In connection with rendering its
opinion, Carson Medlin compared selected operating results of Empire to those of
50 publicly-traded community commercial banks in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Virginia and West Virginia (the
"SIBR Banks") as contained in the Southeastern Independent Bank Review(TM), a
proprietary research publication prepared by Carson Medlin quarterly since 1991.
The SIBR Banks range in asset size from approximately $125 million to $2.5
billion and in shareholders' equity from approximately $13.4 million to $247.8
million. Carson Medlin considers this group of financial institutions more
comparable to Empire than larger, more widely traded regional financial
institutions. Carson Medlin compared, among other factors, profitability,
capitalization, and asset quality of Empire to these financial institutions.
Carson Medlin noted that based on results for 1997:
o Empire had a return on average assets (ROA) of 1.09%, compared
to mean ROA of 1.25% for the SIBR Banks;
o Empire had a return on average equity (ROE)of 10.93%, compared
to mean ROE of 12.5% for the SIBR Banks;
o Empire had common equity to total assets at December 31, 1997
of 9.81%, compared to mean common equity to total assets of
9.93% for the SIBR Banks; and
o Empire had non-performing assets (defined as loans 90 days
past due, nonaccrual loans and other real estate) to total
loans net of unearned income and other real estate at December
31, 1997 of 1.61%, compared to mean non-performing assets to
total loans net of unearned income and other real estate of
0.92% for the SIBR Banks.
This comparison indicated that Empire's financial performance was below
the average SIBR Bank for most of the factors considered.
Carson Medlin also compared selected operating results of FLAG to those
of 15 publicly-traded thrifts in Alabama, Florida, Georgia, North Carolina,
South Carolina, and Virginia (the "Peer Group") as contained in the Southeastern
Thrift Review, a proprietary research publication prepared by Carson Medlin
quarterly since 1994. The Peer Group range in asset size from approximately $137
million to $1.8 billion and in shareholders' equity from approximately $17.3
million to $116.0 million. Carson Medlin considers this group of financial
institutions more comparable to FLAG than larger, more widely traded national
thrift institutions. Carson Medlin compared, among other factors, profitability,
capitalization, and asset quality of FLAG to these financial institutions.
Carson Medlin noted that based on results for the quarter ended December 31,
1997:
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o FLAG had a return on average assets (ROA) of 0.65%, compared
to mean ROA of 0.78% for the Peer Group;
o FLAG had a return on average equity (ROE) of 7.3%, compared
to mean ROE of 8.6% for the Peer Group;
o FLAG had a net interest margin of 3.94%, compared to mean net
interest margin of 3.46% for the Peer Group;
o FLAG had common equity to total assets at December 31, 1997 of
8.90%, compared to mean common equity to total assets of 9.50%
for the Peer Group; and
o FLAG had non-performing assets (defined as loans 90 days past
due, nonaccrual loans and other real estate) to total assets
at December 31, 1997 of 2.02%, compared to mean non-performing
assets to total assets of 0.74% for the Peer Group.
This comparison indicated that FLAG's financial performance is at or
below average in comparison to the Peer Group for most of the factors
considered.
Comparable Transaction Analysis. Carson Medlin reviewed certain
information relating to 13 selected Georgia bank mergers since January 1996,
(the "Comparable Transactions"). The Comparable Transactions were
(acquiree/acquiror): Middle Georgia Bank/First Liberty Financial Corp., Irwin
Bancorp/ABC Bancorporation, Middle Georgia Bancshares/FLAG Financial
Corporation, Investors Financial Corp./PAB Bankshares, Inc., Crossroads
Bancshares/SNB Bancshares, Three Rivers Bancshares/FLAG Financial Corporation,
Southland Bank Corp./First Liberty Financial Corp., Bryan Bancorp of GA/Savannah
Bancorp, Peoples Banking Corp./First Liberty Financial Corp., Eagle Bancorp/PAB
Bankshares, Inc., VB&T Bancshares/Regions Financial Corp., The Brown Bank/FLAG
Financial Corp., and Heart of Georgia Bancshares/FLAG Financial Corp. Carson
Medlin considered, among other factors, the earnings, capital level, asset size
and quality of assets of the acquired financial institutions. Carson Medlin
compared the transaction prices to stated book values, earnings, core deposit
premiums and total assets.
On the basis of the Comparable Transactions, Carson Medlin calculated a
range of purchase prices as a percentage of stated book value for the Comparable
Transactions from a low of 160.9% to a high of 353.5%, with a mean of 237.7%.
These transactions indicated a range of values for Empire from $426.13 per share
to $936.21 per share, with a mean of $629.52 per share (based on Empire's stated
book value of $264.84 per share at May 31, 1998). The consideration implied by
multiplying the Exchange Ratio and FLAG's Common Stock price as of July 29, 1998
was $738.44 per share and implies a price to stated book value multiple of 279%
which is above the average of the range for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a multiple of
earnings for the Comparable Transactions, from a low of 12.6 times to a high of
27.8 times, with a mean of 18.3 times. These transactions indicated a range of
values for Empire from $412.52 to $910.17 per share, with a mean of $599.14 per
share (based on Empire's 1998 estimated earnings per share of $32.74 per share).
The consideration implied by the terms of the Agreement is $738.44 per share and
implies a price to earnings multiple of 22.6 times which is above the average
for the Comparable Transactions.
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Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values from a low of 8.4% to a high of 38.0%,
with a mean of 18.8%. The premium on Empire's core deposits implied by the terms
of the Agreement is 26.9%, near the high end of the range for the Comparable
Transactions.
Finally, Carson Medlin calculated a range of purchase prices as a
percentage of total assets for the Comparable Transactions from a low of 11.3%
to a high of 37.6%, with a mean of 23.2%. The percentage of total assets implied
by the terms of the Agreement is approximately 28.2%, above the average of the
range for the Comparable Transactions.
No company or transaction used in Carson Medlin's analyses is identical
to FLAG, Empire or the contemplated transaction. Accordingly, the results of
these analyses necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of FLAG and
Empire and other factors that could affect the value of the companies to which
they have been compared.
Present Value Analysis. Carson Medlin calculated the present value of
Empire assuming that Empire remained an independent bank. For purposes of this
analysis, Carson Medlin utilized certain projections of Empire's future growth
of assets, earnings and dividends and assumed that the Empire Common Stock would
be sold at the end of 5 years at 238% of projected 2002 year end book value
(based on the average of the Comparable Transactions). This value was then
discounted to present value utilizing discount rates of 14% through 16%. These
rates were selected because, in Carson Medlin's experience, they represent the
rates that investors in securities such as the Empire Common Stock would demand
in light of the potential appreciation and risks. On the basis of these
assumptions, Carson Medlin calculated that the present value of Empire as an
independent bank ranged from $511.30 per share to $557.28 per share. The
consideration implied by the terms of the Agreement was $738.44 per share which
falls above the high end of the range under present value analysis. Carson
Medlin noted that the present value analysis was included because it is a widely
used valuation methodology, but noted that the results of such methodology are
highly dependent upon the numerous assumptions that must be made, including
assets and earnings growth rates, dividend payout rates, terminal values and
discount rates.
Stock Trading History. Carson Medlin reviewed and analyzed the
historical trading prices and volumes for the FLAG Common Stock on a monthly
basis from December 1992 to June 1998. Carson Medlin also compared price
performance of the FLAG Common Stock to the Peer Group over the past thirteen
quarters ended March 31, 1998 on a price to earnings and price to book value
basis. Carson Medlin considers FLAG Common Stock to be liquid and marketable in
comparison with these Peer Group and other thrift institutions.
This analysis showed that over the past thirteen quarters, FLAG's stock
has generally traded at or below the average of the Peer Banks based on price to
trailing 12 months earnings. In the most recent quarter, FLAG's stock traded at
20.3 times earnings compared to 21.2 times for the Peer Group. The analysis of
FLAG's trading on a book value basis was similar. In the most recent quarter,
FLAG's stock traded at 186% of book value compared to 204% of book value for the
Peer Group.
Carson Medlin also examined the trading prices and volumes of Empire
Common Stock. Empire Common Stock has not traded in volumes sufficient to be
meaningful. Therefore, Carson Medlin did not place any weight on the market
price of the Empire Common Stock.
Contribution Analysis. Carson Medlin reviewed the relative
contributions in terms of various balance sheet and income statement components
to be made by Empire and FLAG to the combined institution based on (i) balance
sheet data at May 31, 1998, and (ii) net income for the five months ended May
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31, 1998. FLAG's proforma financials as of May 31, 1998 included recently
completed mergers with Middle Georgia Bankshares and Three Rivers Bankshares.
The income statement and balance sheet components analyzed included total
assets, net loans, total deposits, shareholders' equity, and net income. This
analysis showed that, while Empire shareholders would own approximately 17.9% of
the aggregate outstanding shares of the combined institution based on the
Exchange Ratio, Empire was contributing 13.7% of total assets, 13.5% of loans,
net of unearned income, 14.8% of total deposits, 15.4% of shareholders' equity,
and 24.3% of net income for the five months ended May 31, 1998.
Other Analysis.Carson Medlin also reviewed selected investment research
reports on and earnings estimates for FLAG and prepared a shareholder claims
analysis.
The opinion expressed by Carson Medlin was based upon market, economic
and other relevant considerations as they existed and have been evaluated as of
the date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities markets,
the results of operations or material changes in the assets or liabilities of
Empire could materially affect the assumptions used in preparing the opinion.
Pursuant to an engagement letter dated June 1, 1998, Empire engaged
Carson Medlin to act as its financial advisor in connection with the Merger.
Empire has agreed to pay Carson Medlin $25,000 pursuant to the terms of the
engagement letter. Empire has also agreed to reimburse Carson Medlin for its
reasonable out-of-pocket expenses and to indemnify Carson Medlin against certain
liabilities, including certain liabilities under the federal securities laws.
Effective Time Of The Merger
Subject to the conditions to the obligations of the parties to effect
the Merger, the Effective Time will occur on the date and at the time that the
Certificate of Merger is declared effective with the Secretary of State of the
State of Georgia. Unless otherwise agreed upon in writing by Empire and FLAG,
and subject to the conditions to the obligations of the parties to effect the
Merger, the parties will use their reasonable efforts to cause the Effective
Time to occur on the fifth business day following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required consent of any regulatory authority having authority over and
approving or exempting the Merger, and (ii) the date on which the shareholders
of Empire have approved the Merger Agreement.
No assurance can be provided that the necessary shareholder and
regulatory approvals can be obtained or that other conditions precedent to the
Merger can or will be satisfied. Empire and FLAG anticipate that all conditions
to consummation of the Merger will be satisfied so that the Merger can be
consummated by the end of the third quarter of 1998. However, delays in the
consummation of the Merger could occur.
The Board of Directors of either Empire or FLAG generally may terminate
the Merger Agreement if the Merger is not consummated by December 31, 1998,
unless the failure to consummate by that date is the result of a breach of the
Merger Agreement by the party seeking termination. See "-- Conditions to
Consummation of the Merger" and "-- Waiver, Amendment, and Termination."
Distribution of FLAG Certificates
Promptly after the Effective Time, FLAG will cause its transfer agent,
acting in its capacity as Exchange Agent, to mail to each holder of record of an
Empire Certificate or Certificates which, immediately prior to the Effective
Time, represented outstanding shares of Empire Common Stock, appropriate
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transmittal materials and instructions for use in effecting the surrender and
cancellation of the Empire Certificates in exchange for FLAG Certificates
representing shares of FLAG Common Stock.
Holders of Empire Common Stock should NOT send in their Empire
Certificates until they receive the appropriate transmittal materials and
instructions.
Upon surrender to the Exchange Agent of Empire Certificates, together
with the properly completed transmittal materials, there will be issued and
mailed to each holder of Empire Common Stock (other than shares as to which
holders have perfected dissenters' rights) surrendering such items a FLAG
Certificate or Certificates representing the number of shares of FLAG Common
Stock to which such holder is entitled, if any, and a check for the amount to be
paid in lieu of any fractional shares (without interest), together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon).
After the Effective Time, to the extent permitted by law, holders of
Empire Common Stock of record as of the Effective Time will be entitled to vote
at any meeting of FLAG shareholders the number of whole shares of FLAG Common
Stock into which their shares of Empire Common Stock have been converted,
regardless of whether such shareholders have surrendered their Empire
Certificates. Whenever a dividend or other distribution is declared by FLAG on
FLAG Common Stock, the record date for which is at or after the Effective Time,
the declaration will include dividends or other distributions on all shares
issuable pursuant to the Merger Agreement, but no dividend or other distribution
payable after the Effective Time with respect to FLAG Common Stock will be paid
to the holder of any unsurrendered Empire Certificate until the holder duly
surrenders such Empire Certificate. Upon surrender of such Empire Certificate,
however, both the FLAG Certificate, together with all undelivered dividends or
other distributions (without interest) and any undelivered cash payments to be
paid in lieu of fractional shares (without interest), will be delivered and paid
with respect to each share represented by such Empire Certificate. In no event
will the holder of any surrendered Empire Certificate(s) be entitled to receive
interest on any cash to be issued to such holder, and in no event will FLAG or
the Exchange Agent be liable to any holder of Empire Common Stock for any
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property, escheat, or similar law.
After the Effective Time, no transfers of shares of Empire Common Stock
on Empire's stock transfer books will be recognized. If Empire Certificates are
presented for transfer after the Effective Time, they will be canceled and
exchanged for the shares of FLAG Common Stock and a check for the amount due in
lieu of fractional shares, if any, deliverable in respect thereof.
After the Effective Time, holders of Empire Certificates will have no
rights with respect to the shares of Empire Common Stock formerly represented
thereby other than the right to surrender such Empire Certificates and receive
in exchange therefor the shares of FLAG Common Stock, if any, to which such
holders are entitled, as described above, or the right to perfect their
dissenters' rights.
If any FLAG Certificate is to be issued in a name other than that in
which the Empire Certificate surrendered for exchange is issued, the Empire
Certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the Empire Certificates surrendered,
shall provide funds for the purchase of any stock transfer tax stamps, or shall
establish to the exchange agent's satisfaction that such taxes are not payable.
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Conditions To Consummation of The Merger
Consummation of the Merger is subject to various conditions, including:
(a) approval of the Merger Agreement by the shareholders of Empire as
required by any law or by the provisions of any governing
instruments of Empire;
(b) receipt of certain regulatory approvals required for consummation
of the Merger (see "-Regulatory Approvals");
(c) receipt of all consents required for consummation of the Merger
or for the preventing of any default under any contract or permit
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse effect;
(d) the absence of any law or order or any action taken by any court,
governmental, or regulatory authority prohibiting, restricting,
or making illegal the consummation of the transactions
contemplated by the Merger Agreement;
(e) the Registration Statement being declared effective and the
receipt of all necessary SEC and state approvals relating to the
issuance or trading of the shares of FLAG Common Stock issuable
pursuant to the Merger Agreement;
(f) approval of the shares of FLAG Common Stock issuable pursuant to
the Merger Agreement for listing on the Nasdaq National Market;
(g) receipt of an opinion of Powell, Goldstein, Frazer & Murphy LLP
as to the qualification of the Merger as a tax-free
reorganization (see "-- Certain Federal Income Tax
Consequences");
(h) the accuracy, as of the date of the Merger Agreement and as of
the Effective Time, of the representations and warranties of
Empire and FLAG as set forth in the Merger Agreement;
(i) the performance of all agreements and the compliance with all
covenants of Empire and FLAG as set forth in the Merger
Agreement;
(j) receipt by FLAG of a letter from Porter Keadle Moore, LLP to the
effect the Merger will qualify for pooling-of-interests
accounting treatment; and
(k) satisfaction of certain other conditions, including the receipt
of certain agreements of the affiliates of Empire, the execution
of certain claims letters by the directors and officers of
Empire, the receipt of certain opinion letters from counsel for
FLAG and counsel for Empire, and receipt of various certificates
from the officers of Empire and FLAG.
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before
December 31, 1998, the Merger Agreement may be terminated and the Merger
abandoned by either Empire or FLAG, unless the failure to consummate the Merger
by that date is the result of a breach of the Merger Agreement by the party
seeking termination. See "-- Waiver, Amendment, and Termination."
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Regulatory Approvals
The Merger may not be consummated in the absence of the receipt of the
requisite regulatory approvals. There can be no assurance that such regulatory
approvals will be obtained or as to the timing of any such approvals. There also
can be no assurance that any such approvals will not impose conditions or be
restricted in a manner (including requirements relating to the raising of
additional capital or the disposition of assets) which in the reasonable
judgment of the Board of Directors of FLAG or Empire would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement that, had such condition or requirement
been known, either of FLAG or Empire would not, in its reasonable judgment, have
entered into the Merger Agreement.
Empire and FLAG are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it presently is
contemplated that such approval or action would be sought.
The Merger will require the prior approval of the Federal Reserve,
pursuant to Section 3 of the BHC Act. FLAG has filed all required applications
with the Federal Reserve. In evaluating the Merger, the Federal Reserve must
consider, among other factors, the financial and managerial resources and future
prospects of the institutions and the convenience and needs of the communities
to be served. The relevant statutes prohibit the Federal Reserve from approving
the Merger if (i) it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the United States or (ii) its effect in any section of
the country may be to substantially lessen competition or to tend to create a
monopoly, or if it would be a restraint of trade in any other manner, unless the
Federal Reserve finds that any anticompetitive effects are outweighed clearly by
the public interest and the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The Merger may not be
consummated until the 30th day (which the Federal Reserve may reduce to 15 days)
following the date of the Federal Reserve approval, during which time the United
States Department of Justice may challenge the transaction on antitrust grounds.
The commencement of any antitrust action would stay the effectiveness of the
approval of the agencies, unless a court of competent jurisdiction specifically
orders otherwise. There can be no assurance that the approval of the Federal
Reserve will be obtained or as to the timing or conditions of any such approval.
The Merger will also require the prior approval of the GDBF pursuant to
the Financial Institutions Code of Georgia. FLAG has filed all applications
required to be filed with the GDBF in connection with the Merger. There can be
no assurance that the approval of the GDBF will be obtained or as to the timing
or conditions of any such approval.
Waiver, Amendment, and Termination
To the extent permitted by applicable law, Empire and FLAG may amend
the Merger Agreement by written agreement at any time before approval of the
Merger Agreement by the Empire shareholders. After the Empire shareholders
approve the Merger Agreement no amendment shall be made to the Merger Agreement
that, pursuant to Sections 14-2-1101 and 14-2-1103 of the GBCC, requires further
approval by such shareholders without the further approval of such shareholders.
In addition, prior to or at the Effective Time, either Empire or FLAG, or both,
acting through their respective Boards of Directors, chief executive officers or
other authorized officers may waive any default in the performance of any term
of the Merger Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Merger Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of any applicable law or
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governmental regulation. No such waiver will be effective unless written and
unless signed by a duly authorized officer of Empire or FLAG, as the case may
be.
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time (i) by the mutual consent of Empire and FLAG or
(ii) by Empire or FLAG (a) in the event of any material breach of any
representation or warranty of the other party contained in the Merger Agreement
which cannot be or has not been cured within 30 days after giving written notice
to the breaching party of such inaccuracy and which breach is reasonably likely,
in the opinion of the non-breaching party, to have, individually or in the
aggregate, an Empire or FLAG Material Adverse Effect (as defined in the Merger
Agreement), as applicable, on the breaching party (provided that the terminating
party is not then in material breach of any representation, warranty, covenant,
or other agreement contained in the Merger Agreement), (b) in the event of a
material breach by the other party of any covenant or agreement contained in the
Merger Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach (provided that
the terminating party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in the Merger Agreement), (c)
if the Merger is not consummated by December 31, 1998, provided that the failure
to consummate is not due to a breach by the party electing to terminate, or (d)
provided that the terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in the Merger
Agreement, if (1) any approval of any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the Merger
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal or (2) the
shareholders of Empire fail to vote their approval of the matters submitted for
the approval by such shareholders at the Special Meeting.
If the Merger is terminated as described above, the Merger Agreement
will become void and have no effect, except that certain provisions of the
Merger Agreement, including those relating to the obligations to maintain the
confidentiality of certain information obtained, will survive. In addition,
termination of the Merger Agreement will not relieve any breaching party from
liability for any uncured willful breach of a representation, warranty,
covenant, or agreement giving rise to such termination.
Dissenters' Rights
If the Merger Agreement and the transactions contemplated thereby are
consummated, any shareholder of Empire who properly dissents from the Merger in
connection with the Special Meeting may be entitled to receive in cash the fair
value of such shareholder's shares of Empire Common Stock determined immediately
prior to the Merger, excluding any appreciation or depreciation in anticipation
of the Merger. FAILURE TO COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE
LAW WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
Any shareholder of Empire entitled to vote on the Merger Agreement has
the right to receive payment of the fair value of his or her shares of Empire
Common Stock upon compliance with the applicable provisions of the GBCC. A
record shareholder may assert dissenters' rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under Section
14-2-1303 of the GBCC are determined as if the shares as to which he dissents
and his other shares were registered in the names of different shareholders. Any
Empire shareholder intending to enforce the right to dissent (i) may not vote in
favor of the Merger Agreement, and (ii) must file a written notice of intent to
demand payment for his or her shares (the "Objection Notice") with Empire Bank
Corp., 115 East Dame Avenue, Homerville, Georgia 31634 (telephone: (912)
487-5355, Attention: Leonard H. Bateman), before the vote on the proposal to
approve the Merger Agreement is taken at the meeting. The Objection Notice must
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state that the shareholder intends to demand payment for his or her shares of
Empire Common Stock if the Merger is effected. A vote against approval of the
Merger Agreement, in and of itself, will not constitute an Objection Notice
satisfying the requirements of the GBCC.
If the Merger Agreement is approved by Empire's shareholders at the
Special Meeting, each shareholder who has properly filed an Objection Notice and
who has not voted in favor of the Merger Agreement will be notified by Empire of
such approval within ten days of the Special Meeting ("Dissenters' Notice").
Such Dissenters' Notice shall contain the following information: (i) where the
payment demand must be sent and where and when the Certificates representing the
Empire Common Stock must be deposited; (ii) the extent to which the transfer of
uncertificated shares will be restricted after the payment demand is received;
(iii) the date by which the corporation must receive the payment demand (which
date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice
is delivered); and (iv) a copy of Title 14, Chapter 2, Article 13 of the GBCC
(relating to dissenters' rights).
Following the receipt of such Dissenters' Notice, any shareholder
electing to dissent must demand payment of the fair value of such shares and
deposit the Certificates representing the Empire Common Stock in accordance with
the terms of, and by the date set out in, the Dissenters' Notice. Such
shareholder will retain all other rights of a shareholder until those rights are
canceled or modified by the consummation of the Merger. A record shareholder who
does not demand payment or deposit such holder's share Certificates where
required, each by the date set out in the Dissenters' Notice, is not entitled to
payment for such holder's shares under Title 14, Chapter 2, Article 13 of the
GBCC.
Except as described below, within ten days of the later of the
Effective Time, or the date of receipt of a payment demand, Empire must, by
written notice, offer to each shareholder who has properly filed a payment
demand, and who has deposited his or her Empire Certificates representing the
Empire Common Stock, to pay an amount Empire estimates to be a fair value for
the shareholder's shares, plus accrued interest from the Effective Time. Such
offer of payment must be accompanied by (i) certain of Empire's recent financial
statements, (ii) a statement of Empire's estimate of the fair value of the
shares involved, (iii) an explanation of how the interest was calculated, (iv) a
statement of the dissenter's right to demand payment under Section 14-2-1327 of
the GBCC, and (v) a copy of Title 14, Chapter 2, Article 13 of the GBCC. Any
shareholder who accepts such offer by written notice to Empire within 30 days of
the offer, or who is deemed to have accepted such offer due to his or her
failure to respond to such offer within 30 days, shall receive payment for the
dissenting shareholder's shares within 60 days of such offer to pay or
consummation of the Merger, whichever is later. If the Merger is not consummated
within 60 days following the date set for demanding payment and depositing share
Certificates, Empire must return the deposited Certificates and release the
transfer restrictions imposed on uncertified shares. If Empire then consummates
the Merger, it must send a new Dissenters' Notice and repeat the payment demand
procedure.
In the event that Empire fails to make any payment offer within ten
days of the later of the date the proposed corporate action is taken or the date
of receipt of a payment demand, Empire must provide certain information to the
shareholder (the financial statements and other information required to
accompany Empire's payment offer) within ten days after receipt of a written
demand from such dissenting shareholder for such information. Additionally, such
dissenting shareholder may, at any time within the three years following the
consummation of the Merger, notify Empire of his own estimate of the fair value
of his shares and the interest due thereon, and demand payment of such amounts.
If (i) a dissenting shareholder is dissatisfied with an offer for payment made
by Empire within the time period set forth above, or (ii) Empire, having failed
to effect the Merger, does not return the deposited Empire Certificates or
release the transfer restrictions imposed on uncertificated shares within 60
days after the date set for demanding payment, such dissenting shareholder may
notify Empire in writing of his own estimate of the fair value of his shares and
the interest due thereon, and demand payment of such amounts. A dissenting
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shareholder waives such holder's right to demand payment under section 14-2-1327
of the GBCC unless such holder notifies Empire of such holder's demand in
writing within 30 days after Empire makes or offers payment for such holder's
shares.
If such a demand for payment from any dissenting shareholder remains
unsettled, within 60 days following the receipt by Empire of such demand for
payment, Empire must institute proceedings in the superior court of the county
where Empire's registered office is located (the "Court") requesting a nonjury
equitable determination of the fair value of such dissenting shareholder's
shares and the accrued interest owed to such dissenting shareholder. If Empire
fails to file such action within the 60-day period, Empire must pay each
dissenting shareholder whose demand remains unsettled the amount demanded by
such dissenting shareholder. Empire is required to make all dissenting
shareholders whose demands remain unsettled parties to the proceeding and to
serve a copy of the petition upon each such dissenting shareholder. The Court
may, in its discretion, appoint an appraiser to receive evidence and recommend a
decision on the question of fair value. Each dissenting shareholder made a party
to the proceeding will be entitled to judgment for the amount which the court
finds to be the fair value of his or her shares, plus interest to the date of
judgment.
The Court will determine and assess the costs and expenses of such
proceeding (including reasonable compensation for and the expenses of the
appraiser, but excluding fees and expenses of counsel and experts) against
Empire, except that the Court may assess such costs and expenses as it deems
appropriate against any or all of the dissenting shareholders if it finds that
their demand for additional payment was arbitrary, vexatious or otherwise not in
good faith. The Court may award fees and expenses of counsel and experts in
amounts the Court finds equitable: (i) against Empire, if Empire did not
substantially comply with the requirements of the corporation as set out in
Title 14, Chapter 2, Article 13, Part 2 of the GBCC; (ii) against either Empire
or the dissenting shareholder(s), if the Court finds that either party's actions
were arbitrary, vexatious or otherwise not in good faith; or (iii) if the Court
finds that the services of attorneys for any dissenting shareholder were of
substantial benefit to other dissenting shareholders similarly situated, and
that the fees for those services should not be assessed against Empire, the
court may award those attorneys reasonable fees out of the amounts awarded the
dissenting shareholders who were benefited. No action by any dissenting
shareholder to enforce dissenters' rights may be brought more than three years
after the corporate action was taken, regardless of whether notice of the
corporate action and of the right to dissent was given by Empire in compliance
with the Dissenters' Notice and payment offer requirements of Sections 14-2-1320
and 14-2-1322 of the GBCC.
The foregoing summary of the applicable provisions of Title 14, Chapter
2, Article 13 of the GBCC is not intended to be a complete statement of such
provisions, and is qualified in its entirety by reference to such sections,
which are included as Appendix B to this Proxy Statement/Prospectus. The
provisions of the statutes are technical in nature and complex. It is suggested
that any shareholder who desires to exercise the right to object to the Merger
Agreement consult counsel. Failure to comply with the provisions of the statute
may defeat a shareholder's right to dissent. No further notice of the events
giving rise to dissenters' rights or any steps associated therewith will be
furnished to Empire shareholders, except as indicated above or otherwise
required by law.
Any dissenting Empire shareholder who perfects such holder's right to
be paid the value of such holder's shares will recognize taxable gain or loss
upon receipt of cash for such shares for federal income tax purposes.
See "-- Certain Federal Income Tax Consequences."
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Conduct Of Business Pending The Merger
Pursuant to the Merger Agreement, Empire and FLAG have agreed that
unless the prior written consent of the other party has been obtained, and
except as otherwise expressly contemplated in the Merger Agreement, each of
Empire and FLAG will, and will cause its respective subsidiaries to (i) operate
its business only in the usual, regular, and ordinary course, (ii) preserve
intact its business organization and assets and maintain its rights and
franchises, and (iii) take no action which would (a) materially adversely affect
the ability of any party to obtain any consents required for the transactions
contemplated by the Merger Agreement without the imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c) of the Merger Agreement, or (b) materially adversely affect the ability
of any party to perform its covenants and agreements under the Merger Agreement.
In addition, Empire has agreed that, from the date of the Merger
Agreement until the earlier of the Effective Time or the termination of the
Merger Agreement, unless FLAG has given prior written consent, and except as
otherwise expressly contemplated by the Merger Agreement, Empire will not do or
agree or commit to do, or permit any of its subsidiaries to do or agree or
commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Empire entity;
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of an Empire entity to
another Empire entity) in excess of an aggregate of $100,000 (for
the Empire entities on a consolidated basis) except in the
ordinary course of the business of the Empire subsidiaries
consistent with past practices (which shall include, for Empire
subsidiaries that are depository institutions, creation of
deposit liabilities, purchases of federal funds, advances from
the Federal Reserve Bank or Federal Home Loan Bank, and entry
into repurchase agreements fully secured by U.S. government or
agency securities), or impose, or suffer the imposition, on any
asset of any Empire entity of any lien or permit any such lien to
exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction
of legal requirements in the exercise of trust powers, and liens
in effect as of the date of the Merger Agreement that were
previously disclosed to FLAG by Empire);
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible
into any shares, of the capital stock of any Empire entity, or
declare or pay any dividend or make any other distribution in
respect of Empire's capital stock;
(d) except for the Merger Agreement, or pursuant to the exercise of
stock options outstanding as of the date thereof and pursuant to
the terms thereof in existence on the date thereof, or as
previously disclosed to FLAG by Empire, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to
issue, sell, pledge, encumber, or authorize the issuance of, or
otherwise permit to become outstanding, any additional shares of
Empire Common Stock or any other capital stock of any Empire
entity, or any stock appreciation rights, or any option, warrant,
or other equity right;
(e) adjust, split, combine or reclassify any capital stock of any
Empire entity or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Empire
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Common Stock, or sell, lease, mortgage or otherwise dispose of or
otherwise encumber any asset having a book value in excess of
$100,000 other than in the ordinary course of business for
reasonable and adequate consideration or any shares of capital
stock of any Empire subsidiary (unless any such shares of stock
are sold or otherwise transferred to another Empire entity);
(f) enter into or amend any employment contract between any Empire
entity and any person having a salary thereunder in excess of
$50,000 per year (unless such amendment is required by law) that
the Empire entity does not have the unconditional right to
terminate without liability (other than liability for services
already rendered), at any time on or after the Effective Time of
the Merger;
(g) except for loans made in the ordinary course of its business,
make any material investment, either by purchase of stock or
securities, contributions to capital, asset transfers, or
purchase of any assets, in any entity other than a wholly owned
Empire subsidiary, or otherwise acquire direct or indirect
control over any entity, other than in connection with (i)
foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution subsidiary in
its fiduciary capacity, or (iii) the creation of new wholly owned
subsidiaries organized to conduct or continue activities
otherwise permitted by the Merger Agreement;
(h) grant any increase in compensation or benefits to the
employees or officers of any Empire entity, except in accordance
with past practice previously disclosed to FLAG by Empire or as
required by law; pay any severance or termination pay or any
bonus other than pursuant to written policies or written
contracts in effect on the date of the Merger Agreement and
previously disclosed to FLAG by Empire; enter into or amend any
severance agreements with officers of any Empire entity; grant
any material increase in fees or other increases in compensation
or other benefits to directors of any Empire entity except in
accordance with past practice previously disclosed to FLAG by
Empire; or voluntarily accelerate the vesting of any stock
options or other stock-based compensation or employee benefits or
other equity rights;
(i) adopt any new employee benefit plan of any Empire entity or
terminate or withdraw from, or make any material change in or to,
any existing employee benefit plans of any Empire entity other
than any such change that is required by law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan, or make any distributions from
such employee benefit plans, except as required by law, the terms
of such plans or consistent with past practice;
(j) make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be
appropriate to conform to changes in tax laws or regulatory
accounting requirements or GAAP;
(k) commence any litigation other than in accordance with past
practice or except as previously disclosed to FLAG by Empire,
settle any litigation involving any liability of any Empire
entity for material money damages or restrictions upon the
operations of any Empire entity; or
(l) except in the ordinary course of business, enter into, modify,
amend or terminate any material contract (including any loan
contract with an unpaid balance exceeding $50,000) or waive,
release, compromise or assign any material rights or claims.
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The Merger Agreement also provides that from the date of the Merger
Agreement until the earlier of the Effective Time or the termination of the
Merger Agreement, unless Empire has given prior written consent, and except as
otherwise expressly contemplated by the Merger Agreement, FLAG will not or agree
or commit to amend the Articles of Incorporation or Bylaws of FLAG in any manner
adverse to the holders of Empire Common Stock or take any action that will
materially adversely impact the ability of the FLAG entities to consummate the
Merger.
Management And Operations After The Merger; Interests Of Certain Persons
In The Merger
FLAG will be the surviving corporation resulting from the Merger.
Certain members of Empire's management and the Empire Board of Directors have
interests in the Merger in addition to their interests as shareholders of Empire
generally. These include, among other things, provisions in the Merger Agreement
relating to indemnification of directors and officers and eligibility for
certain FLAG employee benefits. Promptly after the Effective Time, Leonard H.
Bateman, President and Chief Executive of Empire, will become a member of FLAG's
Board of Directors and will continue to serve as President of Empire Bank.
Additionally, the Merger Agreement provides that Mr. Bateman and FLAG will
execute a Separation Agreement. As of the Empire Record Date, none of the
directors and officers of Empire beneficially owned any shares of FLAG Common
Stock.
Indemnification and Advancement of Expenses. The Merger Agreement
provides that FLAG will indemnify, defend and hold harmless each person entitled
to indemnification from an Empire entity against all liabilities arising out of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by the Merger Agreement) to the fullest extent
permitted under Georgia law and by Empire's Articles of Incorporation and Bylaws
as in effect on the date of the Merger Agreement, including provisions relating
to advances of expenses incurred in the defense of any litigation. Without
limiting the foregoing, in any case in which approval by FLAG is required to
effectuate any indemnification, FLAG will direct, at the election of the
indemnified party, that the determination of any such approval shall be made by
independent counsel mutually agreed upon between FLAG and the indemnified party.
Separation Agreement. The Merger Agreement provides that, as a
condition to consummation of the Merger, FLAG will provide Mr. Bateman with a
Separation Agreement. Pursuant to the terms of the proposed Separation
Agreement, which the parties have not yet finalized, Mr. Bateman will receive
severance payments equal to his annual base salary and bonus paid over the
previous three fiscal years in the event Mr. Bateman is involuntarily
terminated, as such term is defined in the Separation Agreement. In addition,
pursuant to the proposed terms of the Separation Agreement, Mr. Bateman will
make certain covenants not to compete with FLAG during the term of the
Separation Agreement and for a 12-month period following the termination of the
Separation Agreement or the termination of Mr. Bateman's status as an employee
of FLAG.
Other Matters Relating to Employee Benefit Plans. The Merger Agreement
also provides that, after the Effective Time, FLAG will either (i) continue to
provide to officers and employees of the Empire entities employee benefits under
Empire's existing employee benefit and welfare plans or, (ii) if FLAG determines
to provide to officers and employees of the Empire entities employee benefits
under other employee benefit plans and welfare plans, provide generally to
officers and employees of the Empire entities employee benefits under employee
benefit and welfare plans (other than stock option or other plans involving the
potential issuance of FLAG Common Stock), on terms and conditions which when
taken as a whole are substantially similar to those currently provided by the
FLAG entities to their similarly situated officers and employees. For purposes
of participation and vesting (but not accrual of benefits) under FLAG's employee
benefit plans, (i) service under any qualified defined benefit plan of Empire
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will be treated as service under FLAG's defined benefit plan, if any, (ii)
service under any qualified defined contribution plans of Empire will be treated
as service under FLAG's qualified defined contribution plans, and (iii) service
under any other employee benefit plans of Empire will be treated as service
under any similar employee benefit plans maintained by FLAG. With respect to
officers and employees of the Empire entities who, at or after the Effective
Time, become employees of a FLAG entity and who, immediately prior to the
Effective Time, are participants in one or more employee welfare benefit plans
maintained by the Empire entities, FLAG will cause each comparable employee
welfare benefit plan which is substituted for an Empire welfare benefit plan to
waive any evidence of insurability or similar provision, to provide credit for
such participation prior to such substitution with regard to the application of
any pre-existing condition limitation, and to provide credit towards
satisfaction of any deductible or out-of-pocket provisions for expenses incurred
by such participants during the period prior to such substitution, if any, that
overlaps with the then current plan year for each such substituted employee
welfare benefit plan. FLAG also will cause the surviving corporation and its
subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation contracts previously disclosed to FLAG by
Empire between any Empire entity and any current or former director, officer, or
employee thereof, and all provisions for vested benefits or other vested amounts
earned or accrued through the Effective Time under the Empire benefit plans.
Certain Federal Income Tax Consequences
The following is a summary of the material anticipated federal income
tax consequences of the Merger. This summary is based on the federal income tax
laws now in effect and as currently interpreted; it does not take into account
possible changes in such laws or interpretations, including amendments to
applicable statutes or regulations or changes in judicial decisions or
administrative rulings, some of which may have retroactive effect. This summary
does not purport to address all aspects of the possible federal income tax
consequences of the Merger and is not intended as tax advice to any person. In
particular, and without limiting the foregoing, this summary does not address
the federal income tax consequences of the Merger to shareholders in light of
their particular circumstances or status (for example, as foreign persons,
tax-exempt entities, dealers in securities, and insurance companies, among
others). Nor does this summary address any consequences of the Merger under any
state, local, estate, or foreign tax laws. Shareholders, therefore, are urged to
consult their own tax advisors as to the specific tax consequences to them of
the Merger, including tax return reporting requirements, the application and
effect of federal, foreign, state, local, and other tax laws, and the
implications of any proposed changes in the tax laws.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service ("IRS"). Instead, Powell, Goldstein,
Frazer & Murphy LLP, counsel to FLAG, will render an opinion to Empire and FLAG
concerning material federal income tax consequences of the proposed Merger under
federal income tax law. It is such firm's opinion that, based upon the
assumption the Merger is consummated in accordance with the Merger Agreement and
the representations made by the management of Empire and FLAG, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Assuming the Merger does qualify as a reorganization pursuant to
Section 368(a) of the Code, the shareholders of Empire will have the following
federal income tax consequences:
(a) The shareholders of Empire will recognize no gain or loss
upon the exchange of all of their Empire Common Stock solely for shares
of FLAG Common Stock.
(b) The aggregate tax basis of the FLAG Common Stock received
by the Empire shareholders in the Merger will, in each instance, be the
same as the aggregate tax basis of the Empire Common Stock surrendered
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in exchange therefor, less the basis of any fractional share of FLAG
Common Stock settled by cash payment.
(c) The holding period of the FLAG Common Stock received by
the Empire shareholders will, in each instance, include the period
during which the Empire Common Stock surrendered in exchange therefor
was held, provided that the Empire Common Stock was held as a capital
asset on the date of the exchange.
(d) The payment of cash to Empire shareholders in lieu of
fractional share interests of FLAG Common Stock will be treated for
federal income tax purposes as if the fractional shares were
distributed as part of the exchange and then were redeemed by FLAG.
These cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed.
Generally, any gain or loss recognized upon such exchange will be
capital gain or loss, provided the fractional share would constitute a
capital asset in the hands of the exchanging shareholder.
(e) Where solely cash is received by an Empire shareholder in
exchange for Empire Common Stock pursuant to the exercise of
dissenters' rights, the former Empire shareholder will be subject to
federal income tax as a result of such transaction. The cash will be
treated as having been received as a redemption in exchange for such
holder's Empire Common Stock, subject to the provisions and limitations
of Section 302 of the Code.
Upon the subsequent sale or exchange of FLAG Common Stock, a holder of
such stock generally will recognize capital gain or loss equal to the difference
between the amount of cash and the fair market value of any property received
upon the sale or exchange and such holder's adjusted tax basis in the FLAG
Common Stock. Under recently enacted legislation, capital gains recognized by
certain non-corporate holders of FLAG Common Stock generally will be subject to
a maximum federal income tax rate of 20% if the shares sold or exchanged are
held for more than 18 months, and to a maximum federal income tax rate of 28% if
such shares are held for more than one year but are not held for more than 18
months. Tax consequences to dealers in FLAG Common Stock, non-United States
holders of FLAG Common Stock or others who have a special tax status (including,
without limitation, financial institutions, insurance companies and tax-exempt
entities) or to persons who received their shares through the exercise of
employee stock options or otherwise as compensation may be different and such
persons should consult their tax advisors as to the tax consequences of a sale
or exchange of FLAG Common Stock.
Each Empire shareholder who receives FLAG Common Stock in the Merger
will be required to attach a statement to such shareholder's federal income tax
return for the year of the Merger which describes the facts of the Merger,
including the shareholder's basis in the Empire Common Stock exchanged, and the
number of shares of FLAG Common Stock received in exchange for Empire Common
Stock. Each shareholder should also keep as part of such shareholder's permanent
records information necessary to establish such shareholder's basis in, and
holding period for, the FLAG Common Stock received in the Merger.
If the Merger fails to qualify as a tax-free reorganization for any
reason, the principal federal income tax consequences, under currently
applicable law, would be as follows: (i) gain or loss would be recognized to
Empire as a result of the Merger; (ii) gain or loss would be recognized by the
holders of Empire Common Stock upon the exchange of such shares in the Merger
for shares of FLAG Common Stock; (iii) the tax basis of the FLAG Common Stock to
be received by the holders of Empire Common Stock in the Merger would be the
fair market value of such shares of FLAG Common Stock at the Effective Time; and
(iv) the holding period of such shares of FLAG Common Stock to be received by
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Empire shareholders pursuant to the Merger would begin the day after the
Effective Time. If the condition of receiving this tax opinion is waived by
Empire, Empire will resolicit its shareholders prior to proceeding with the
Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER CIRCUMSTANCES, EACH
HOLDER OF EMPIRE COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISORS
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS).
Accounting Treatment
It is anticipated that the Merger will be accounted for as a pooling of
interests. Under the pooling-of-interests method of accounting, the recorded
amounts of the assets and liabilities of Empire will be carried forward at their
previously recorded amounts.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding Empire Common
Stock must be exchanged for FLAG Common Stock with substantially similar terms.
There are certain other criteria that must be satisfied in order for the Merger
to qualify as a pooling of interests, some of which criteria cannot be satisfied
until after the Effective Time.
For information concerning certain conditions to be imposed on the
exchange of Empire Common Stock for FLAG Common Stock in the Merger by
affiliates of Empire and certain restrictions to be imposed on the
transferability of the FLAG Common Stock received by those affiliates in the
Merger in order, among other things, to ensure the availability of
pooling-of-interests accounting treatment, see "-- Resales of FLAG Common
Stock."
Expenses And Fees
The Merger Agreement provides that each of the parties will bear and
pay all direct costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated by the Merger Agreement, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
In the event the Merger Agreement is terminated by FLAG as a result of
a material breach by Empire of any representation, warranty, covenant or
agreement, which cannot be or has not been cured within 30 days after FLAG has
given Empire written notice of such breach, and the breach of any representation
or warranty, in the opinion of FLAG is reasonably likely to have a material
adverse effect or if the Empire shareholders do not approve the Merger
Agreement, then Empire shall pay to FLAG an amount equal to the lesser of
$100,000 or FLAG's actual out of pocket expenses incurred in connection with the
Merger transaction.
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In the event that the Merger Agreement is terminated by Empire as a
result of a material breach by FLAG of any representation, warranty, covenant or
agreement, which cannot or has not been cured within 30 days after Empire has
given FLAG written notice of such breach, and the breach of any representation
or warranty, in the opinion of Empire, is reasonably likely to have a material
adverse effect, then FLAG shall pay to Empire an amount equal to the lesser of
$100,000 or Empire's actual out of pocket expenses incurred in connection with
the Merger transaction.
Resales Of FLAG Common Stock
FLAG Common Stock to be issued to shareholders of Empire in connection
with the Merger will be registered under the Securities Act. All shares of FLAG
Common Stock received by holders of Empire Common Stock and all shares of FLAG
Common Stock issued and outstanding immediately prior to the Effective Time,
upon consummation of the Merger will be freely transferable by those
shareholders of Empire and FLAG not deemed to be "Affiliates" of Empire or FLAG.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Empire or FLAG at the time of
the Special Meetings (generally, directors, executive officers and 10%
shareholders).
Rules 144 and 145 promulgated under the Securities Act restrict the
sale of FLAG Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, during the
one-year period following the Effective Time, Affiliates of Empire or FLAG may
resell publicly the FLAG Common Stock received by them in the Merger within
certain limitations as to the amount of FLAG Common Stock sold in any
three-month period and as to the manner of sale. After this one-year period,
such Affiliates of Empire who are not Affiliates of FLAG may resell their shares
without restriction. The ability of Affiliates to resell shares of FLAG Common
Stock received in the Merger under Rule 144 or 145 as summarized herein
generally will be subject to FLAG's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates will
receive additional information regarding the effect of Rules 144 and 145 on
their ability to resell FLAG Common Stock received in the Merger. Affiliates
also would be permitted to resell FLAG Common Stock received in the Merger
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Proxy Statement/Prospectus does not cover any resales of FLAG Common Stock
received by persons who may be deemed to be Affiliates of Empire or FLAG.
Empire has agreed to use its reasonable efforts to cause each person
who may be deemed to be an Affiliate of Empire to execute and deliver to FLAG
prior to the Effective Time, an agreement (each, an "Empire Affiliate
Agreement") providing that such Affiliate will not sell, pledge, transfer, or
otherwise dispose of any FLAG Common Stock obtained as a result of the Merger
(i) except in compliance with the Securities Act and the rules and regulations
of the SEC thereunder and (ii) in any case, until after results covering 30 days
of post-Merger operations of FLAG have been published. The receipt of the Empire
Affiliate Agreements by FLAG is also a condition to FLAG's obligations to
consummate the Merger. Empire Certificates surrendered for exchange by any
person who is an Affiliate of Empire for purposes of Rule 145(c) under the
Securities Act shall not be exchanged for FLAG Certificates until FLAG has
received such a written agreement from such person. Prior to publication of such
results, FLAG will not transfer on its books any shares of FLAG Common Stock
received by an Affiliate pursuant to the Merger. The stock certificates
representing FLAG Common Stock issued to Affiliates in the Merger may bear a
legend summarizing the foregoing restrictions. See "-- Conditions to
Consummation of the Merger."
DESCRIPTION OF FLAG COMMON STOCK
FLAG's authorized capital stock consists of 20,000,000 shares of $1.00
par value common stock, and 10,000,000 shares of preferred stock. The holders of
the FLAG Common Stock have unlimited voting rights and are entitled to one vote
per share for all purposes. Subject to such preferential rights as may be
determined by the Board of Directors of FLAG in connection with the future
issuance of shares of FLAG preferred stock, holders of FLAG Common Stock are
entitled to such dividends, if any, as may be declared by the Board of Directors
of FLAG in compliance with the provisions of the GBCC and the regulations of the
appropriate regulatory authorities, and to receive the net assets of the
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corporation upon dissolution. The FLAG Common Stock does not have any preemptive
rights with respect to acquiring additional shares of FLAG Common Stock, and the
shares are not subject to any conversion, redemption or sinking fund provisions.
The outstanding shares of FLAG Common Stock are, and the shares to be issued by
FLAG in connection with the Merger Agreement will be, when issued, fully-paid
and nonassessable. The FLAG Board of Directors is divided into three classes, as
nearly equal in number as possible. FLAG Common Stock does not have cumulative
voting rights in the election of FLAG directors.
The Board of Directors is authorized to determine the series,
preferences, limitations, and relative rights, including par value, of any
authorized but unissued shares of FLAG preferred stock. No shares of FLAG
preferred stock are presently outstanding, and although such shares may be
issued in the future, FLAG has no present plans to issue any preferred stock.
The FLAG preferred stock was authorized for future flexibility, and could be
issued in a manner that could have an anti-takeover effect by discouraging a
third party from seeking to acquire FLAG. FLAG knows of no present attempts to
acquire FLAG.
In order to approve certain "business combinations" with certain
"interested shareholders" (10% or more shareholders), or to amend the provisions
in the FLAG Articles of Incorporation relating to such business combinations,
the affirmative vote of two-thirds of the issued and outstanding shares of the
corporation entitled to vote thereon is required, unless (i) at least two-thirds
of the directors of FLAG approve a memorandum of understanding with the
interested shareholder regarding the business combination prior to the date on
which such shareholder became an interested shareholder, or (ii) the business
combination is unanimously approved by certain "continuing directors" of FLAG.
In addition, in order to amend certain provisions of FLAG's Articles of
Incorporation and Bylaws relating to the number, election, term and removal of
FLAG Directors, a two-thirds vote of the issued and outstanding shares of FLAG
is required, unless two-thirds of the directors then serving approve the
amendment.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of Empire Common Stock will be
exchanging their shares of a Georgia corporation governed by the GBCC and
Empire's Articles of Incorporation (the "Empire Articles"), and Bylaws, for
shares of Common Stock of FLAG, a Georgia corporation governed by the GBCC and
FLAG's Articles of Incorporation (the "FLAG Articles"), and Bylaws. Certain
significant differences exist between the rights of Empire shareholders and
those of FLAG shareholders. The differences deemed material by Empire and FLAG
are summarized below. The following discussion is necessarily general; it is not
intended to be a complete statement of all the differences affecting the rights
of shareholders, and their respective entities, and it is qualified in its
entirety by reference to the GBCC as well as to FLAG's Articles and Bylaws and
Empire's Articles and Bylaws.
Authorized Capital Stock
FLAG. The FLAG Articles authorize the issuance of an aggregate of
20,000,000 shares of Common Stock, $1.00 par value, of which 5,174,807 shares
were issued and outstanding as of the June 30, 1998. The FLAG Articles also
authorize the issuance, in one or more series, of not more than 10,000,000
shares of preferred stock ("FLAG Preferred Stock") with preferences, limitations
and relative rights, including par value, as the FLAG Board of Directors from
time to time may determine and set forth in an amendment to the FLAG Articles.
Shares of FLAG Common Stock have unlimited voting rights and are
entitled to receive the net assets of FLAG upon the dissolution of the
corporation. The FLAG Bylaws provide that each share of FLAG Common Stock is
entitled to one vote per share for all purposes.
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FLAG's Board of Directors may authorize the issuance of authorized but
unissued shares of FLAG Common Stock without further action by FLAG's
shareholders, unless such action is required in a particular case by applicable
laws or regulations or by any stock exchange upon which FLAG's capital stock may
be listed. FLAG's shareholders do not have the preemptive right to purchase or
subscribe to any unissued authorized shares of FLAG Common Stock or FLAG
Preferred Stock or any option or warrant for the purchase thereof.
The authority to issue additional shares of FLAG Common Stock provides
FLAG with the flexibility necessary to meet its future needs without the delay
resulting from seeking shareholder approval. The authorized but unissued shares
of FLAG Common Stock will be issuable from time to time for any corporate
purpose, including, without limitation, stock splits, stock dividends, employee
benefit and compensation plans, acquisitions, and public or private sales for
cash as a means of raising capital. Such shares could be used to dilute the
stock ownership of persons seeking to obtain control of FLAG. In addition, the
sale of a substantial number of shares of FLAG Common Stock to persons who have
an understanding with FLAG concerning the voting of such shares, or the
distribution or declaration of a dividend of shares of FLAG Common Stock (or the
right to receive FLAG Common Stock) to FLAG shareholders, may have the effect of
discouraging or increasing the cost of unsolicited attempts to acquire control
of FLAG.
Empire. Empire's authorized capital stock consists of 1,000,000 shares
of Empire Common Stock, $10.00 par value, of which 26,450 shares were issued and
outstanding as of the Empire Record Date. Each share of Empire Common Stock is
entitled to one vote per share for all purposes. Empire's shareholders do not
have the preemptive right to purchase or subscribe to any unissued authorized
shares of Empire Common Stock or any option or warrant for the purchase thereof.
In addition, the Board of Directors of Empire has the ability to increase the
number of issued and outstanding shares of Empire Common Stock without the
approval of the shareholders, within the maximum number of shares authorized by
the Empire Articles.
Amendment Of Articles Of Incorporation And Bylaws
FLAG. The FLAG Articles and Bylaws are generally silent with respect to
the issue of amending the FLAG Articles, and thus, the GBCC dictates the
requirements for making such an amendment. The GBCC generally provides that
other than in the case of certain routine amendments which may be made by a
corporation's board of directors without shareholder action (such as changing
the corporate name), and other amendments which the GBCC specifically allows
without shareholder action, the corporation's board of directors must recommend
any amendment of the FLAG Articles to the shareholders (unless the board elects
to make no such recommendation because of a conflict of interest or other
special circumstances, and the board communicates the reasons for its election
to the shareholders) and the affirmative vote of a majority of the votes
entitled to be cast on the amendment by each voting group entitled to vote on
the amendment (unless the GBCC, the articles of incorporation, or the board
require a greater vote or a vote by voting groups) is required to amend a
corporation's articles of incorporation. The FLAG Articles provide that the
provisions regarding the approval required for certain business combinations may
only be changed by the affirmative vote of at least two-thirds of the issued and
outstanding shares of the corporation entitled to vote thereon at any regular or
special meeting of the shareholders, and notice of the proposed change must be
contained in the notice of the meeting, unless two-thirds of certain "continuing
directors" approve the proposed amendment. The FLAG Articles also provide that
the provisions regarding the election, term and removal of FLAG Directors may
only be amended or rescinded by the affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of FLAG entitled to vote in an
election of directors or at any regular or special meeting of the shareholders,
and notice of any proposed change must be contained in the notice of the
meeting, unless two-thirds of the directors then serving approve the proposed
amendment.
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The FLAG Bylaws generally provide that the Bylaws may be made, amended
or repealed by the FLAG Board of Directors unless the FLAG Articles or the GBCC
reserve the power to amend or repeal the Bylaws exclusively to the shareholders
in whole or in part, or the shareholders, in amending or repealing a particular
Bylaw, provide expressly that the FLAG Board of Directors may not amend or
repeal that Bylaw. Neither the FLAG Articles nor Bylaws expressly permit the
FLAG shareholders to make, alter or rescind any Bylaws. Any amendment of the
provisions in the FLAG Bylaws relating to the number of directors of FLAG
requires the affirmative vote of two-thirds of all directors then in office or
the affirmative vote of the holders of two-thirds of the issued and outstanding
shares of FLAG entitled to vote at any regular or special meeting of the
shareholders called for that purpose. Unless two-thirds of the directors then
serving approve, the provisions in the FLAG Bylaws relating to the removal of
FLAG directors by the FLAG shareholders may only be amended or rescinded by the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of FLAG entitled to vote in an election of directors or at
any regular or special meeting of the shareholders, and notice of any proposed
change must be contained in the notice of the meeting.
Empire. The Empire Articles and Bylaws are generally silent with
respect to the issue of amending the Empire Articles, and thus, the GBCC
dictates the requirements for making such an amendment. The GBCC generally
provides that other than in the case of certain routine amendments which may be
made by a corporation's board of directors without shareholder action (such as
changing the corporate name), and other amendments which the GBCC specifically
allows without shareholder action, the corporation's board of directors must
recommend the amendment to the shareholders (unless the board elects to make no
such recommendation because of a conflict of interest or other special
circumstances, and the board communicates the reasons for its election to the
shareholders) and the affirmative vote of a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment
(unless the GBCC, the articles of incorporation, or the board require a greater
vote or a vote by voting groups) is required to amend a corporation's articles
of incorporation.
In general, Empire's Bylaws may be altered, amended, or repealed by the
Empire Board of Directors, subject to the ratification and approval of such
amendments at the annual meeting of Empire shareholders by majority vote of the
shares entitled to elect directors. The Empire Bylaws provide that the Empire
shareholders have the power to alter, amend or repeal any bylaws adopted by the
Board of Directors of Empire, and new Bylaws may be adopted by the Empire
shareholders. In addition, the shareholders may prescribe that any bylaw or
bylaws adopted by them shall not be altered, amended, or repealed by the Empire
Board of Directors. Action taken by the shareholders with respect to the Empire
Bylaws must be taken by an affirmative vote of a majority of all shares entitled
to elect directors, and action by the Board of Directors with respect to the
Empire Bylaws must be taken by an affirmative vote of a majority of all
directors then holding office.
Classified Board Of Directors And Absence Of Cumulative Voting
FLAG. FLAG's Bylaws generally provide that the number of directors
constituting the FLAG Board of Directors shall be twelve. The FLAG Board of
Directors is classified. The FLAG Articles and Bylaws provide that FLAG's Board
of Directors is divided into three classes, with each class to be as nearly
equal in number as possible. The directors in each class serve three-year terms
of office. The effect of FLAG having a classified Board of Directors is that
only approximately one-third of the members of the Board of Directors are
elected each year, which effectively requires two annual meetings for FLAG's
shareholders to change a majority of the members of the Board of Directors. The
FLAG Bylaws provide that in the event of a vacancy on the FLAG Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, such vacancy may be filled by the shareholders of FLAG, the FLAG
Board of Directors, or, if the directors remaining in office constitute fewer
41
<PAGE>
than a quorum of the Board of Directors, by affirmative vote of a majority of
the remaining directors. FLAG shareholders do not have cumulative voting rights
with respect to the election of directors. All elections for directors are
decided by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present.
Empire. Unlike the FLAG Board of Directors, the Empire Board is not
classified. The number of directors is determined by the Board of Directors or
the Empire shareholders from time to time, but in no event will the Board of
Directors have less than three directors nor more than twenty-five directors.
The Empire Bylaws provide that the directors will be elected by the affirmative
vote of a majority of the shares represented at the annual meeting of Empire
shareholders.
Removal Of Directors
FLAG. Under the FLAG Articles and Bylaws, any one or more directors of
FLAG may be removed from office, but only for cause (defined as final conviction
of a felony, request or demand for removal by any bank regulatory authority
having jurisdiction over FLAG, or breach of fiduciary duty involving personal
profit). Such removal must be effected by the affirmative vote of the holders of
a majority of the outstanding shares of FLAG.
Empire. Under Empire's Bylaws, the entire Board of Directors or any
individual director may be removed from office with or without cause by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of directors. In addition, the Board of Directors may remove a
director from office if such director is adjudicated an incompetent by a court,
if he is convicted of a felony, or if he fails to attend regular meetings of the
Board of Directors for three consecutive meetings without having been excused by
the Board of Directors.
Indemnification
FLAG. The FLAG Articles and Bylaws generally provide that any director
who is deemed eligible will be indemnified against liability and other expenses
incurred in a proceeding which is initiated against such person by reason of his
serving as a director, to the fullest extent authorized by the GBCC; provided,
however, that FLAG will not indemnify any director for any liability or expenses
incurred by such director (i) for any appropriation, in violation of his duties,
of any business opportunity of FLAG; (ii) for any acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Section 14-2-832 of the GBCC or successor
provisions; or (iv) for any transaction from which the director derives an
improper personal benefit. FLAG's Articles and Bylaws provide for the
advancement of expenses to its directors at the outset of a proceeding, upon the
receipt from such director of the written affirmation and repayment promise
required by Section 14-2-856 of the GBCC, the purchase of insurance by FLAG
against any liability of the director arising from his duties and actions as a
director, the survival of such indemnification to the director's heirs,
executors and administrators, and the limitation of a director's liability to
the corporation itself. The indemnification provisions state that they are
non-exclusive, and shall not impair any other rights to which those seeking
indemnification or advancement of expenses may be entitled. The FLAG Bylaws also
provide for similar indemnification of the officers of FLAG. The FLAG Bylaws
provide that, shareholders are entitled to notification of any indemnification
granted to the directors.
Empire. The Empire Bylaws provide that Empire shall indemnify its
directors, officers, trustees, employees and agents for reasonable expenses
incurred in connection with any proceeding to which such person is made a party
due to his or her role as a current or former director, officer, trustee,
employee or agent of Empire; provided, however, that Empire will not indemnify
any such person for the expenses relating to any proceeding in which the person
is adjudged to have been guilty of or liable for gross negligence, willful
42
<PAGE>
misconduct, or criminal acts in the performance of his duties to Empire. In
addition, no such person will be indemnified by Empire in relation to a
proceeding which has been the subject of a compromise settlement, except with
the approval of (i) a court of competent jurisdiction, (ii) the holders of
record of a majority of the outstanding shares of capital stock of Empire, or
(iii) a majority of the members of the Board of Directors then holding office,
excluding the votes of any directors who are parties to the same or
substantially the same proceeding. Furthermore, Section 14-2-856 of the GBCC
prevents the indemnification of directors who are found liable to Empire (or
subjected to injunctive relief in favor of Empire) for: (i) any appropriation,
in violation of his duties, of any business opportunity of Empire; (ii) any acts
or omissions which involve intentional misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the GBCC or
successor provisions; or (iv) any transaction from which the director derives an
improper personal benefit. Empire's Bylaws provide for the advancement of
expenses to such persons at the outset of a proceeding, upon the receipt from
such person of a promise of repayment, the purchase of insurance by Empire
against any liability of such person arising from his duties and actions as a
director, and the survival of such indemnification to the person's heirs,
executors and administrators. The indemnification provisions state that they are
non-exclusive, and shall not impair any other rights to which those seeking
indemnification or advancement of expenses may be entitled.
Special Meetings Of Shareholders
FLAG. FLAG's Bylaws provide that special meetings of the shareholders
may be called at any time by a majority of the entire Board of Directors of
FLAG, the Chairman of the Board, the President, or, upon delivery to FLAG's
Secretary of a signed and dated written request setting out the purpose or
purposes for the meeting, the holders of a majority of the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting.
Empire. The Empire Bylaws provide that special meetings of the
shareholders may be called at any time by the President, Chairman of the Board
or the Board of Directors of Empire. Empire is required to call a special
meeting when requested in writing by the holders of not less than 25% of all the
shares entitled to vote in an election of directors.
Actions by Shareholders Without a Meeting
FLAG. With respect to whether action required or permitted to be taken
by FLAG shareholders must be effected at a duly called meeting of shareholders
or whether such action may be effected by written consent of the shareholders,
the FLAG Bylaws basically mirror Section 14-2-704 of the GBCC, which provides
that, unless otherwise provided in the articles of incorporation, action
required or permitted by the GBCC to be taken at an annual or special meeting
may be taken without a meeting if the action is taken by all the shareholders
entitled to vote on the action, or, if provided in the articles of
incorporation, by persons who would be entitled to vote at a meeting shares
having voting power to cast not less than the minimum number (or numbers, in the
case of voting by groups) of votes that would be necessary to authorize or take
the action at a meeting at which all shareholders entitled to vote were present
and voted. Since FLAG's Articles do not provide for the action by shareholders
of FLAG without a meeting, any such action must be taken by the unanimous
written consent of all shareholders entitled to vote on the action.
The provisions of the GBCC do not affect the special voting
requirements contained in the FLAG Articles of Incorporation or Bylaws for the
approval of a business combination or the amendment of such provision. The
approval of a business combination or of an amendment to the provision which
sets forth the voting requirements of such combinations requires the affirmative
vote of the holders of two-thirds of all shares of FLAG Common Stock outstanding
and entitled to vote, unless (i) two-thirds of the directors of FLAG approve a
43
<PAGE>
memorandum of understanding with the interested shareholder prior to the date
when such interested shareholder first became an interested shareholder, or (ii)
the business combination is unanimously approved by the continuing directors of
FLAG.
Empire. Under Section 14-2-706 of the GBCC, an action which is required
to be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action.
Mergers, Consolidations, And Sales Of Assets
FLAG. The FLAG Articles generally require the affirmative vote of the
holders of at least two-thirds of all the issued and outstanding shares (other
than shares held by an "interested shareholder") of FLAG Common Stock entitled
to vote to approve a "business combination" with an interested shareholder
(basically, a 10% or more shareholder of FLAG), unless (i) two-thirds of the
directors of FLAG approve a memorandum of understanding with the interested
shareholder regarding the business combination prior to the date such
shareholder became an interested shareholder, or (ii) the business combination
is unanimously approved by certain "continuing directors" of FLAG. In addition,
FLAG's Bylaws expressly provide that the terms and requirements of Sections
14-2-1110 through 14-2-1113 of the GBCC will be applicable to FLAG and to any
business combination approved or recommended by the Board of Directors of FLAG.
As a result, Section 14-2-1111 requires that the business combination be (i)
unanimously approved by the continuing directors, provided that the continuing
directors constitute at least three members of the board of directors at the
time of such approval, or (ii) recommended by at least two-thirds of the
continuing directors and approved by a majority of the votes entitled to be cast
by the holders voting shares of the corporation (other than the voting shares
beneficially owned by the interested shareholder who is a party to the business
combination). These voting requirements are required in addition to any vote
otherwise required by law or the Articles of Incorporation of FLAG. Further,
Section 14-2-1112 states that the voting requirements in Section 14-2-1111 do
not apply as long as all of the shareholders of FLAG receive a fair price in
return for their stock as a result of the business combination. However, the
voting requirements contained within the FLAG Articles of Incorporation would
continue to apply to any such business combinations.
The provisions of the FLAG Articles of Incorporation and Bylaws
relating to business combinations and Sections 14-2-1110 through 14-2-1113 of
the GBCC are designed as anti-takeover measures, and for the protection of the
minority shareholders of FLAG against some of the inequities which arise in
certain hostile takeover attempts.
Empire. Because the Empire Bylaws do not specifically adopt the anti-
takeover provisions of the GBCC, the requirements of Sections 14-2-1110 through
14-2-1113 of the GBCC do not apply to Empire.
Shareholders' Rights To Examine Books And Records
FLAG. The FLAG Bylaws state that the Board of Directors of FLAG has the
power to determine which accounts and books of FLAG, if any, will be open to the
inspection of shareholders, except such books and records which are required by
law to be held open for inspection. The GBCC provides that a shareholder is
entitled to inspect and copy certain books and records (such as the
corporation's articles of incorporation or bylaws) upon written demand at least
five days before the date on which he wishes to inspect such records. A
shareholder is entitled to inspect certain other documents (such as minutes of
the meetings of the board of directors, accounting records and the record of
shareholders of the corporation) provided that such inspection must occur during
regular business hours at a reasonable location determined by FLAG, and any such
demand for inspection will only be permitted if the following conditions are
met: (i) the demand for inspection is made in good faith, or made for a proper
purpose (a purpose reasonably relevant to such person's legitimate interest as a
44
<PAGE>
shareholder); (ii) the shareholder describes with particularity his or her
purpose for the inspection and the documents which he wishes to inspect; (iii)
the records requested for inspection by the shareholder are directly connected
with his or her stated purpose; and, (iv) the records are to be used solely for
the shareholder's stated purpose. The FLAG Bylaws also state that the Board has
the power to prescribe reasonable rules and regulations not in conflict with
applicable law for the inspection of corporate books or accounts.
Empire. The Empire Bylaws contain substantially similar terms as the
FLAG Bylaws with respect to the rights of shareholders of Empire to inspect
corporate records. The Empire Board of Directors has the power to designate
which documents will be open for inspection, and the manner in which
shareholders may inspect such documents, subject to the requirements of the
GBCC.
Dividends
FLAG. The FLAG Bylaws provide that dividends upon the capital stock of
FLAG may be declared by the FLAG Board of Directors, as long as the Board of
Directors complies with the requirements of the GBCC and the applicable rules
and regulations of any relevant regulatory authorities. Such dividends may be
paid in cash, property, or shares of FLAG's capital stock. Section 14-2-640 of
the GBCC provides, generally, that no distribution, including dividends, may be
made by a corporation if, after giving the distribution effect: (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business; or (ii) the corporation's total assets would be less than
the sum of its total liabilities plus any amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
Empire. The Empire Bylaws provide that dividends may be declared by the
Empire Board of Directors at any regular or special meeting and paid in cash or
property only out of (i) the unreserved and unrestricted earned surplus of
Empire, or (ii) the unreserved and unrestricted net earnings of the current
fiscal year computed to the date of declaration of the dividend or the next
preceding fiscal year. Dividends may be paid in Empire Common Stock out of
treasury shares. In addition, dividends may be paid in Empire Common Stock from
the authorized but unissued shares of Empire Common Stock provided that (i) the
shares are issued at not less than par value, and (ii) retained earnings at
least equal to the aggregate par value of the shares to be issued are
transferred to capital stock at the time the dividend is paid. Empire's
authority to declare dividends is further restricted by Section 14-2-640 of the
GBCC as discussed above.
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<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
FLAG Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "FLAG." The following
table sets forth the high and low sale prices per share of FLAG Common Stock on
the Nasdaq National Market and the dividends paid per share of FLAG Common Stock
for the indicated periods. Effective June 30, 1998, FLAG declared a 3-for-2
stock split. The amounts below have been adjusted to reflect the stock split.
Sale Price Per
Share of FLAG
Common Stock Dividends Declared
------------ Per Share of FLAG
High Low Common Stock
----------- ----------- ------------------
1996
First Quarter...................... $ 9.67 $ 8.33 $0.042
Second Quarter..................... 9.00 8.00 0.034
Third Quarter...................... 8.50 6.33 0.034
Fourth Quarter..................... 7.83 7.17 0.034
1997
First Quarter...................... $ 8.67 $ 6.83 $0.046
Second Quarter..................... 9.75 7.50 0.034
Third Quarter...................... 11.00 9.33 0.034
Fourth Quarter..................... 14.33 11.00 0.034
1998
First Quarter...................... $ 14.33 $ 11.92 $0.046
Second Quarter..................... 19.38 12.67 0.060
Third Quarter (through ____, 1998). _____ _____
On May 29, 1998, the last day prior to the public announcement of the
proposed merger between FLAG and Empire, the last reported sale price per share
of FLAG Common Stock on the Nasdaq National Market was $15.33, as adjusted for
3-for-2 stock split effective June 3, 1998, and the resulting equivalent pro
forma price per share of Empire Common Stock (based on the 42.5 Exchange Ratio)
was $651.53. On _______________, 1998, the latest practicable date prior to the
mailing of this Proxy Statement/Prospectus, the last reported sale price per
share of FLAG Common Stock on the Nasdaq National Market was $_______, and the
resulting equivalent pro forma price per share of Empire Common Stock was
$________. The equivalent per share price of a share of Empire Common Stock at
each specified date represents the last reported sale price of a share of FLAG
Common Stock on such date multiplied by the Exchange Ratio.
There is no established public trading market for the Empire Common
Stock, and no reliable information is available as to trades of such shares or
the prices at which such shares have traded. Empire pays dividends quarterly.
The last dividend paid by Empire was $.85 per share, paid on June 10, 1998.
To the knowledge of Empire the most recent trade of Empire Common Stock
prior to May 29, 1998, the last day prior to the public announcement of the
proposed merger between FLAG and Empire, was the sale of 400 shares on April 17,
1998 at $271.26 per share. To the knowledge of Empire, there have been no trades
of Empire Common Stock since the announcement of the Merger.
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<PAGE>
The foregoing information regarding Empire Common Stock is provided for
informational purposes only and, due to the absence of an active market for
Empire's shares, should not be viewed as indicative of the actual or market
value of Empire Common Stock.
The holders of FLAG Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. FLAG has paid regular quarterly cash dividends on its Common Stock
since 1987. Although FLAG currently intends to continue to pay quarterly cash
dividends on FLAG Common Stock, there can be no assurance that FLAG's dividend
policy will remain unchanged after consummation of the Merger. The declaration
and payment of dividends thereafter will depend upon business conditions,
operating results, capital and reserve requirements, and the Board of Directors'
consideration of other relevant factors. For information with respect to the
provisions of the Merger Agreement relating to FLAG's and Empire's abilities to
pay dividends on their respective common stock during the tendency of the
Merger, see "DESCRIPTION OF MERGER -- Conduct of the Business Pending the
Merger."
FLAG is a legal entity separate and distinct from its subsidiaries and
its revenues depend in significant part on the payment of dividends from its
subsidiary depository institutions. FLAG's bank subsidiaries and subsidiary
thrift institution are subject to certain legal restrictions on the amount of
dividends they are permitted to pay.
BUSINESS OF EMPIRE
General
Empire is a bank holding company headquartered in Homerville, Georgia.
Empire's wholly-owned subsidiary, Empire Bank, operates two banking offices
located in Homerville and Waycross, Georgia. As of June 30, 1998, Empire had
total consolidated assets of approximately $69.8 million, total consolidated
deposits of approximately $58.8 million, and total consolidated shareholders'
equity of approximately $7.2million. Through its banking subsidiary, Empire
offers a broad range of banking and banking-related services. E.B.C. Financial
Services, Inc., a Georgia corporation and a wholly-owned subsidiary of Empire,
provides various insurance products.
Management Stock Ownership
The following table presents information about each of the directors
and executive officers of Empire and all executive officers and directors as a
group. Unless otherwise indicated, each person has sole voting and investment
powers over the indicated shares. Information relating to beneficial ownership
of the Empire Common Stock is based upon "beneficial ownership" concepts set
forth in rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which includes
the power to vote or to direct the voting of such security, or "investment
power," which includes the power to dispose or to direct the disposition of such
security. Under the rules, more than one person may be deemed to be a beneficial
owner of the same securities.
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<PAGE>
Number of Shares Percent
Beneficially Owned at Of
Name Empire Record Date Class (%)
(a) Directors
Leonard H. Bateman 250 (1) .9
William C. Boyle, Jr. 100 .4
Trevor W. Fortner 100 .4
John E. Hughes 310 1.2
Roger E. James 564 2.1
Allen V. Kennedy II 625 (2) 2.4
Roger W. Merritt 136 (3) .5
Harry M. Peagler, III 1,220 (4) 2.3
James T. Stovall, III 2,406 (5) 9.1
Deborah H. Strickland 100 .4
(b) Executive Officers
Daniel G. Morris 10 .0
(c) Executive Officers and Directors 5,207 19.7
As a Group
- --------------------
(1) Consists of (i) 130 shares owned by Mr. Bateman and (ii) 120 shares
owned by Mr. Bateman's spouse as to which beneficial ownership is
shared.
(2) Consists of (i) 427 shares owned by Mr. Kennedy and (ii) 198 shares
owned by Mr. Kennedy's spouse as to which beneficial ownership is
shared.
(3) Consists of (i) 126 shares owned by Mr. Merritt and (ii) 10 shares
owned by Mr. Merritt's spouse as to which beneficial ownership is
shared.
(4) Consists of (i) 600 shares owned by Mr. Peagler, (ii) 106 shares owned
by Mr. Peagler's spouse as to which beneficial ownership is shared and
(iii) 514 shares owned by Mr. Peagler's children as to which
beneficial ownership is shared.
(5) Consists of (i) 100 shares owned by Mr. Stovall and (ii) 2,306 shares
owned by Mr. Stovall's spouse as to which beneficial ownership is
shared.
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<PAGE>
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
Corporate Profile
Empire, a one-bank holding company for Empire Bank (collectively referred to in
this section as "Empire"), is located in Homerville, Clinch County, a community
approximately 240 miles southeast of downtown Atlanta. Empire opened a branch
location in July 1996, in Waycross, Ware County, Georgia, a community 30 miles
east of Homerville.
Empire is community oriented, with an emphasis on retail banking, and offers
such customary banking services as consumer and commercial checking accounts,
NOW accounts, savings accounts, certificates of deposit, lines of credit,
MasterCard and VISA accounts, and money transfers. In addition, Empire finances
timber, commercial and consumer transactions, makes secured and unsecured loans,
including residential mortgage loans, and provides a variety of other banking
services.
Empire's primary service area is in Clinch and Ware County, Georgia and
surrounding counties. The service area has experienced minimal growth for the
past several years. The area's economic base is dependent upon cyclical factors,
such as agriculture and real estate activities.
The following discussion focuses on significant changes in the financial
condition and results of operations of Empire during the past three years. The
discussion and analysis is intended to supplement and highlight information
contained in the accompanying consolidated financial statements and the selected
financial data presented elsewhere in this report.
Financial Highlights
Net earnings increased 182% during 1997 as compared to 1996 totaling just over $
693,000. Net earnings for 1996 decreased 55% to $246,000 compared to 1995
earnings. Pretax earnings for 1996 decreased by approximately $249,000,
primarily due to increases in operating costs relating to the new branch
location in Waycross, Georgia.
The returns on average assets and on average stockholders' equity were 1.05% and
10.64%, respectively, in 1997 compared to .42% and 4.01%, respectively, in 1996.
Those averages were low due to the start up operating costs related to the
Waycross location.
Total assets at December 31, 1997 were $70.0 million compared to $60.6 million
at the end of 1996 an increase of approximately 16%. Total loans were
approximately $45.5 million at December 31, 1997, an increase of over 14% from
the 1996 balance, and total deposits at December 31, 1997, were $59 million as
compared to $51 million in 1996, an increase of 16%. Empire continues to fund
the majority of its assets with deposits acquired in its local marketplace.
Net Interest Income
Net interest income (the difference between interest earned on assets and
interest paid on deposits and liabilities) is the largest component and most
important source of Empire's earnings. Empire actively manages this income
source to provide the largest possible amount of income while balancing interest
rate, credit and liquidity risks. Net interest income for 1997 increased by 15%
from 1996 and decreased by 2% in 1996 as compared to 1995. The increased volume
of earning assets was the primary reason for the increase in 1997.
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<PAGE>
Interest income increased 17% in 1997 and 8% in 1996. The increase in 1997 was
primarily a result of an increase in interest and fees on loans of approximately
$645,000 or 17%, and an increase in interest on investment securities of
approximately $117,000 or 18%.
Average earning assets in 1997 increased 13% when compared to 1996 due to
increases in average loans of over $5.6 million and average investment
securities of $1.6 million. Increases in average earning assets of 12% were also
experienced between 1996 and 1995 due to increases in average loans of $2.7
million and a $.7 million increase in average investment securities. The average
earning asset mix remained consistent during 1997 with loans at 74%, investment
securities at 21% and other earning assets at 5% of the total. In 1996, loans
accounted for 73%, investment securities 21% and other earning assets 6%. The
mix of earning assets is monitored on a continuing basis in order to react to
favorable interest rate movements and to maximize the return on earning assets.
Table 1 presents net interest income, yields and rates on average balances for
1997, 1996 and 1995.
50
<PAGE>
<TABLE>
<CAPTION>
Table 1 - CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
(dollars in thousands)
Years Ended December 31,
1997 1996 1995
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold ...... $ 3,261 $ 175 5.37% $ 3,344 $ 165 4.93% $ 1,103 $ 62 5.62%
Loans ................... 44,684 4,344 9.72 % 39,041 3,699 9.47% 36,308 3,486 9.60%
Investment securities
non-taxable ............ 3,170 140 4.42 % 3,176 140 4.41% 4,548 203 4.46%
Investment securities
taxable ................ 9,678 600 6.20 % 8,047 483 6.00% 5,934 410 6.91%
------- ------ ------- ------ ----- ----
Total interest-earning
assets .......... 60,793 5,259 8.65 % 53,608 4,487 8.37% 47,893 4,161 8.69%
Non-interest-earning
assets ............. 5,128 4,303 3,077
------- ------- -------
Total assets ......... $ 65,921 $ 57,911 $ 50,970
======= ====== ======
Interest bearing liabilities:
Deposits:
Demand ................. $ 4,950 $ 204 4.12 % $ 5,501 $ 192 3.49% $ 5,530 $ 191 3.45%
Savings ................ 2,289 63 2.75 % 2,136 58 2.72% 2,157 59 2.74%
Time ................... 34,989 2,116 6.05 % 28,785 1,747 6.07% 25,312 1,479 5.84%
Other borrowings ....... 3,756 260 6.92 % 3,385 220 6.50% 2,037 113 5.55%
------- ------ ------- ------ ------- -------
Total interest-bearing
liabilities ............. 45,984 2,643 5.76 % 39,807 2,217 5.57% 35,036 1,842 5.26%
----- ----- -----
Non-interest bearing
liabilities
Deposits ............... 13,134 11,709 9,876
Other non-interest
bearing liabilities .. 290 254 255
-------- -------- --------
Total liabilities ......... 59,408 51,770 45,167
Equity .................... 6,513 6,141 5,803
------- ------- -------
Total liabilities and
stockholders' equity ... $ 65,921 $ 57,911 $ 50,970
======= ====== ======
Net interest-earning assets $ 14,809 $ 13,801 $ 12,857
====== ====== ======
Net interest income/interest
rate spreads ............ $2,616 2.90% $2,270 2.80% $2,319 3.43%
===== ===== =====
Net interest margin ....... 4.30% 4.23% 4.84%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 132.20% 134.67% 136.70%
</TABLE>
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Consolidated Average Balances, Interest and Rates
The banking industry uses two key ratios to measure relative profitability of
net interest income. The net interest rate spread measures the difference
between the average yield on earning assets and the average rate paid on
interest bearing sources of funds. The interest rate spread eliminates the
impact of noninterest bearing deposits and gives a direct perspective on the
effect of market interest rate movements. The net interest margin is defined as
net interest income as a percentage of average total earning assets and takes
into account the positive impact of investing noninterest bearing funding
sources.
The 1997 net interest spread increased 7 basis points to 4.30% from the 1996
spread of 4.23% as the yield on both interest earning assets and liabilities
increased. The decrease in 1996 was 61 basis points from the 4.84% reflected in
1995. Table 2 shows the change in net interest income for the past two years due
to changes in volumes and rates.
Table 2 - Analysis of the Changes in Net Interest Income
(dollars in thousands)
Rate/Volume Variance
Years Ended December 31
-----------------------
1997/1996 1996/1995
Change Attributable To Change Attributable To
---------------------- ----------------------
Total Total
Increase/ Increase/
Volume Rate Decrease Volume Rate Decrease
------ ---- -------- ------ ---- --------
Interest-earning assets:
Federal funds sold ........ $ (4) $ 14 $ 10 $ 110 $ (7) $ 103
Loans, including fees ..... 547 98 645 258 (45) 213
Investment securities:
Nontaxable ............... -- -- -- (60) (3) (63)
Taxable .................. 101 16 117 116 (43) 73
----- ----- ----- ----- ----- -----
Total net change in
income on interest-
earning assets ......... 644 128 772 424 (98) 326
----- ----- ----- ----- ----- -----
Interest-bearing liabilities:
Deposits:
Demand ................... (14) 26 12 (1) 2 1
Savings .................. 4 1 5 (1) -- (1)
Time ..................... 375 (6) 369 209 59 268
Other borrowings ......... 25 15 40 85 22 107
----- ----- ----- ----- ----- -----
Total net change in
expense on interest-
bearing liabilities ... 390 36 426 292 83 375
----- ----- ----- ----- ----- -----
Net change in net
interest income .. $ 254 $ 92 $ 346 $ 132 $(181) $ (49)
===== ===== ===== ===== ===== =====
52
<PAGE>
Loans
Average loans increased over 14% in 1997 with much of the increase concentrated
in the commercial loan and real estate categories. These categories account for
33.80% and 41.24%, respectively, of the total loan portfolio. Total gross loans
outstanding at year end increased 14% over the previous year end levels. The
growth in the portfolio resulted from Empire's ongoing efforts to increase the
loan portfolio through the origination of quality loans especially at the
Waycross location.
Table 3 breaks down the composition of the loan portfolio for each of the past
five years while Table 4 shows the amount of loans outstanding for selected
categories as of December 31, 1997, with maturities based on the remaining
scheduled repayments of principal.
<TABLE>
<CAPTION>
Table 3 - Loan Portfolio Composition
(dollars in thousands)
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Commercial,
financial and
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
agricultural ...... $ 15,530 33.80% $ 13,337 33.19% $ 13,653 36.74% $ 11,635 35.48% $ 10,664 35.56%
Real estate-mortgage
and construction .. 18,948 41.24% 15,669 39.00% 13,389 36.03% 11,876 36.21% 11,793 39.32%
State, county and
municipal ......... 2,553 5.56% 3,006 7.48% 2,755 7.41% 2,212 6.74% 1,500 5.00%
Installment loans to
individuals ....... 8,912 19.40% $ 8,168 20.33% 7,366 19.82% 7,073 21.57% 6,033 20.12%
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total loans .... 45,943 100.00% 40,180 100.00% 37,163 100.00% 32,796 100.00% 29,900 100.00%
Less: Allowance
for loan losses ... 481 395 535 292 320
-------- ------- --------- --------- --------
$ 45,462 $ 39,785 $ 36,628 $ 32,504 $ 29,670
====== ====== ====== ====== ======
</TABLE>
Table 4 - Loan Portfolio Maturity
(dollars in thousands)
Maturity Rate Structure
- --------------------------------------------------------------------------------
Over One
One Year Due Predetermined Floating or
Year or Through After Interest Adjustable
Five Years Five Years Total Rate Rate
- --------------------------------------------------------------------------------
Commercial ......$8,797 $4,459 $2,274 $ 15,530 $ 7,199 $ 8,331
Real estate -
construction . 444 600 0 1,044 781 263
------ ------ ------ ------- ------- ------
$9,241 $5,059 $2,274 $ 16,574 $ 7,980 $ 8,594
===== ===== ===== ====== ===== =====
53
<PAGE>
Investment Securities
The composition of Empire's investment securities portfolio reflects Empire's
investment strategy of maximizing portfolio yields commensurate with risk and
liquidity considerations. The primary objectives of Empire's investment strategy
are to maintain an appropriate level of liquidity and provide a tool to assist
in controlling Empire's interest rate position while at the same time producing
adequate levels of interest income. Management of the maturity of the portfolio
is necessary to provide liquidity and to control interest rate risk. During 1997
and 1996, gross investment securities sales were $1.4 million and $1.1 million.
Maturities and paydowns were $5.2 million and $4.8 million during 1997 and 1996,
representing 46% and 50 %, respectively, of the average total portfolio for each
year. Net realized gains associated with the sales were minimal, accounting for
.1% and .9% of noninterest income during 1997 and 1996, respectively. Gross
unrealized gains in the total portfolio amounted to approximately $20,000 at
year end 1997 and gross unrealized losses amounted to approximately $1,000.
Total average investment securities increased 14% during 1997. Average
investment securities during 1996 increased 7% from the 1995 average levels.
Total investment securities increased $1.5 million, or approximately 13%, during
1997.
Table 5 reflects the carrying amount of the investment securities portfolio for
the past three years.
Table 5 - Carrying Value of Securities
(dollars in thousands)
1997 1996 1995
---- ---- ----
U.S. Treasury and agencies .......... $ 9,981 $ 8,466 $ 6,536
State, county and municipal ......... 2,815 2,819 3,054
------- ------- -----
Total ...................... $12,796 $11,285 $ 9,590
====== ====== =====
Table 6 presents the expected maturity of the total investment securities
portfolio (using carrying value) by maturity date and average yields at December
31, 1997. It should be noted that the composition and maturity/repricing
distribution of investment securities available for sale is subject to change
depending on rate sensitivity, capital needs, and liquidity needs.
Table 6 - Expected Maturity of Investment Securities
(dollars in thousands)
After One After Five
Within But Within But Within
One Year Five Years Ten Years Totals
Amount Yield Amount Yield Amount Yield Amount
U.S. Treasuries and
agencies-afs ..... $4,356 5.66% $ 5,426 6.40% $ - - $ 9,782
U.S. Treasuries and
agencies-htm ..... 199 5.99% - - - - 199
- - 1,233 4.71% 1,582 5.15% 2,815
----- ----- ----- -----
Total ........... $4,555 $ 6,659 $1,582 $12,796
===== ===== ===== ======
54
<PAGE>
Deposits
As reflected in Table 1, total average interest bearing liabilities increased
16% during 1997. The largest dollar increase in average interest bearing
deposits was in the time deposit category, rising over $6.2 million or 22% from
1996. Average interest bearing demand deposits decreased by $550,000 or 10%.
Average noninterest bearing demand deposits increased over $1,425,000 or
approximately 12% during 1997 after increasing 19% during 1996. The maturities
of time deposits of $100,000 or more issued by Empire at December 31, 1997 are
summarized in Table 7. Management is of the opinion that its time deposits of
$100,000 or more are customer-relationship oriented and represent a reasonably
stable source of funds.
Table 7 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Within 3 months ....................... $ 2,547
After 3 through 6 months ................ 3,447
After 6 through 12 months ............... 4,564
After 12 months ....................... 1,587
--------
$ 12,145
Liquidity Management
The objective of liquidity management is to ensure that sufficient funding is
available, at reasonable cost, to meet the ongoing operational cash needs of
Empire and to take advantage of income producing opportunities as they arise.
While the desired level of liquidity will vary depending upon a variety of
factors, it is the primary goal of Empire to maintain a high level of liquidity
in all economic environments. Liquidity is defined as the ability of a company
to convert assets into cash or cash equivalents without significant loss and to
raise additional funds by increasing liabilities. Liquidity management involves
maintaining Empire's ability to meet the day to day cash flow requirements of
its customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs. Without proper liquidity
management, Empire would not be able to perform the primary function of a
financial intermediary and would, therefore, not be able to meet the needs of
the communities it serves. Daily monitoring of the sources and uses of funds is
necessary to maintain an acceptable cash position that meets both requirements.
In a banking environment, both assets and liabilities are considered sources of
liquidity funding and both are monitored on a daily basis.
As disclosed in Empire's Consolidated Statement of Cash Flows included elsewhere
herein, net cash provided by operating activities increased by approximately
$263,000. Net cash used in investing activities of $7.7 million consisted
primarily of net loans originated of $5.9 million along with securities
purchased of $8.1 million, offset by securities sales and maturities of $6.6
million. This resulted from management's continued efforts to invest new funds
from deposits into loans and investment securities. The $8.7 million of net cash
provided by financing activities consisted primarily of the $8.7 million
increase in demand, savings and time deposits.
Management considers Empire's liquidity position at the end of 1997 to be
sufficient to meet its foreseeable cash flow requirements. Reference is made to
the Consolidated Statements of Cash Flows appearing in the Consolidated
Financial Statements for a three-year analysis of the changes in cash and cash
equivalents resulting from operating, investing and financing activities.
55
<PAGE>
Interest Rate Sensitivity Management
The absolute level and volatility of interest rates can have a significant
impact on Empire's profitability. The objective of interest rate risk management
is to identify and manage the sensitivity of net interest income to changing
interest rates, in order to achieve Empire's overall financial goals. Based on
economic conditions, asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and manages within
these ranges.
Empire uses income simulation modeling as a primary tool in measuring interest
rate risk and managing interest rate sensitivity. Simulation modeling considers
not only the impact of changing market rates of interest on future net interest
income, but also such other potential causes of variability as earning asset
volume, mix, and general market conditions.
Interest rate sensitivity is a function of the repricing characteristics of
Empire's portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest bearing assets and liabilities are
subject to change in interest rates either at replacement, repricing or maturity
during the life of the instruments. Interest rate sensitivity management focuses
on the maturity structure of assets and liabilities and their repricing
characteristics during periods of changes in market interest rates. Effective
interest rate sensitivity management seeks to ensure that both assets and
liabilities respond to changes in interest rates within an acceptable time
frame, thereby minimizing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volumes of assets and liabilities in Empire's current portfolio that are subject
to repricing at various time horizons: immediate through three months, four to
twelve months, one to five years and on a cumulative basis. The differences are
known as interest sensitivity gaps. Table 8 shows interest sensitivity gaps for
these different intervals as of December 31, 1997.
<TABLE>
<CAPTION>
Table 8 - Interest Rate Sensitivity Analysis
(dollars in thousands)
Over Over
Immediate Three One
Through Months Through Over
Three through Five Five
Months One Year Years Years Total
Interest earning assets:
Interest bearing deposits and
<S> <C> <C> <C> <C> <C>
federal funds sold .............. $ 4,495 $ - $ - $ - $ 4,495
Investment securities:
Taxable ......................... - 4,555 5,426 - 9,981
Nontaxable ...................... - - 1,233 1,582 2,815
Loans ............................ 18,989 6,733 8,622 11,599 45,943
------ ----- ----- ------ ------
Total interest earning assets .. 23,484 11,288 15,281 13,181 63,234
Interest bearing liabilities:
Deposits:
Interest bearing demand ......... 4,379 - - - 4,379
Savings ......................... 2,149 - - - 2,149
Time ............................ 7,590 22,772 8,060 - 38,422
Federal Home Loan Bank borrowings .. 154 462 2,017 1,028 3,661
-------- -------- ----- ----- -----
Total interest bearing
liabilities ......... 14,272 23,234 10,077 1,028 48,611
Interest sensitivity gap ........... 9,212 (11,946) 5,204 12,153 $14,623
------- -------- ----- ------ ======
Cumulative interest sensitivity gap $ 9,212 $ (2,734) $2,470 $14,623
======= ======== ======= ======
</TABLE>
56
<PAGE>
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remains the same, thus impacting net interest
income. This characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of short-term assets tied
to Empire's prime lending rate are different from those of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create changes in prepayment levels of
assets and liabilities, which are not reflected in the interest rate sensitivity
analysis report. These prepayments may have significant effects on Empire's net
interest margin. Because of these factors an interest sensitivity gap report may
not provide a complete assessment of Empire's exposure to changes in interest
rates.
Table 8 indicates Empire is in a liability sensitive or negative gap position
after twelve months. This liability sensitive position would generally indicate
that Empire's net interest income would decrease should interest rates rise and
would increase should interest rates fall. Due to the factors cited previously,
current simulation results indicate only minimal sensitivity to parallel shifts
in interest rates. Management also evaluates the condition of the economy, the
pattern of market interest rates and other economic data to determine the
appropriate mix and repricing characteristics of assets and liabilities required
to produce an optimal net interest margin.
Capital Resources
Stockholders' equity at December 31, 1997 increased 10% from December 31, 1996.
Net earnings after dividends for 1997 accounted for the majority of the increase
in stockholders' equity.
Dividends of $3.20 per share, were declared on Empire's common stock in 1997 and
1996. Empire has retained earnings by maintaining a relatively low dividend
payout ratio in order to keep pace with the rate of increased asset growth.
Average stockholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average stockholders'
equity to average assets for 1997 was 9.88% compared to 10.60% in 1996. The
decrease in the ratio is the result of asset growth. Table 9 summarizes these
and other key ratios of Empire for each of the last three years.
Table 9 - Key Ratios
1997 1996 1995
---- ---- ----
Return on average assets .............. 1.05% .42% 1.08%
Return on average equity .............. 10.64% 4.01% 9.44%
Dividend payout ratio ................. 12.00% 34.00% 15.00%
Average equity to average assets ...... 9.88% 10.60% 11.39%
The Board of Governors of the Federal Reserve System has issued guidelines for
the implementation of risk-based capital requirements by U.S. banks and bank
holding companies. These risk-based capital guidelines take into consideration
risk factors, as defined by regulators, associated with various categories of
assets, both on and off balance sheet. Under the guidelines, capital strength is
measured in two tiers which are used in conjunction with risk adjusted assets to
determine the risk based capital ratios. The guidelines require an 8% total
risk-based capital ratio, of which 4% must be Tier I capital.
57
<PAGE>
Empire's Tier I capital, which consists of stockholders' equity net of
unrealized gains and losses on securities available for sale and intangible
assets, amounted to $6.6 million at December 31, 1997. Tier II capital includes
supplemental capital components such as qualifying allowance for loan losses.
Tier I capital plus Tier II capital components is referred to as Total
Risk-based Capital and was $7.1 million at December 31, 1997. The percentage
ratios, as calculated under the guidelines, were 13.7% and 14.6% for Tier I and
Total Risk-based Capital, respectively, at December 31, 1997.
A minimum leverage ratio is required in addition to the risk-based capital
standards and is defined as Tier 1 capital divided by average assets adjusted
for the unrealized gain/loss on the investment securities investment portfolio
and intangible assets. Although a minimum leverage ratio of 3% has been
established, the Federal Reserve Board will require bank holding companies to
maintain a leverage ratio greater than 3% if it is experiencing or anticipating
significant growth or is operating with less than well-diversified risks in the
opinion of the Federal Reserve Board. The Federal Reserve Board uses the
leverage ratio in tandem with the risk-based capital ratios to assess capital
adequacy of banks and bank holding companies. Empire's leverage ratios at
December 31, 1997 and 1996 were 10.4% and 10.8%, respectively. Risk-based and
leverage capital positions as of December 31, 1997 and 1996 are presented in
Table 10.
Table 10 - Analysis of Capital Adequacy
(dollars in thousands)
1997 1996
Risk-based capital ratios:
Tier I capital to risk-adjusted assets ........ 14.0% 14.6%
Tier II capital to risk-adjusted assets ....... 1.0% .9%
----- ------
Total capital to risk-adjusted assets .. 15.0% 15.5%
==== ====
Leverage ratio ......................... 10.7% 11.1%
==== ====
Tier I Capital ................................ $ 6,811 $ 6,195
Tier II Capital ............................... 482 393
------- -------
Total Capital .......................... $ 7,293 $ 6,588
====== ======
Total risk-adjusted assets .................... $48,617 $42,506
====== ======
All three of the capital ratios of Empire Bank currently exceed the minimum
ratios required in 1997 as defined by federal regulators and are deemed to be
well capitalized. Empire monitors these ratios to ensure that Empire Bank
remains within regulatory guidelines. Increased regulatory activity in the
financial industry as a whole will continue to impact the structure of the
industry, however, management does not anticipate any negative impact on the
capital resources or operations of Empire.
Provision and Allowance for Loan Losses
Empire manages asset quality and controls risk through diversification of the
loan portfolio and the application of policies designed to foster sound
underwriting and loan monitoring practices. Empire's loan administration
function is charged with monitoring asset quality, establishing credit policies
and procedures, and enforcing the consistent application of these policies and
procedures.
The provision for loan losses is the annual cost of providing an adequate
allowance for anticipated potential future losses on loans. The amount each year
is dependent upon many factors including loan growth, net charge-offs, changes
in the composition of the loan portfolio, delinquencies, management's assessment
of loan portfolio quality, the value of collateral and economic factors and
trends.
58
<PAGE>
During recent years, Empire has strengthened its review process of the larger
loans in its portfolio and has imposed stricter underwriting standards in order
to minimize the impact an economic downturn might have on credit quality. Loan
review procedures, including such techniques as loan grading and on-site
reviews, are regularly utilized in order to ensure that potential problem loans
are identified early in order to lessen any potentially negative impact such
problem loans may have on Empire's earnings. Management's involvement continues
throughout the process and includes participation in the workout process and
recovery activity. These formalized procedures are monitored internally by the
loan review committee. Such review procedures are quantified in quarterly
reports to senior management and are used in determining whether such loans
represent potential loss to Empire. Management monitors the entire loan
portfolio in an attempt to identify problem loans so that risks in the portfolio
can be identified on a timely basis and an appropriate allowance maintained.
The provision for loan losses decreased 60% in 1997 compared to a 2% decrease in
1996. The increased provisions for 1997 and 1996 were for the required reserves
related to the credit loss for two large lending relationships. The allowance
for loan losses as a percentage of gross loans outstanding at year-end totaled
1.0% for both 1997 and 1996.
Empire does not allocate the allowance for loan losses to the various loan
categories. The entire allowance is available to absorb losses from any and all
loans. Table 11 sets forth information with respect to Empire's allowance for
loan losses for each of the last five years.
<TABLE>
<CAPTION>
Table 11 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year ... $ 395 $ 535 $ 292 320 $ 306
Charge-offs:
Commercial ..................................... 143 737 457 173 -
Real estate .................................... - - - - -
Installment loans to individuals ............... 52 60 55 13 75
---- ----- ---- ---- ----
Total charge-offs ..................... 195 797 512 186 75
---- --- --- --- ----
Recoveries:
Commercial ..................................... - - 74 - -
Real estate .................................... - - - - -
Installment loans to individuals ............... 30 26 38 27 33
----- ----- ---- ----- -----
Total recoveries ...................... 30 26 112 27 33
----- ----- --- ----- -----
Net charge-offs .................................. 164 771 400 159 42
Provisions charged to earnings ................... 251 631 643 131 56
----- --- --- --- ----
Balance at end of year ........................... $ 481 $ 395 $ 535 $ 292 $ 320
===== === === === ===
Ratio of net charge-offs to average loans
outstanding during the period .................. .32% 1.97% 1.10% .51% .14%
=== ==== ==== === ===
</TABLE>
59
<PAGE>
Asset Quality
Nonperforming assets, comprised of nonaccrual loans, loans 90 days or more past
due and other real estate owned totaled approximately $.7 million at December
31, 1997. At December 31, 1996, nonperforming assets amounted to $.7 million.
There were no related party loans, which were considered nonperforming at
December 31, 1997 or 1996. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is charged to interest income on
loans. Loans made by Empire to facilitate the sale of other real estate are made
on terms comparable to loans of similar risk. An adequate investment by the
buyer is required prior to the removal of other real estate from nonperforming
assets.
There were no commitments to lend additional funds on nonaccrual loans at
December 31, 1997. Table 12 summarizes Empire's risk elements for each of the
last five years.
Table 12 - Risk Elements
(dollars in thousands)
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Loans 90 days past due ........... $ 491 $ 379 $ 481 $ 13 $ 292
Loans on nonaccrual .............. 165 416 659 355 189
Other real estate and other
repossessed assets ........... 84 84 - - -
----- ----- ------ ------ -----
Total nonperforming assets ....... $ 740 $ 745 $1,140 $ 368 $ 481
=== === ===== === ===
Total nonperforming assets as a
percentage of loans .............. 1.62% 1.87% 3.11% 1.13% 1.62%
==== ==== ===== ==== ====
There may be additional loans within Empire's portfolio that become classified
as conditions dictate; however, management was not aware of any such loans that
are material in amount at December 31, 1997. At December 31, 1997, management
was unaware of any known trends, events or uncertainties that will have or that
are reasonably likely to have a material effect on Empire's liquidity, capital
resources or operations.
Noninterest Income
Noninterest income consists primarily of revenues generated from service charges
and fees on deposit accounts. Noninterest income increased 25% during 1997 as
compared to 1996 primarily due to new accounts. Total noninterest income for
1996 showed an increase of 24% compared to 1995.
Noninterest Expense
Noninterest expense for 1997 increased 17% following an increase of 20% in 1996.
Total salaries and employee benefits increased 12% during 1997 and 16% in 1996
due largely to employee additions required to support Empire's branch growth.
Net occupancy expense increased 34% in 1997 following an increase of 29% in
1996. The 1997 increase in occupancy expense was due to expenses related to
branch start-up costs, branch renovations, including depreciation and
maintenance expenses.
60
<PAGE>
Other noninterest expenses increased by approximately $103,000 or 18% compared
to a 20% increase in 1996. The costs have increased primarily as the result of
the Waycross branch and its growth. Management continues to evaluate other
noninterest expense details in efforts to further decrease the cost of providing
expanded banking services to a growing customer base.
Income Taxes
Income tax expenses for 1997 amounted to $93,000 or 12% of pretax income
compared to $24,000 or 9% of 1996 pretax income. As a percentage of pretax
accounting income, tax expense for 1997 was less than expected primarily as the
result of Empire's reduction of a portion of its valuation allowance. For 1996,
Empire recognized a tax asset related to a federal net operating loss that was
generated during 1996.
Impact of Inflation and Changing Prices
A bank's asset and liability structure is substantially different from that of
an industrial company in that primarily all assets and liabilities of a bank are
monetary in nature. Management believes the impact of inflation on financial
results depends on Empire's ability to react to changes in interest rates and,
by such reaction, reduce the inflationary impact on performance. Interest rates
do not necessarily move in the same direction, or at the same magnitude, as the
prices of other goods and services. As discussed previously, management seeks to
manage the relationship between interest-sensitive assets and liabilities in
order to protect against wide interest rate fluctuations, including those
resulting from inflation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations For Each of the Six Months Ended June 30, 1998 and 1997
Financial Condition
Total assets at June 30, 1998 and December 31, 1997 were approximately $70
million. Deposits decreased approximately $.5 million, or less than 1% from
December 31, 1997, while net loans increased approximately $2.9 million, or 7%.
The allowance for loan losses at June 30, 1998 totaled $.5 million, representing
1.1% of total loans compared to the December 31, 1997 total of $.48 million,
representing 1.1% of total loans. Securities available for sale increased 3%
from December 31, 1997. The increase in net loans was funded primarily with cash
and fed funds sold on hand at December 31, 1997.
The total of nonperforming assets, which includes nonaccrual loans, repossessed
collateral and loans for which payments are more than 90 days past due,
decreased from $.7 million at December 31, 1997 to $.4 million at June 30, 1998.
There were no related party loans which were considered nonperforming at June
30, 1998.
Empire Bank was most recently examined by its primary regulatory authority in
March 1997. There were no recommendations by the regulatory authority that in
management's opinion will have material effects on Empire's liquidity, capital
resources or operations.
61
<PAGE>
Results of Operations
Net interest income increased $32,000, or 2%, in the first six months of 1998
compared to the same period for 1997. Interest income for the first six months
of 1998 was $2.8 million, representing an increase of $.2 million, or 8%, over
the same period in 1997. Interest expense for the first six months of 1998
increased approximately $213,000, or 17%, compared to the same period in 1997.
This increase in interest income and interest expense during the first six
months of 1998 compared to the same period in 1997 is primarily attributable to
the increase in the volume of both loans and deposits.
The provision for loan losses for the first six months of 1998 decreased
$136,000 compared to the same period for 1997. It is management's belief that
the allowance for loan losses is adequate to absorb probable losses in the loan
portfolio.
Noninterest income decreased 3% to approximately $267,000 for the six-month
period ended June 30, 1998, as compared to the same period in 1997.
Noninterest expenses for the first six months of 1998 and 1997 amounted to
$1,055,000 in both years.
Capital Resources
Empire and Empire Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory- and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines,
Empire and Empire Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Empire Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Empire Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined) to risk-weighted assets and of Tier 1 capital (as defined)
to average assets. As of June 30, 1998, Empire Bank met all capital adequacy
requirements to which it is subject.
The following tables present Empire's consolidated regulatory capital position
at June 30, 1998:
Risk-Based Capital Ratios
Tier 1 Capital .................................... 14.20%
Tier 1 Capital minimum requirement ................ 4.00%
------
Excess ............................................ 10.20%
Total Capital ..................................... 15.14%
Total Capital minimum requirement ................. 8.00%
Excess ............................................ 7.14%
Leverage Ratio
Tier 1 Capital to adjusted total assets ........... 10.52%
Minimum leverage requirement ...................... 3.00%
Excess ............................................ 7.52%
62
<PAGE>
Certain Transactions And Business Relationships
Several of Empire's directors, executive officers and their affiliates,
including corporations and firms of which they are directors or officers or in
which they and/or their families have an ownership interest, are customers of
Empire and Empire Bank. These persons, corporations and firms have had
transactions in the ordinary course of business with Empire and Empire Bank
including borrowings, all of which, in the opinion of Empire management, were on
substantially the same terms including interest rates and collateral as those
prevailing at the time for comparable transactions with unaffiliated persons and
did not involve more than the normal risk of collectibility or present other
unfavorable features. Empire and Empire Bank expect to have such transactions on
similar terms with its directors, executive officers, and their affiliates in
the future. The aggregate amount of loans outstanding by Empire Bank to
directors, executive officers, and related parties of Empire or Empire Bank as
of June 30, 1998, was approximately $2,481,546, which represented approximately
34.4% of consolidated shareholders' equity on that date.
Voting Securities And Principal Shareholders of Empire
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
26,450 outstanding shares of Empire Common Stock as of the Empire Record Date.
Unless otherwise indicated, each person has sole voting and investment powers
over the indicated shares. Information relating to beneficial ownership of the
Empire Common Stock is based upon "beneficial ownership" concepts set forth in
rules promulgated under the Exchange Act. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Number of Shares Percent
Beneficially Owned At Of
Name and Address Empire Record Date Class (%)
Habersham Bancorp 7,200 (1) 27.22
Highway 441 North
P. O. Box 1980
Cornelia, Georgia 30531
Helen Kennedy 1,907 7.2
703 W. Dame Avenue
Homerville, Georgia 31634
Philip Manley 4,795 (2) 18.1
308 W. Dame Avenue
Homerville, Georgia 31634
James T. Stovall, III 2,406 (3) 9.1
P. O. Box 22
Manor, Georgia 31550
63
<PAGE>
(1) Pursuant to an Option Agreement dated as of March 11, 1998 by and among
Habersham Bancorp, a bank holding company located in Cornelia, Georgia
("Habersham"), and certain shareholders of Empire (including Philip
Manley), Habersham has an irrevocable option to purchase 7,200 shares
or approximately 27% of Empire Common Stock.
(2) The listed shares are owned jointly by Mr. Manley and his spouse. The
listed shares are under option to Habersham Bancorp. (See Note 1
above.)
(3) Consists of (i) 100 shares owned by Mr. Stovall and (ii) 2,306 shares
owned by Mr. Stovall's spouse as to which beneficial ownership is
shared.
Year 2000 Issues
Empire currently has computer systems, software products or other
business systems, or those of suppliers or customers that might not accept input
of, store, manipulate and output dates in the years 1999, 2000 or thereafter
without error or interruption. Empire has conducted reviews of their business
systems, including their computer systems, to attempt to identify ways in which
their systems could be affected by problems resulting from incorrectly
processing date information. Empire is also requesting assurances from all
software vendors that they have dealt with or plans to possibly purchase
software from that the software will correctly process all date information at
all times. Additionally, Empire is querying their customers and suppliers as to
their progress in identifying and addressing problems that their computer
systems will face in processing date information as the year 2000 approaches and
is reached. There can be no assurances, however, that Empire will identify all
date-handling problems with their business systems or those of their customers
and suppliers in advance of their occurrence, or that Empire will be able to
successfully remedy problems that are discovered. The expenses of Empire's
efforts to identify and address such problems, or the expenses or liabilities to
which Empire may become subject as result of such problems, could have a
material adverse effect on Empire's results of operations and financial
condition.
BUSINESS OF FLAG
General
FLAG is a bank holding company headquartered in LaGrange, Georgia. FLAG
is the sole shareholder of the following depository institutions: Citizens,
Milan and First Federal. Citizens and Milan are state banks organized under the
laws of the State of Georgia, with ten banking offices located in the cities of
Unadilla, Vienna, Byromville, Montezuma, Oglethorpe, Cordele, Pinehurst, Milan
and McRae. First Federal is a federal savings bank, with five offices in
LaGrange, Georgia, which serve markets located in western Georgia. As of June
30, 1998, FLAG had total consolidated assets of approximately $442,878,940,
total consolidated deposits of approximately $339,245,243, and total
consolidated shareholders' equity of approximately $38,582,093. FLAG offers a
full array of deposit accounts and retail and commercial banking services,
engages in small business lending, residential and commercial real estate
lending, mortgage banking services, brokerage services and performs real estate
appraisal services through its subsidiaries, First Federal, Citizens and Milan,
as well as First Federal's wholly-owned subsidiary, Piedmont. In addition, CB
Financial, a wholly-owned subsidiary of Citizens, provides pawn, title pawn and
check cashing services. CB Financial is currently winding up its business
operations.
As a routine part of its business, FLAG evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy
Statement/Prospectus, discussions and, in some cases, negotiations and due
diligence activities looking toward or culminating in the execution of
preliminary or definitive documents respecting potential acquisitions may occur
or be in progress. These transactions may involve FLAG acquiring such financial
64
<PAGE>
institutions in exchange for cash or capital stock, and depending upon the terms
of these transactions, they may have a dilutive effect upon the FLAG Common
Stock to be issued to holders of Empire Common Stock in the Merger.
Directors and Executive Officers
The directors of FLAG as the surviving corporation of the Merger will
be:
Dr. A. Glenn Bailey Leonard H. Bateman
H. Speer Burdette, III Patti S. Davis
Fred A. Durand, III John S Holle
James W. Johnson Kelly R. Linch
J. Preston Martin J. Daniel Speight, Jr.
John W. Stewart, Jr. Robert W. Walters
The executive officers of FLAG as the surviving corporation of the
Merger will be:
John S. Holle Chairman of the Board
J. Daniel Speight, Jr. President and Chief
Executive Officer
Patti S. Davis Chief Financial Officer,
Senior Vice President
and Assistant Secretary
Ellison C. Rudd Senior Vice President,
Treasurer and Secretary
J. Preston Martin Senior Vice President
Charles O. Hinely Chief Operating Officer
and Senior Vice President
Additional persons may be elected as directors or executive officers following
the Merger. Upon completion of the Merger of Brown with and into Citizens,
Dennis D. Allen, President and Chief Executive Officer of Brown, will be elected
as a member of FLAG's Board of Directors. Upon the completion of the Merger of
Heart with and into FLAG, Donald M. Thigpen, President and Chief Executive
Officer of Heart, and Robert E. Thigpen, a director of Heart, will be elected as
members of FLAG's Board of Directors. See "SUMMARY - Recent Development."
The following section sets forth certain information regarding each of
the persons who, after the consummation of the Merger, will be a director or
executive officer of FLAG, as the surviving corporation. Except as otherwise
indicated, each of the named persons has been engaged in his or her present
principal occupation for more than five years.
Dr. A. Glenn Bailey. Dr. Bailey is a physician and surgeon in LaGrange and
is a director, and from 1980 to 1989 was President, of Clark-Holder Clinic, a
LaGrange medical clinic. He has been a director of First Federal since 1982 and
a director of FLAG since 1994. Following the Merger, Dr. Bailey will continue to
serve as a member of the Boards of Directors of both FLAG and First Federal. Dr.
Bailey is 63 years old.
Leonard H. Bateman. Mr. Bateman has served as President and Chief
Executive Officer of Empire and Empire Bank since 1986. Following consummation
of the Merger, Mr. Bateman will serve as a member of the Board of Directors of
FLAG and as President and a director of Empire Bank. Mr. Bateman is 50 years
old.
H. Speer Burdette, III. Mr. Burdette is an owner, director and Vice
President/Treasurer of J.K. Boatwright & Co., P.C., an accounting firm located
in LaGrange. He has been a director of First Federal since 1993 and a director
of FLAG since 1994. Following the Merger, Mr. Burdette will continue to serve as
a member of the Boards of Directors of both FLAG and First Federal. Mr. Burdette
is 45 years old.
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Patti S. Davis. Ms. Davis served as Executive Vice President and Chief
Financial Officer of Middle Georgia since 1994 until Middle Georgia merged with
FLAG in March 1998. Ms. Davis has been Senior Vice President and Chief Financial
Officer of Citizens since 1990. Following the consummation of the merger of
Middle Georgia and FLAG, Ms. Davis has served as a Senior Vice President and as
a member of the Board of Directors of FLAG and, since July 1998, has served as
Chief Financial Officer of FLAG. In addition, Ms. Davis continues to act as
Senior Vice President and Chief Financial Officer and a director of Citizens.
Following the Merger, Ms. Davis will continue to act in these capacities. Ms.
Davis and J. Daniel Speight, Jr. are cousins. Ms. Davis is 41 years old.
Fred A. Durand, III. Mr. Durand is President, Chief Executive Officer and a
director of Durand-Wayland, Inc., a manufacturer of produce sorting and spray
equipment. He has been a director of First Federal since 1990 and director of
FLAG since 1994. Following the Merger, Mr. Durand will continue to serve as a
member of the Boards of Directors of both FLAG and First Federal. Mr. Durand is
56 years old.
Charles O. Hinely. Mr. Hinely has served as Senior Vice President and Chief
Operating Officer of FLAG since December 1997. Mr. Hinely has 30 years of
banking and financial industry related experience. He has worked for Citizens
and Southern National Bank and was a principle of Bank Management Resources,
Inc. (BMR Financial Group) and LSI Partners, Inc. Following the Merger, Mr.
Hinely will continue to serve as Senior Vice President and Chief Operating
Officer of FLAG. Mr. Hinely is 51 years old.
John S. Holle. Mr. Holle served as Chairman of the Board, President,
Chief Executive Officer and as a director of FLAG since 1993, and he has been
President, Chief Executive Officer and a director of First Federal since 1985
and Chairman of the Board of First Federal since 1990. Following the merger of
FLAG and Middle Georgia, Mr. Holle has served as Chairman of the Board of FLAG
and President, Chief Executive Officer and a member of the Board of Directors of
First Federal and as a director of Citizens. Mr. Holle also has been Chairman of
the Board and President of First Federal's wholly-owned subsidiary, Piedmont,
since 1986. Following the Merger, Mr. Holle will continue to be the Chairman of
the Board of FLAG and will continue to serve as a member of the Board of
Directors of FLAG. In addition, Mr. Holle will continue to act as President,
Chief Executive Officer and a member of the Board of Directors of First Federal
and as a director of Citizens following the Merger. Mr. Holle is 47 years old.
James W. Johnson. Mr. Johnson is the president of McCannie Motor and
Tractor Company, Inc., a retail seller of tractors and implement equipment, and
served as a director of Middle Georgia and Citizens since 1982 until the merger
of FLAG and Middle Georgia. Following the merger of FLAG and Middle Georgia, Mr.
Johnson has served as a member of the Board of Directors of FLAG and continues
to serve as a director of Citizens. Following the Merger, Mr. Johnson will
continue in these capacities. Mr. Johnson is 56 years old.
Kelly R. Linch. Mr. Linch is owner of Linch's, Inc., a retail appliance and
electronics store in LaGrange. He has been a director of First Federal since
1986 and a director of FLAG since 1994. Following the Merger, Mr. Linch will
continue to serve as a member of the Boards of Directors of both FLAG and First
Federal. Mr. Linch also is a director of Key Distributors of Georgia, Inc. Mr.
Linch is 55 years old.
J. Preston Martin. Mr. Martin served as the President and Chief
Executive Officer of Three Rivers and as President of Milan from 1986 until May
1998 when Three Rivers merged with and into FLAG. Mr. Martin currently serves as
Senior Vice President, on the Boards of Directors of FLAG, Citizens and Milan
and as President of Milan. Following the Merger, Mr. Martin will continue to act
in these capacities. Mr. Martin is 44 years old.
Ellison C. Rudd. Mr. Rudd served as Executive Vice President, Chief
Financial Officer and Treasurer of FLAG since 1994. Mr. Rudd has also been
Executive Vice President of First Federal since 1993 and Chief Financial Officer
and Treasurer of First Federal since 1989 when he joined First Federal as a Vice
President. Following the merger of FLAG and Middle Georgia and until July 1998,
Mr. Rudd served as Senior Vice President and Chief Financial Officer of FLAG.
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<PAGE>
Mr. Rudd currently serves as Senior Vice President, Secretary and Treasurer of
FLAG. Following the Merger, Mr. Rudd will continue to act in these capacities.
In addition, Mr. Rudd will continue to act as Chief Financial Officer, Treasurer
and Executive Vice President of First Federal. Mr. Rudd is 53 years old.
J. Daniel Speight, Jr. Mr. Speight served as Chief Executive Officer
and as a director of Middle Georgia since 1989 and has been President and Chief
Executive Officer of Citizens since 1984. Following the merger of FLAG and
Middle Georgia, Mr. Speight has served as the President and Chief Executive
Officer of FLAG, and as a member of the Board of Directors of FLAG. In addition,
Mr. Speight serves as President and Chief Executive Officer and a director of
Citizens and as a director of First Federal. Following the Merger, Mr. Speight
will continue to act in these capacities and will serve as a director of Empire
Bank. Mr. Speight is 41 years old.
John W. Stewart, Jr. Mr. Stewart is an owner, Chairman of the Board and
President of Stewart Wholesale Hardware Company, a wholesale grocery and
hardware business in LaGrange. He has been a director of First Federal since
1982 and a director of FLAG since 1994. Following the Merger, Mr. Stewart will
continue to serve as a member of the Boards of Directors of both FLAG and First
Federal. Mr. Stewart is 63 years old.
Robert W. Walters. Mr. Walters retired in March 1996 as owner and director
of The Mill Store, Inc., a retail and contract floor covering business in
LaGrange. He has been a director of First Federal since 1982 and a director of
FLAG since 1994. Following the Merger, Mr. Walters will continue to serve as a
member of the Boards of Directors of both FLAG and First Federal. Mr. Walters is
65 years old.
Management Stock Ownership
The following table presents information about each of the directors
and executive officers of FLAG and all executive officers and directors as a
group. Unless otherwise indicated, each person has sole voting and investment
powers over the indicated shares. Information relating to beneficial ownership
of the FLAG Common Stock is based upon "beneficial owner" concepts set forth in
rules promulgated under the Exchange Act. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Amount and
Nature of Beneficial Percent
Name Ownership of Class (%)
(a) Directors
Dr. A. Glenn Bailey 92,577 (1) 1.78
H. Speer Burdette, III 24,576 (2) .47
Patti S. Davis 145,868 (3) 2.81
Fred A. Durand, III 27,657 (4) .53
John S. Holle 60,238.392 (5) 1.15
James W. Johnson 145,103 (6) 2.80
Kelly R. Linch 58,677 (7) 1.13
Preston Martin 288,000 (8) 5.57
J. Daniel Speight, Jr. 261,588 (9) 4.99
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John W. Stewart, Jr. 29,838.391(10) .58
Robert W. Walters 140,115.669(11) 2.70
(b) Executive Officers
Charles O. Hineley 0 0
Ellison C. Rudd 19,625 (12) .38
(c) All Directors and Executive
Officers as a group
(13 persons) 1,293,863.452 24.00
- -------------------
(1) Consists of (i) 36,555 shares held by Dr. Bailey, (ii) 35,055 shares
held by Dr. Bailey's spouse as to which beneficial ownership is shared,
(iii) 975 shares held by Chattahoochee Land Investment as to which
beneficial ownership is shared, (iv) 1,125 shares held by a broker for
the benefit or Chattahoochee Land Investment as to which beneficial
ownership is shared, and (v) 18,867 shares of immediately exercisable
options.
(2) Consists of (i) 2,076 shares held by Mr. Burdette, (ii) 3,633 shares
held in Individual Retirement Accounts for the benefit of Mr. Burdette,
and (iii) 18,867 shares of immediately exercisable options.
(3) Consists of (i) 108,439 shares held by Ms. Davis, (ii) 4,063 shares
held in an Individual Retirement Account for the benefit of Ms. Davis,
(iii) 7,866 shares held by Speight Futures, Inc. as to which beneficial
ownership is shared and (iv) 25,500 shares of immediately exercisable
options. Ms. Davis is also an executive officer of FLAG.
(4) Consists of (i) 8,625 shares held by a broker for the benefit of Mr.
Durand, (ii) 165 shares held by a broker for the benefit of Mr.
Durand's spouse as to which beneficial ownership is shared, and (iii)
18,875 shares of immediately exercisable options.
(5) Consists of (i) 15,000 shares held by Mr. Holle, (ii) 238.392 shares
issued to Mr. Holle pursuant to FLAG's dividend reinvestment plan, and
(iii) 45,000 shares of immediately exercisable options. Mr. Holle is
also an executive officer of FLAG.
(6) Consists of (i) 58,377 shares held by Mr. Johnson, (ii) 2,716 shares
held by Mr. Johnson's spouse as to which beneficial ownership is
shared, and (iii) 84,010 held by McCrannie Motor and Tractor Company,
Inc. Profit Sharing Plan for the benefit of Mr. Johnson.
(7) Consists of (i) 33,750 shares held by Mr. Linch, (ii) 6,060 shares
held by a broker for the benefit of Mr. Linch, and (iii) 18,867 shares
of immediately exercisable options.
(8) Consists of 288,000 shares held by a broker for the benefit of Mr.
Martin. Mr. Martin is also an executive officer of FLAG.
(9) Consists of (i) 149,995 shares held by a broker for the benefit of Mr.
Speight, (ii) 2,362 shares held by Mr. Speight as trustee for Patricia
Ruth Davis, (iii) 589 shares held by Mr. Speight as trustee for Anna
Davis, (iv) 1,677 shares held by a broker for the benefit of Mr.
Speight as custodian for Alex Speight, (v) 1,677 shares held by a
broker for the benefit of Mr. Speight as custodian for J. Daniel
Speight, III, (vi) 7,371 shares held in an Individual Retirement
Account for the benefit of Mr. Speight, (vii) 34,917 shares held by
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Sp8Co., Inc. as to which beneficial ownership is shared, and (viii)
63,000 shares of immediately exercisable options. Mr. Speight is also
an executive officer of FLAG.
(10) Consists of (i) 9,486 shares held by Mr. Stewart, (ii) 15 shares held
by Mr. Stewart as custodian for Tristran Daugherty, (iii) 1,469.901
shares issued to Mr. Stewart pursuant to FLAG's dividend reinvestment
plan, (iv) .490 shares issued to Mr. Stewart as custodian for Tristran
Daugherty pursuant to FLAG'S dividend reinvestment plan, and (v) 18,867
shares of immediately exercisable options.
(11) Consists of (i) 37,125 shares held by Mr. Walters, (ii) 41,700 shares
held jointly by Mr. Walters and his spouse, (iii) 42,000 shares held by
Mr. Walters' spouse as to which beneficial ownership is shared, (iv)
375 shares held by Mr. Walters as custodian for Myles D. Oliver, (v)
48.669 shares issued to Mr. Walter's as custodian for Myles D. Oliver
pursuant to FLAG's dividend reinvestment plan, and (vi) 18,867 shares
of immediately exercisable options.
(12) Consists of (i) 10,000 shares held by Mr. Rudd, (ii) 4,000 shares held
by a broker for the benefit of Mr. Rudd, and (iii) 5,625 shares of
immediately exercisable options.
Additional information about FLAG and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE."
Voting Securities and Principal Shareholders of FLAG
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
5,174,807 outstanding shares of FLAG Common Stock as of June 30, 1998. Unless
otherwise indicated, each person has sole voting and investment powers over the
indicated shares. Information relating to beneficial ownership of the FLAG
Common Stock is based upon "beneficial owner" concepts set forth in rules
promulgated under the Exchange Act of 1934. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Amount and
Nature of Beneficial Percent of
Name and Address Ownership Class (%)
Wendell S. Dunaway 259,732(1) 5.01
P.O. Box 1007
Hawkinsville, Georgia 31036
J. Preston Martin 288,000(2) 5.57
P.O. Box 38
Mt. Zion Street
Milan, Georgia 31091
- --------------------
(1) Consists of (i) 258,835 shares owned by Mr. Dunaway, and (ii) 897
shares owned by Dunaway Brothers, as to which beneficial ownership is
shared.
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<PAGE>
(2) Consists of 288,000 shares held by a broker for the benefit of Mr.
Martin
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
as of June 30, 1998 (the "Pro Forma Balance Sheet"), and the unaudited pro forma
consolidated statements of earnings for the six months ended June 30, 1998, and
for each of the three years in the period ended December 31, 1997 (collectively,
the "Pro Forma Earnings Statements"), combine the historical financial
statements of FLAG with Empire after giving effect to the Merger using the
pooling of interests method of accounting. Pro forma adjustments to the Pro
Forma Balance Sheet are computed as if the Merger occurred at June 30, 1998,
while the pro forma adjustments to the Pro Forma Earnings Statements are
computed as if the Merger were consummated on January 1, 1995, the earliest
period presented. The following financial statements do not reflect any
anticipated cost savings which may be realized by FLAG after consummation of the
Merger.
The pro forma information does not purport to represent what FLAG's and
Empire's combined results of operations actually would have been if the Merger
had occurred on January 1, 1995.
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<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1998
(Dollars in thousands)
(Unaudited)
Pro Other
Pro Forma Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisitions Adjustments Combined
---- ------ ----------- -------- ------------ ----------- --------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and due from banks ...................... $ 11,724 $ 1,911 $ 13,635 $ 2,704 $ 16,339
Federal funds sold ........................... 10,070 3,200 13,270 990 14,260
Interest-bearing deposits .................... 3,508 - 3,508 - 3,508
Securities available for sale, at fair value . 66,712 10,036 76,749 6,332 83,081
Securities held to maturity .................. 2,720 2,814 5,533 3,670 9,203
Other investments ............................ 5,755 - 5,755 - 5,755
Loans held for sale .......................... 6,306 - 6,306 - 6,306
Loans, net ................................... 306,527 48,397 354,924 43,423 398,347
Premises and equipment, net .................. 12,512 1,494 14,006 2,344 16,350
Other assets ................................. 17,044 1,968 19,012 2,693 21,705
-------- ------- -------- ------ --------
Total assets ......................... $442,879 $69,820 $512,699 $62,156 $574,855
======= ====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing .................... $ 26,509 $12,302 $ 38,811 $ 4,587 $ 43,398
Interest bearing ....................... 312,736 46,524 359,260 50,612 409,872
------- ------ ------- ------ -------
Total deposits .............................. 339,245 58,826 398,071 55,199 453,270
Other borrowings ............................ 55,830 3,405 59,235 1,020 60,255
Accrued expenses and other liabilities ...... 9,222 371 9,593 1,067 10,660
--------- -------- --------- ------ --------
Total liabilities ................... $404,297 $62,602 $466,899 $57,286 $524,185
------- ------ ------- ------ -------
Stockholders' Equity
Common stock ................................ 5,175 270 854 6,299 395 313 7,007
Additional paid-in capital .................. 8,817 1,619 (1,146) 9,290 3,315 (313) 12,292
Retained earnings ........................... 24,381 5,610 29,991 1,101 31,092
Unrealized gains on
securities available for sale, net of tax 209 11 220 59 279
-------- -------- -------- -------- --------
38,582 7,510 45,800 4,870 50,670
Cost of 550 shares of treasury stock ........ - (292) 292 - - -
Total stockholders' equity ............. 38,582 7,218 45,908 4,870 50,670
-------- ------- -------- ------- --------
Total stockholders'
equity and liabilities .......... $442,879 $69,820 $512,699 $62,156 $574,855
======= ====== ======= ====== =======
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Six Months Ended June 30, 1998
(In thousands, except per share data)
(Unaudited)
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisitions Adjustments Combined
---- ------ ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Interest income ..................... $17,674 $2,805 $20,479 $2,796 $ 23,275
Interest expense .................... 8,678 1,451 10,129 1,379 11,508
-------- ----- ------ ----- ------
Net interest income ............. 8,996 1,354 10,350 1,417 11,767
Provision for loan losses ........... 444 35 479 42 521
-------- ------- ------- ------- --------
Net interest income after
provision for loan losses ..... 8,552 1,319 9,871 1,375 11,246
Noninterest income:
Fees and service charges ........ 1,826 221 2,047 231 2,278
Net realized gains on
the sale of assets ........... 1,023 7 1,030 7 1,037
Other operating income .......... 869 39 908 57 965
-------- ------ ------- ------ -------
Total noninterest income ............ 3,718 267 3,985 295 4,280
Noninterest expense:
Salaries and employee benefits .. 4,355 570 4,925 582 5,507
Net occupancy and equipment
expenses ...................... 1,548 186 1,734 236 1,970
Other operating expenses ........ 3,323 299 3,622 407 4,029
------- ----- ------- ------ ------
Total noninterest expense ........... 9,226 1,055 10,281 1,225 11,506
Income before income taxes ...... 3,044 531 3,575 445 4,020
Income tax expense .................. 929 114 1,043 133 1,176
-------- ------ ------- ------ -------
Net income ...................... $ 2,115 $ 417 $ 2,532 $ 312 $ 2,844
======= ====== ======= ====== =======
Net income per common
share outstanding ........... $ .41 $15.90 $ .40 $ .41
======= ===== ======= ========
Weighted average outstanding shares 5,172 26 6,289 6,997
======= ======= ======= ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisitions Adjustments Combined
---- ------ ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Interest income ........................ $30,643 $5,259 $35,902 $5,283 $41,185
Interest expense ....................... 14,646 2,644 17,290 2,682 19,972
------ ----- ------ ----- ------
Net interest income ................ 15,997 2,615 18,612 2,601 21,213
Provision for loan losses .............. 765 251 1,016 604 1,620
------- ------ ------- ------ -------
Net interest income after
provision for loan losses ......... 15,232 2,364 17,596 1,997 19,593
Noninterest income:
Fees and service charges ............ 3,568 449 4,017 468 4,485
Net realized gains on
the sale of assets ............... 910 - 910 - 910
Other operating income .............. 854 92 946 115 1,061
------- ------- -------- ------ -----
Total noninterest income ................ 5,332 541 5,873 583 6,456
Noninterest expense:
Salaries and employee benefits ...... 7,256 1,043 8,299 1,099 9,398
Net occupancy and equipment
expenses ......................... 2,779 391 3,170 379 3,549
Other operating expenses ............ 4,985 685 5,670 906 6,576
------- ------- ------- ------ -------
Total noninterest expense ............... 15,020 2,119 17,139 2,384 19,523
Income before income taxes .......... 5,544 786 6,330 196 6,526
Income tax expense ...................... 1,795 93 1,888 55 1,943
------- ------- ------- ------- ------
Net income ......................... $ 3,749 $ 693 $ 4,442 $ 141 $ 4,583
======= ====== ======= ====== ======
Net income per common
share outstanding .............. $ .73 $26.85 $ .71 $ .66
======= ===== ======= ======
Weighted average outstanding shares .... 5,167 26 6,264 6,972
======= ======= ======= ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1996
(In thousands, except per share data)
(Unaudited)
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisitions Adjustments Combined
---- ------ ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Interest income ..................... $27,951 $4,487 $32,438 $4,418 $36,856
Interest expense .................... 13,194 2,217 15,411 2,217 17,628
------ ----- ------ ----- ------
Net interest income ............. 14,757 2,270 17,027 2,201 19,228
Provision for loan losses ........... 3,744 631 4,375 125 4,500
------- ------- ------- ------ -------
Net interest income after
provision for loan losses ..... 11,013 1,639 12,652 2,076 14,728
Noninterest income:
Fees and service charges ........ 3,301 381 3,682 326 4,008
Net realized gains on
the sale of assets ........... 748 4 752 - 752
Other operating income .......... 588 49 637 194 831
------- ------- -------- ------ -------
Total noninterest income ............ 4,367 434 5,071 520 5,591
Noninterest expense:
Salaries and employee benefits .. 6,172 930 7,102 905 8,007
Net occupancy and equipment
expenses ..................... 2,228 292 2,520 318 2,838
Other operating expenses ........ 5,618 582 6,200 710 6,910
------- ------ ------- ------- -------
Total noninterest expense ........... 14,018 1,804 15,822 1,933 17,755
Income before income taxes ...... 1,632 269 1,901 663 2,564
Income tax expense .................. 347 23 370 191 561
-------- ------- -------- ------ -------
Net income ...................... $ 1,285 $ 246 $ 1,531 $ 472 $ 2,003
======= ====== ======= ====== ======
Net income per common
share outstanding ........... $ .25 $ 9.50 $ .25 $ .29
======= ====== ======= ======
Weighted average outstanding shares 5,124 26 6,225 6,933
======= ======= ======= ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
74
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1995
(In thousands, except per share data)
(Unaudited)
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisitions Adjustments Combined
---- ------ ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Interest income ....................... $27,311 $4,161 $31,472 $1,507 $32,979
Interest expense ...................... 13,378 1,843 15,221 720 15,941
------ ------- ------ -------- ------
Net interest income ............... 13,933 2,318 16,251 787 17,038
Provision for loan losses ............. 775 643 1,418 72 1,490
-------- ------- ------- ------- -------
Net interest income after
provision for loan losses ....... 13,158 1,675 14,833 715 15,548
Noninterest income:
Fees and service charges .......... 2,971 331 3,302 95 3,397
Net realized gains (losses) on
the sale of assets ............. 350 (17) 333 5 338
Other operating income ............ 385 38 423 22 445
-------- ------ -------- -------- -------
Total noninterest income .............. 3,706 352 4,058 122 4,180
Noninterest expense:
Salaries and employee benefits .... 5,749 799 6,548 338 6,886
Net occupancy and equipment
expenses ....................... 1,825 226 2,051 103 2,154
Other operating expenses .......... 4,112 484 4,596 381 4,977
------- ------ -------- ------- -------
Total noninterest expense ............. 11,686 1,509 13,195 822 14,017
Income before income taxes ........ 5,178 518 5,696 15 5,711
Income tax expense (benefit) .......... 1,707 (30) 1,677 (1) 1,676
------- ------ ------- -------- -------
Net income ........................ $ 3,471 $ 548 $ 4,019 $ 16 $ 4,035
======= ====== ======= ======= =======
Net income per common
share outstanding ............. $ .68 $21.09 $ .65 $ .58
======= ===== ======= =======
Weighted average outstanding shares 5,088 26 6,200 6,908
======= ======= ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements
75
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Pro Forma Financial Statements
(1) The unaudited pro forma consolidated balance sheet as of June 30, 1998 and
consolidated statements of earnings for the six months ended June 30, 1998
and for the years ended December 31, 1997, 1996 and 1995 have been prepared
based on the historical consolidated balance sheets and statements of
earnings, which give effect to the Merger of Empire with and into FLAG
accounted for as a pooling of interests, based on the exchange of 42.5
shares of FLAG Common Stock for each outstanding share of Empire Common
Stock.
(2) In the opinion of management of the respective companies included above,
all adjustments considered necessary for a fair presentation of the
financial position and results for the period presented have been included.
Adjustments, if any, are normal and recurring nature.
76
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders of FLAG intended to be presented at the 1999
annual meeting of shareholders must be received by FLAG at its principal
executive offices on or before the date that is 120 calendar days in advance of
the date of FLAG's 1998 proxy statement released to security holders in order to
be included in FLAG's proxy statement and proxy relating to the 1999 annual
meeting of shareholders. As of the date of the mailing of this Proxy
Statement/Prospectus, FLAG's 1998 proxy statement has not been completed. The
specific date by which proposals of shareholders of FLAG intended to be
represented at the 1999 annual meeting of shareholders must be received by FLAG
in order to be included in FLAG's 1999 proxy statement will be set forth in
FLAG's 1998 proxy statement.
EXPERTS
The restated consolidated financial statements of FLAG and subsidiaries
as of December 31, 997 and 1996, and for each of the years in the three year
period ended December 31, 1997, incorporated by reference herein and in the
Registration Statement, have been audited by Porter Keadle Moore, LLP,
independent certified public accountants, which are included in the FLAG Annual
Report to Shareholders which is incorporated by reference in FLAG's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997. The financial
statements audited by Porter Keadle Moore, LLP have been incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
The consolidated financial statements of FLAG and subsidiary as of
December 31, 1996 and each of the years in the two-year period ended December
31, 1996, included in the restated consolidated financial statements of FLAG,
incorporated herein and in the Registration Statement by reference, have been
audited by Robinson, Grimes and Company, P.C. independent certified public
accountants. The financial statements audited by Robinson, Grimes and Company
P.C., have been incorporated herein by reference in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
The consolidated financial statements of Middle Georgia Bankshares,
Inc. as of December 31, 1997 and 1996 and for each of the years in the three
year period ended December 31, 1997, included in the restated consolidated
financial statements of FLAG, incorporated herein and in the Registration
Statement by reference, have been audited by Porter Keadle Moore, LLP,
independent certified public accountants. The financial statements audited by
Porter Keadle Moore, LLP have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Three Rivers Bancshares, Inc.
as of December 31, 1997 and 1996 and for each of the years in the three year
period ended December 31, 1997, included in the restated consolidated financial
77
<PAGE>
statements of FLAG, incorporated herein and in the Registration Statement by
reference, have been audited by Thigpen, Jones, Seaton & Co., P.C., independent
certified public accountants. The financial statements audited by Thigpen,
Jones, Seaton & Co., P.C. have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Empire as of December 31, 1997
and 1996, and for each of the years in the three year period ended December 31,
1997, are contained herein and in the Registration Statement in reliance upon
the report of Porter Keadle Moore, LLP, independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The legality of the shares of FLAG Common Stock to be issued in the
Merger and certain tax consequences of the Merger will be passed upon by Powell,
Goldstein, Frazer & Murphy LLP, Atlanta, Georgia.
OTHER MATTERS
Management of Empire does not know of any matters to be brought before
the Special Meeting other than those described above. If any other matters
properly come before the Special Meeting, the persons designated as Proxies will
vote on such matters in accordance with their best judgment.
78
<PAGE>
INDEX TO EMPIRE FINANCIAL DATA
Page
Consolidated Balance Sheets as of June 30, 1998 and 1997 (Unaudited).........F-2
Consolidated Statements of Earnings for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)................................F-3
Consolidated Statements of Comprehensive Income..............................F-4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (Unaudited)......................................F-5
Notes to Consolidated Financial Statements (Unaudited).......................F-6
Report of Independent Certified Public Accountants...........................F-7
Consolidated Balance Sheets as of December 31, 1997
and 1996................................................................F-8
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995........................................F-9
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...................F-10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................................F-11
Notes to Consolidated Financial Statements..................................F-12
F-1
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1998 and 1997
(Unaudited)
Assets
1998 1997
---- ----
Cash and due from banks ............................. $ 1,911,248 3,749,044
Federal funds sold .................................. 3,200,000 525,000
------------ ------------
Cash and cash equivalents ................ 5,111,248 4,274,044
Securities available for sale ....................... 10,036,496 9,055,908
Securities held to maturity ......................... 2,813,579 3,221,976
Loans, net .......................................... 48,396,518 44,267,298
Premises and equipment .............................. 1,494,140 1,495,825
Other assets ........................................ 1,967,690 2,045,684
------------ ------------
$ 69,819,671 64,360,735
============ ============
Liabilities and Stockholders' Equity
Deposits:
Demand ............................................ $ 12,302,370 11,453,640
Interest-bearing demand ........................... 6,805,144 6,400,587
Savings ........................................... 2,299,295 2,599,629
Time .............................................. 37,419,853 33,499,312
------------ ------------
Total deposits ........................... 58,826,662 53,953,168
Accounts payable and accrued liabilities ............ 370,500 202,092
Federal Home Loan Bank advances ..................... 3,404,651 3,682,675
------------ ------------
Total liabilities ........................ 62,601,813 57,837,935
------------ ------------
Stockholders' equity:
Common stock, par value $10, authorized 1,000,000
shares; issued 27,000 shares ..................... 270,000 270,000
Additional paid-in capital ........................ 1,619,272 1,587,288
Retained earnings ................................. 5,609,591 4,930,607
Unrealized gain on securities available for sale,
net of tax .................................... 11,148 2,725
------------ ------------
7,510,011 6,790,620
Less treasury stock at cost, 550 and 1,148 shares,
respectively .................................. (292,153) (267,820)
------------ ------------
Total stockholders' equity ............... 7,217,858 6,522,800
------------ ------------
$ 69,819,671 64,360,735
============ ============
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Interest income:
Interest and fees on loans ..................... $2,300,862 2,113,713
Interest on federal funds sold ................. 108,119 90,121
Interest on investment securities:
Taxable ....................................... 326,579 287,992
Tax-exempt .................................... 69,717 69,795
---------- ----------
Total interest income ................. 2,805,277 2,561,621
---------- ----------
Interest expense:
Demand ......................................... 110,825 102,229
Savings ........................................ 29,887 31,287
Time ........................................... 1,187,364 978,563
Other borrowings ............................... 122,692 126,658
---------- ----------
Total interest expense ................ 1,450,768 1,238,737
---------- ----------
Net interest income ................... 1,354,509 1,322,884
Provision for loan losses ........................ 35,000 171,000
---------- ----------
Net interest income after
provision for loan losses ........... 1,319,509 1,151,884
---------- ----------
Other income:
Service charges on deposits .................... 220,505 208,766
Gain on sales of securities .................... 6,927 19
Other .......................................... 39,321 64,494
---------- ----------
Total other income .................... 266,753 273,279
---------- ----------
Other expenses:
Salaries and employee benefits ................. 569,627 592,716
Occupancy ...................................... 185,779 178,205
Other operating ................................ 298,955 284,868
---------- ----------
Total other expenses .................. 1,054,361 1,055,788
---------- ----------
Earnings before income taxes .......... 531,901 369,375
Income taxes ..................................... 114,000 13,500
---------- ----------
Net earnings .......................... $ 417,901 355,875
========== ==========
Net earnings per share ........................... $ 15.90 12.89
========== ==========
Dividends per share .............................. $ 1.60 1.60
========== ==========
Weighted average number of shares outstanding .... 26,279 25,842
========== ==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
June 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Net earnings ..................................... $ 417,901 $ 355,875
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available for sale:
Unrealized gains (losses) arising
during the period, net of tax of
$(3,529) and $1,245, respectively ........ (5,759) 2,031
Less: Reclassification adjustment
for gains included in net
earnings, net of tax of $16
and $1,529 ........................... (26) (2,494)
--------- ---------
Other comprehensive income ....................... (5,785) (463)
--------- ---------
Comprehensive income ............................. $ 412,116 355,412
========= =========
F-4
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net earnings ......................................... $ 417,901 355,875
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion ............ 97,250 113,573
Provision for loan losses ......................... 35,000 171,000
Gain on sales of investment securities ............ (6,927) (19)
Change in:
Interest receivable and other assets ............ (240,003) (367,263)
Interest payable and other liabilities .......... 38,496 35,109
---------- ---------
Net cash provided by operating activities ... 341,717 308,275
---------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities held
to maturity ...................................... 200,000 --
Proceeds from sales of securities available for sale . 4,730,344 4,201,640
Purchase of securities available for sale ............ (4,970,037) (5,203,358)
Net change in loans .................................. (2,969,776) (4,652,905)
Purchase of premises and equipment ................... (42,528) (78,868)
---------- ---------
Net cash used in investing activities ...... (3,051,997) (5,733,491)
---------- ---------
Cash flows from financing activities:
Net change in demand, savings and time deposits ...... (468,047) 3,331,793
Proceeds from (payments on) FHLB advances ............ (255,914) 80,882
Purchases of treasury stock .......................... (152,178) (39,349)
Sales of treasury stock .............................. 282,096 49,064
Dividends paid ....................................... (44,567) (41,343)
--------- ---------
Net cash provided by (used in) financing
activities ................................. (638,610) 3,381,047
--------- ---------
Net change in cash and cash equivalents ................ (3,348,890) (2,044,169)
Cash and cash equivalents at beginning of year ......... 8,460,138 6,318,213
--------- ---------
Cash and cash equivalents at end of year ............... $5,111,248 4,274,044
========== =========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements include the accounts of Empire Bank
Corp., Inc. and its wholly-owned subsidiary, Empire Banking Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to present
a fair statement of the results of operations and financial position for
the periods covered herein. All such adjustments are of a normal recurring
nature.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Empire Bank Corp.
Homerville, Georgia
We have audited the accompanying consolidated balance sheets of Empire Bank
Corp. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Bank Corp.
and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
April 17, 1998, except note 14, as to
which the date is June 1, 1998
F-7
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
Cash and due from banks ........................... $ 3,965,138 2,808,213
Federal funds sold ................................ 4,495,000 3,510,000
------------ ------------
Cash and cash equivalents ............... 8,460,138 6,318,213
Securities available for sale ..................... 9,781,283 8,059,327
Securities held to maturity ....................... 3,015,022 3,225,993
Loans, net ........................................ 45,461,742 39,785,393
Premises and equipment, net ....................... 1,556,012 1,521,357
Accrued interest receivable and other assets ...... 1,727,688 1,678,422
------------ ------------
$ 70,001,885 60,588,705
============ ============
Liabilities and Stockholders' Equity
Deposits:
Demand .......................................... $ 14,344,267 13,252,619
Interest-bearing demand ......................... 4,379,328 4,981,229
Savings ......................................... 2,149,060 2,079,311
Time ............................................ 38,422,053 30,308,217
------------ ------------
Total deposits .......................... 59,294,708 50,621,376
Federal Home Loan Bank borrowings ................. 3,660,565 3,601,793
Accrued interest payable and other liabilities .... 215,081 170,260
------------ ------------
Total liabilities ....................... 63,170,354 54,393,429
------------ ------------
Commitments
Stockholders' equity:
Common stock, $10 par value; 1,000,000 shares
authorized; 27,000 shares issued ............... 270,000 270,000
Additional paid-in capital ...................... 1,587,288 1,577,771
Retained earnings ............................... 5,236,257 4,625,592
Treasury stock, at cost - 1,168 and 1,188 shares (282,450) (277,536)
Unrealized gains (losses) on securities
available for sale, net of tax ................. 20,436 (551)
------------ ------------
Total stockholders' equity .............. 6,831,531 6,195,276
------------ ------------
$ 70,001,885 60,588,705
============ ============
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Interest income:
Interest and fees on loans .............. $4,344,284 3,698,850 3,485,630
Interest on investment securities:
U.S. treasuries and government agencies 554,652 445,351 389,247
State, county and municipal ........... 139,551 140,268 203,376
Other securities ...................... 45,946 37,361 20,603
Interest on federal funds sold .......... 174,888 164,866 62,425
---------- --------- ----------
Total interest income ........... 5,259,321 4,486,696 4,161,281
---------- --------- ----------
Interest expense on deposits:
Demand .................................. 204,427 192,083 191,416
Savings ................................. 62,570 58,027 58,683
Time .................................... 2,116,307 1,747,196 1,479,338
Interest expense on FHLB borrowings ....... 260,285 219,912 113,155
---------- --------- ----------
Total interest expense .......... 2,643,589 2,217,218 1,842,592
---------- --------- ----------
Net interest income ............. 2,615,732 2,269,478 2,318,689
Provision for loan losses ................. 251,188 631,000 643,451
---------- --------- ----------
Net interest income after
provision for loan losses ...... 2,364,544 1,638,478 1,675,238
---------- --------- ----------
Other income:
Service charges on deposit accounts ..... 449,242 380,748 330,501
Securities gains (losses) ............... 42 4,023 (17,153)
Miscellaneous ........................... 91,610 49,393 38,381
---------- --------- ----------
Total other income .............. 540,894 434,164 351,729
---------- --------- ----------
Other expenses:
Salaries and employee benefits .......... 1,042,581 930,054 799,179
Occupancy ............................... 391,437 291,785 225,634
Other operating ......................... 684,918 581,700 484,311
---------- --------- ----------
Total other expenses ............ 2,118,936 1,803,539 1,509,124
---------- --------- ----------
Earnings before income taxes .... 786,502 269,103 517,843
Income tax (expense) benefit .............. (93,155) (22,931) 30,187
---------- --------- ----------
Net earnings .................... $ 693,347 246,172 548,030
========== ========= ==========
Net earnings per share .................... $ 26.85 9.50 21.09
========== ========= ==========
Weighted average number of shares ......... $ 25,822 25,900 25,987
========== ========= ==========
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
Unrealized
Gains
(Losses)
on Securities
Additional Available
Common Paid-in Retained Treasury for Sale,
Stock Capital Earnings Stock Net of Tax Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ....... $ 270,000 1,430,000 3,996,830 (87,845) (91,507) 5,517,478
Net earnings ..................... -- -- 548,030 -- -- 548,030
Dividends ($3.20 share) .......... -- -- (83,158) -- -- (83,158)
Change in unrealized gains
(losses) on securities available
for sale, net of tax ........... -- -- -- -- 106,325 106,325
---------- -------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 ....... 270,000 1,430,000 4,461,702 (87,845) 14,818 6,088,675
Purchase of treasury stock ....... -- -- -- (272,680) -- (272,680)
Sale of treasury stock ........... -- 147,771 -- 82,989 -- 230,760
Net earnings ..................... -- -- 246,172 -- -- 246,172
Dividends ($3.20 per share) ...... -- -- (82,282) -- -- (82,282)
Change in unrealized gains
(losses) on securities available
for sale, net of tax ........... -- -- -- -- (15,369) (15,369)
-------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 ....... 270,000 1,577,771 4,625,592 (277,536) (551) 6,195,276
Purchase of treasury stock ....... -- -- -- (44,462) -- (44,462)
Sale of treasury stock ........... -- 9,517 -- 39,548 -- 49,065
Net earnings ..................... -- -- 693,347 -- -- 693,347
Dividends ($3.20 per share) ...... -- -- (82,682) -- -- (82,682)
Change in unrealized gains
(losses) on securities available
for sale, net of tax ........... -- -- -- 20,987 20,987
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ....... $ 270,000 1,587,288 5,236,257 (282,450) 20,436 6,831,531
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings ......................................... $ 693,347 246,172 548,030
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion ........... 242,422 179,958 92,024
Provision for loan losses .......................... 251,188 631,000 643,451
Provision for deferred income taxes ................ (33,147) 23,333 (137,799)
Loss on disposal of fixed assets ................... -- -- 10,267
Loss (Gain) on sale of investment securities ....... (42) (4,023) 17,153
Change in:
Interest receivable .............................. 30,330 (1,186) (275,722)
Interest payable ................................. 33,272 7,786 33,302
Other assets ..................................... (79,596) (177,278) (296,012)
Other liabilities ................................ 33,883 3,685 (7,707)
----------- ----------- -----------
Net cash provided by operating activities .... 1,171,657 909,447 642,401
----------- ----------- -----------
Cash flows from investing activities:
Purchases of securities available for sale ........... (8,059,037) (7,277,295) (5,631,478)
Purchases of securities held to maturity ............. -- (407,039) (1,223,042)
Proceeds from sales of securities available
for sale ......................................... 1,351,000 1,089,167 3,798,551
Proceeds from calls and maturities of securities
available for sale ............................... 5,000,000 4,491,342 1,915,378
Proceeds from calls and maturities of securities
held to maturity ................................. 200,000 340,000 2,227,246
Net change in loans .................................. (5,927,537) (3,788,245) (4,768,066)
Purchases of premises and equipment .................. (248,183) (861,954) (202,351)
----------- ----------- -----------
Net cash used by investing activities ........ (7,683,757) (6,414,024) (3,883,762)
----------- ----------- -----------
Cash flows from financing activities:
Net change in deposits ............................... 8,673,332 8,098,691 1,676,431
Net proceeds from other borrowings ................... 58,772 879,346 1,688,626
Dividends paid ....................................... (82,682) (82,282) (83,158)
Purchase of treasury stock ........................... (44,462) (272,680) --
Proceeds from sale of treasury stock ................. 49,065 230,760 --
----------- ----------- -----------
Net cash provided by financing activities .... 8,654,025 8,853,835 3,281,899
----------- ----------- -----------
Net increase in cash and cash equivalents .............. 2,141,925 3,349,258 (40,538)
Cash and cash equivalents at beginning of year ......... 6,318,213 2,968,955 2,928,417
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 8,460,138 6,318,213 2,968,955
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................ $ 2,610,317 2,209,432 1,809,290
Income taxes ........................................ $ 151,000 20,000 135,886
Non-cash investing and financing activities:
Change in unrealized gains (losses) on investment
securities available for sale, net of tax ........... $ 20,987 15,369 (106,325)
Securities transferred, at amortized costs, to
securities available for sale ....................... -- -- 1,911,052
</TABLE>
See accompanying notes to consolidated financial statements
F-11
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
Empire Bank Corp. (the "Company"), is a one-bank holding company whose
business is conducted by its wholly-owned bank subsidiary, Empire
Banking Company (the "Bank"). The Company is regulated by the Federal
Reserve Bank and is subject to periodic examinations.
The Bank was incorporated in 1945 and was granted a State of Georgia
commercial banking charter. It is regulated by the State of Georgia
Department of Banking and Finance and the Federal Deposit Insurance
Corporation and undergoes periodic examinations by these agencies. The
Bank provides a full range of commercial and consumer services in Clinch
and Ware counties in south Georgia.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the
banking industry. In preparing financial statements in conformity with
GAAP, management is required to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results
could differ significantly from those estimates. Material estimates
common to the banking industry that are particularly susceptible to
significant change in the near term include, but are not limited to, the
determination of the allowance for loan losses and the valuation of the
allowance related to the deferred tax assets.
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment Securities
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading securities are
bought and held principally for sale in the near term. Held to maturity
securities are those securities for which the Company has the ability
and intent to hold the securities until maturity. All other securities
not included in trading or held to maturity are classified as available
for sale. At December 31, 1997 and 1996, the Company had no trading
securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
F-12
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses
Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Unearned interest on discounted loans is
recognized as income over the term of the loans using a method which
approximates a level yield. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal
amount outstanding.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection
of interest is doubtful.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" amended for SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure" in regards to accounting for impaired loans. A loan is
impaired when, based on current information and events, it is probable
that all amounts due according to the contractual terms of the loan
agreement will not be collected. Impaired loans are measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price, or at
the fair value of the collateral of the loan if the loan is collateral
dependent.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. The allowance represents an amount which, in
management's judgement, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgement in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality and review of
specific problem loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on
judgements different than those of management.
Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. Costs incurred for maintenance and
repairs are expensed currently. The range of estimated useful lives are:
Buildings and improvements ....... 20 - 31 years
Furniture and equipment .......... 5 - 10 years
Computer and software equipment .. 3 - 10 years
F-13
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Income Taxes
The Company accounts for income taxes under the liability method. This
method requires the recognition of deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Additionally, this method requires the
recognition of future tax benefits, such as net operating loss
carryforwards, to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such asset is required. A valuation allowance is provided for the
portion of the deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In
assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected
future taxable income, and tax planning strategies.
Profit Sharing Plan
The Bank has established a simplified employee pension plan for the
employees who meet the requirements as established by the Internal
Revenue Code. The Bank's contribution to the plan for 1997, 1996 and
1995 was approximately $44,000, $43,000 and $38,000, respectively.
Net Earnings Per Share
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to
simplify previous earnings per share standards and to make domestic and
international practices more compatible. Earnings per common share are
based on the weighted average number of common shares outstanding during
the period while the effects of potential common shares outstanding
during the period are included in diluted earnings per share. All
earnings per common share amounts have been restated to conform to the
provisions of SFAS No. 128. Net earnings per share is calculated as net
earnings divided by average number of shares outstanding.
Reclassifications
Certain 1996 amounts have been reclassified to conform with 1997
presentation.
(2) Investment Securities
Investment securities at December 31, 1997 and 1996 are as follows:
Securities Available for Sale:
December 31, 1997
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and
U.S. Government agencies ... $ 9,750,319 36,258 5,294 9,781,283
========= ====== ===== =========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and
U.S. Government agencies ... $ 8,060,162 10.570 11,405 8,059,327
========= ====== ====== =========
F-14
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
<TABLE>
<CAPTION>
Securities Held to Maturity:
December 31, 1997
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and U.S.
<S> <C> <C> <C> <C>
Government agencies ....... $ 199,536 -- 36 199,500
State, county and municipal . 2,815,486 87,891 948 2,902,429
--------- ------ --- ---------
Total $3,015,022 87,891 984 3,101,929
========= ====== === =========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and
U.S. Government agencies .. $ 406,810 -- 3,874 402,936
State, county and municipal . 2,819,183 47,782 38,540 2,828,425
--------- ------ ------ ---------
Total $3,225,993 47,782 42,414 3,231,361
========= ====== ====== =========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have
the right to call or prepay obligations with or without call or
prepayment penalties.
Securities Held Securities Available
To Maturity for Sale
----------- --------
December 31, 1997 December 31, 1997
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
U.S. Treasuries and U.S.
Government agencies:
Within 1 year ........... $ 199,536 199,500 4,356,781 4,355,025
1 to 5 years ............ -- -- 5,393,538 5,426,258
---------- ---------- ---------- ----------
$ 199,536 199,500 9,750,319 9,781,283
---------- ---------- ---------- ----------
State, county and municipal:
1 to 5 years ............ $1,233,898 1,256,382 -- --
5 to 10 years ........... 1,581,588 1,646,047 -- --
---------- ---------- ---------- ----------
$2,815,486 2,902,429 -- --
---------- ---------- ---------- ----------
Total securities:
Within 1 year ........... $ 199,536 199,500 4,356,781 4,355,025
1 to 5 years ............ 1,233,898 1,256,382 5,393,538 5,426,258
5 to 10 years ........... 1,581,588 1,646,047 -- --
---------- ---------- ---------- ----------
$3,015,022 3,101,429 9,750,319 9,781,283
========== ========== ========== ==========
F-15
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
Proceeds from sales of securities available for sale during 1997, 1996
and 1995 were $1,351,000, $1,089,167 and $3,798,551, respectively. Gross
gains of $42, $4,023 and $15,563 were realized on 1997, 1996 and 1995
sales, respectively, along with gross losses of $32,716 on 1995 sales,
were realized.
Securities with an approximate carrying value of $4,695,000 and
$3,800,000 at December 31, 1997 and 1996, respectively, were pledged to
secure public deposits as required by law.
(3) Loans
Major classifications of loans at December 31, 1997 and 1996 are
summarized as follows:
1997 1996
---- ----
Commercial, financial and agricultural ......... $15,530,146 13,337,091
Real estate - mortgage and construction ........ 18,948,392 15,668,890
State, county and municipal .................... 2,552,920 3,006,426
Consumer loans ................................. 8,911,711 8,167,558
----------- -----------
45,943,169 40,179,965
Less: Allowance for loan losses ................ 481,427 394,572
----------- -----------
$45,461,742 39,785,393
=========== ===========
The Company grants loans and extensions of credit to individuals and a
variety of businesses and corporations located in its general trade area
of Clinch County and Ware County, Georgia and adjoining counties.
Although the Company has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
Changes in the allowance for loan losses were as follows:
1997 1996 1995
---- ---- ----
Balance, beginning of year ..... $ 394,572 534,906 292,491
Provisions charged to operations 251,188 631,000 643,451
Loans charged off .............. (194,902) (797,265) (511,608)
Recoveries ..................... 30,569 25,931 110,572
--------- --------- ---------
Balance, end of year ........... $ 481,427 394,572 534,906
========= ========= =========
(4) Premises and Equipment
Major classifications of premises and equipment are summarized as
follows:
1997 1996
---- ----
Land .................. $ 189,288 189,288
Buildings ............. 1,244,926 1,136,642
Furniture and equipment 1,163,082 1,098,812
---------- ----------
2,597,296 2,424,742
Less: Accumulated depreciation 1,041,284 903,385
---------- ----------
$1,556,012 1,521,357
========== ==========
Depreciation expense was approximately $213,000, $133,000 and $102,000
in 1997, 1996 and 1995, respectively.
F-16
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(5) Time Deposits
At December 31, 1997 the scheduled maturities of time deposits are as
follows:
1998 $ 30,363,966
1999 5,136,774
2000 2,911,101
2001 10,212
-------------
$ 38,422,053
At December 31, 1997 and 1996, the Company had individual time
deposits over $100,000 of approximately $9,445,000 and $8,990,000,
respectively.
(6) Federal Home Loan Bank Borrowings
The Bank is party to an agreement with the Federal Home Loan Bank
("FHLB") whereby the FHLB provides the Bank with credit facilities under
varying terms. Any amounts advanced by the FHLB are secured under a
blanket security lien covered by all of the Bank's 1-4 family, first
mortgage loans. At December 31, 1997 and 1996 the Bank has long-term
notes payable amounting to $3,660,565 and $3,601,793, respectively, most
with quarterly level principal payments, plus interest at rates varying
from 5.67% to 8.13% through 2007.
Maturities of the notes payable for future years is as follows:
1998 ................................. $ 616,254
1999 ................................. 616,254
2000 ................................. 616,254
2001 ................................. 441,536
2002 ................................. 342,786
Thereafter ........................... 1,027,481
---------
$3,660,565
(7) Income Taxes
The components of income tax expense in the consolidated statements of
earnings are as follows:
1997 1996 1995
---- ---- ----
Current ............................. $ 126,302 (402) 107,612
Deferred ............................ 23,353 (93,667) (57,799)
Change in valuation allowance ....... (56,500) 117,000 (80,000)
--------- --------- ---------
Total income tax expense (benefit) ...... $ 93,155 22,931 (30,187)
========= ========= =========
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to earnings
before income taxes are principally the result of tax-exempt interest
income and non-deductible interest expense.
F-17
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) Income Taxes, continued
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset. The net deferred tax asset is a component of other assets at
December 31, 1997 and 1996.
1997 1996
---- ----
Deferred income tax assets:
Unrealized losses on investment securities
available for sale .............................. $ -- 284
Allowance for loan losses ......................... 41,248 47,125
Alternative minimum tax credits ................... 142,381 23,503
State and Federal net operating loss
carry forward and credits ....................... 120,798 238,000
Other ............................................. -- 14,379
--------- ---------
Total gross deferred income tax assets ...... 304,427 323,291
Less valuation allowance .................... (90,500) (147,000)
--------- ---------
Net deferred income tax assets .............. 213,927 176,291
--------- ---------
Deferred income tax liabilities:
Unrealized gains on investment securities
available for sale .............................. (10,528) --
Premises and equipment ............................ (143,228) (138,455)
--------- ---------
Total gross deferred income tax liabilities . (153,756) (138,455)
--------- ---------
Net deferred income tax asset ............... $ 60,171 37,836
========= =========
The valuation allowance has been decreased by $56,500 during 1997 as a
result of management's assessment of the Company's estimated future
state taxable income and related usage of their state net operating loss
carryforwards and credits. The valuation allowance of $90,500 at
December 31, 1997 is required due to the uncertainty regarding the
future utilization of a portion of the Company's net operating losses
and state tax credits. These remaining benefits will be recognized for
financial reporting purposes when the realization of such benefits is
more likely than not.
At December 31, 1997, the Company has remaining loss carryforwards of
approximately $2,000,000 for state income tax purposes, which begin to
expire in 2000. The use of these carryforwards is limited to future
state and federal taxable earnings of the Company.
(8) Commitments
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contractual amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-18
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(8) Commitments, continued
In most cases, the Company does require collateral or other security to
support financial instruments with credit risk.
Contractual Amount
1997 1996
---- ----
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit ........... $ 3,695,000 2,587,000
Standby letters of credit .............. $ 249,000 179,000
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company, upon extension of credit is based on management's credit
evaluation. Collateral held varies, but may include unimproved and
improved real estate, certificates of deposit, or personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
(9) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under certain adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of December 31, 1997 that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
F-19
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(9) Regulatory Matters, continued
The consolidated and bank only actual capital amounts and ratios for
1997 and 1996 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
<S> <C> <C> <C> <C>
Consolidated ................ $7,292,522 15.0% $3,893,040 8.0% N/A N/A
Empire Banking Company ...... $7,128,545 14.6% $3,893,040 8.0% $4,866,300 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated ................ $6,811,095 14.0% $1,946,520 4.0% N/A N/A
Empire Banking Company ...... $6,647,118 13.7% $1,946,520 4.0% $2,919,780 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated ................ $6,811,095 10.7% $2,549,612 4.0% N/A N/A
Empire Banking Company ...... $6,647,118 10.4% $2,549,612 4.0% $3,187,016 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)
Consolidated ................ $6,588,400 15.5% $3,400,465 8.0% N/A N/A
Empire Banking Company ...... $6,430,364 15.2% $3,395,579 8.0% $4,244,474 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated ................ $6,195,827 14.6% $1,697,487 4.0% N/A N/A
Empire Banking Company ...... $6,035,791 14.2% $1,697,789 4.0% $2,546,684 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated ................ $6,195,827 11.1% $2,232,730 4.0% N/A N/A
Empire Banking Company ...... $6,035,791 10.8% $2,237,777 4.0% $2,797,221 5.0%
</TABLE>
(10) Related Party Transactions
In the normal course of business, executive officers and directors of
the Company, including certain business organizations and individuals
associated with them, maintain a variety of banking relationships with
the Bank. Loans to executive officers and directors are made on terms
comparable to those available to other Bank customers.
The following is a summary of activity for related party loans for 1997:
Beginning balance .................. $ 1,946,000
Loans advanced ..................... 2,121,000
Repayments ......................... (2,110,000)
---------
Ending balance ..................... $ 1,957,000
=========
F-20
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) Capital Stock Transactions
The Company redeemed 180 and 1,132 shares of its common stock at an
average price $247.01 and $240.88 per share in 1997 and 1996. The
Company sold 200 and 957 shares of treasury stock for an average price
of $245.32 and $241.13 per share in 1997 and 1996.
(12) Other Operating Expenses
Components of other operating expenses which are greater then 1% of
interest income and other income are as follows:
1997 1996 1995
---- ---- ----
Insurance .............................. $145,598 119,647 104,738
Professional fees ...................... 62,485 39,548 34,916
Loss on disposition of other assets .... 67,453 -- --
Postage ................................ 62,248 50,301 46,126
F-21
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Empire Bank Corp. (Parent Company Only) Financial Information
Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
Cash ............................................. $ 162,592 158,996
Investment in bank subsidiary .................... 6,667,554 6,035,240
Other assets ..................................... 1,385 1,040
--------- ---------
$ 6,831,531 6,195,276
========= =========
Stockholders' Equity
Stockholders' equity ............................. $ 6,831,531 6,195,276
========= =========
Statements of Earnings
For the Years Ended December 31, 1997,1996 and 1995
1997 1996 1995
---- ---- ----
Dividends received from bank subsidiary .......... $ 82,690 82,282 83,158
Other expenses ................................ 1,015 1,182 1,199
------- -------- -------
Earnings before income taxes and equity in
undistributed earnings of bank subsidiary .. 81,675 81,100 87,959
Income tax benefit 345 402 408
------- -------- -------
Earnings before equity in undistributed
earnings of bank subsidiary ................ 82,020 81,502 82,367
Equity in undistributed earnings of bank
subsidiary .................................... 611,327 164,670 465,663
------- -------- -------
Net earnings ................................. $693,347 246,172 548,030
======= ======== =======
F-22
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Empire Bank Corp. (Parent Company Only) Financial Information, continued
<TABLE>
<CAPTION>
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings ....................................... $ 693,347 246,172 548,030
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary (611,327) (164,670) (465,663)
Change in other assets ............................ (345) 1,598 (1,408)
--------- --------- ---------
Net cash provided by operating activities ... 81,675 83,100 80,959
--------- --------- ---------
Cash flows from investing activities - investment
in subsidiary ................................... -- (800,000) --
--------- --------- ---------
Cash flows from financing activities:
Dividends paid .................................... (82,682) (82,282) (83,158)
Purchase of treasury stock ........................ (44,462) (272,680) --
Proceeds from sale of treasury stock .............. 49,065 230,760 --
--------- --------- ---------
Net cash used by financing activities ....... (78,079) (124,202) (83,158)
--------- --------- ---------
Increase (decrease) in cash ........................ 3,596 (841,102) (2,199)
Cash at beginning of year .......................... 158,996 1,000,098 1,002,297
--------- --------- ---------
Cash at end of year ................................ $ 162,592 158,996 1,000,098
========= ========= =========
Change in unrealized gains (losses) on investment securities
available for sale of subsidiary, net of tax ...... $ 20,987 15,369 (106,325)
</TABLE>
(14) Subsequent Event
On June 1, 1998, the Company executed a letter of intent to merge with
and into FLAG Financial Corporation ("FLAG"). Under the terms of the
letter of intent, each share of the Company's common stock will be
exchanged for 42.5 shares of FLAG common stock. The merger is subject to
approval of regulatory authorities and shareholders.
F-23
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN FLAG FINANCIAL CORPORATION
AND EMPIRE BANK CORP.
TABLE OF CONTENTS
LIST OF EXHIBITS..........................................................V
AGREEMENT AND PLAN OF MERGER..............................................1
ARTICLE 1. TRANSACTIONS AND TERMS OF THE MERGER....................2
1.1 Merger...........................................................2
1.2 Time and Place of Closing........................................2
Effective Time.........................................................2
ARTICLE 2. TERMS OF MERGER.........................................2
2.1 Articles of Incorporation........................................2
2.2 Bylaws...........................................................2
2.3 Directors and Officers...........................................3
ARTICLE 3. MANNER OF CONVERTING SHARES.............................3
3.1 Conversion of Shares.............................................3
3.2 Anti-Dilution Provisions.........................................3
3.3 Shares Held by EMPIRE or FLAG....................................3
3.4 Dissenting Shareholders..........................................4
3.5 Fractional Shares................................................4
ARTICLE 4. EXCHANGE OF SHARES......................................4
4.1 Exchange Procedures..............................................4
4.2 Rights of Former Shareholders of EMPIRE..........................5
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF EMPIRE................6
5.1 Organization, Standing, and Power................................6
5.2 Authority of EMPIRE; No Breach By Agreement......................6
5.3 Capital Stock....................................................7
5.4 EMPIRE Subsidiaries..............................................7
5.5 Financial Statements.............................................8
i
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5.6 Absence of Undisclosed Liabilities...............................9
5.7 Absence of Certain Changes or Events.............................9
5.8 Tax Matters......................................................9
5.9 Allowance for Possible Loan Losses..............................10
5.10 Assets.......................................................11
5.11 Intellectual Property........................................11
5.12 Environmental Matters........................................12
5.13 Compliance with Laws.........................................13
5.14 Labor Relations..............................................13
5.15 Employee Benefit Plans.......................................14
5.16 Material Contracts...........................................16
5.17 Legal Proceedings............................................16
5.18 Reports......................................................17
5.19 Statements True and Correct..................................17
5.20 Accounting, Tax and Regulatory Matters.......................17
5.21 Charter Provisions...........................................17
5.22 Board Recommendation.........................................18
5.23 Y-2K.........................................................18
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF FLAG.................18
6.1 Organization, Standing, and Power...............................18
6.2 Authority of FLAG; No Breach By Agreement.......................18
6.3 Capital Stock...................................................19
6.4 FLAG Subsidiaries...............................................20
6.5 SEC Filings, Financial Statements...............................21
6.6 Absence of Undisclosed Liabilities..............................21
6.7 Absence of Certain Changes or Events............................21
6.8 Tax Matters.....................................................22
6.9 Allowance for Possible Loan Losses..............................23
6.10 Assets.......................................................23
6.11 Intellectual Property........................................24
6.12 Environmental Matters........................................24
6.13 Compliance with Laws.........................................25
6.14 Labor Relations..............................................26
6.15 Employee Benefit Plans.......................................26
6.16 Material Contracts...........................................28
6.17 Legal Proceedings............................................28
6.18 Reports......................................................29
6.19 Statements True and Correct..................................29
6.20 Accounting, Tax and Regulatory Matters.......................29
6.21 Charter Provisions...........................................30
6.22 Board Recommendation.........................................30
6.23 Y2K..........................................................30
ii
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ARTICLE 7. CONDUCT OF BUSINESS PENDING CONSUMMATION...............30
7.1 Affirmative Covenants of EMPIRE.................................30
7.2 Negative Covenants of EMPIRE....................................30
7.3 Affirmative Covenants of FLAG...................................32
7.4 Negative Covenants of FLAG......................................33
7.5 Adverse Changes in Condition....................................33
7.6 Reports.........................................................33
ARTICLE 8. ADDITIONAL AGREEMENTS..................................33
8.1 Registration Statement..........................................33
8.2 Nasdaq Listing..................................................34
8.3 Shareholder Approval............................................34
8.4 Applications....................................................34
8.5 Filings with State Offices......................................34
8.6 Agreement as to Efforts to Consummate...........................34
8.7 Investigation and Confidentiality...............................35
8.8 Press Releases..................................................35
8.9 Certain Actions.................................................35
8.10 Accounting and Tax Treatment.................................36
8.11 Charter Provisions...........................................36
8.12 Agreements of Affiliates.....................................36
8.13 Employee Benefits and Contracts..............................37
8.14 Indemnification..............................................37
ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE......38
9.1 Conditions to Obligations of Each Party.........................38
9.2 Conditions to Obligations of FLAG...............................40
9.3 Conditions to Obligations of EMPIRE.............................41
ARTICLE 10. TERMINATION............................................42
10.1 Termination..................................................42
10.2 Effect of Termination........................................43
10.3 Non-Survival of Representations and Covenants................43
ARTICLE 11. MISCELLANEOUS..........................................43
11.1 Definitions..................................................43
11.2 Expenses.....................................................51
11.3 Brokers and Finders..........................................52
11.4 Entire Agreement.............................................52
iii
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11.5 Amendments...................................................52
11.6 Waivers......................................................52
11.7 Assignment...................................................53
11.8 Notices......................................................53
11.9 Governing Law................................................54
11.10 Counterparts.................................................54
11.11 Captions, Articles and Sections..............................54
11.12 Interpretations..............................................54
11.13 Enforcement of Agreement.....................................54
11.14 Severability.................................................54
SIGNATURES TO AGREEMENT AND PLAN OF MERGER
iv
<PAGE>
LIST OF EXHIBITS
Exhibit
Number Description
- ------- -----------
1. Form of Agreement of Affiliates of EMPIRE BANK CORP. (SS 8.12, SS 9.2(f)).
2. Matters as to which Kilpatrick Stockton LLP will opine. (SS 9.2(d)).
3. Form of Claims Letter (SS 9.2(g)).
4. Matters as to which Powell, Goldstein, Frazer & Murphy LLP will opine.
(SS 9.3(d)).
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of July 30, 1998, by and between FLAG FINANCIAL CORPORATION ("FLAG"), a
Georgia corporation located in LaGrange, Georgia, and EMPIRE BANK CORP.
("EMPIRE"), a Georgia corporation located in Homerville, Georgia. Preamble
Preamble
--------
The respective Boards of Directors of EMPIRE and FLAG are of the opinion
that the transactions described herein are in the best interests of the Parties
to this Agreement and their respective shareholders. This Agreement provides for
the acquisition of EMPIRE by FLAG, pursuant to the merger of EMPIRE with and
into FLAG. At the effective time of such merger, the outstanding shares of the
capital stock of EMPIRE shall be converted into the right to receive shares of
the common stock of FLAG (except as provided herein). As a result, shareholders
of EMPIRE shall become shareholders of FLAG, and FLAG shall conduct the business
and operations of EMPIRE. The transactions described in this Agreement are
subject to (a) approval of the shareholders of EMPIRE, (b) approval of the
Georgia Department of Banking and Finance, (c) approval of the Board of
Governors of the Federal Reserve, and (d) satisfaction of certain other
conditions described in this Agreement. It is the intention of the Parties to
this Agreement that the merger, for federal income tax purposes, shall qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code, and, for accounting purposes, shall qualify for treatment as a
pooling of interests.
Certain terms used in this Agreement are defined in Section 11.1 hereof.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the Parties agree
as follows:
1
<PAGE>
ARTICLE 1.
TRANSACTIONS AND TERMS OF THE MERGER
------------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, EMPIRE will merge with and into FLAG in accordance with the
provisions of Section 14-2-1101 of the GBCC and with the effect provided in
Section 14-2-1106 of the GBCC (the "Merger"). FLAG shall be the Surviving
Corporation resulting from the Merger and shall continue to be governed by the
Laws of the State of Georgia. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of EMPIRE and FLAG, as set forth herein.
1.2 Time and Place of Closing. The closing of the transactions contemplated
hereby (the "Closing") will take place at 9:00 A.M. on the date that the
Effective Time occurs (or the immediately preceding day if the Effective Time is
earlier than 9:00 A.M.), or at such other time as the Parties, acting through
their authorized officers, may mutually agree. The Closing shall be held at such
location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Certificate of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Georgia (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the fifth business day following
the last to occur of (i) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the earliest date on which the shareholders of EMPIRE have approved this
Agreement to the extent such approval is required by applicable Law; provided,
however, that the date of the Effective Time shall not extend past the
termination date set forth in SS 10.1(e) hereof.
ARTICLE 2.
TERMS OF MERGER
---------------
2.1 Articles of Incorporation. The Articles of Incorporation of FLAG in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until duly amended or repealed.
2.2 Bylaws. The Bylaws of FLAG in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until duly amended or
repealed.
2
<PAGE>
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation shall be (i) the directors
of FLAG immediately prior to the Effective Time and (ii) Leonard H. Bateman,
together with such additional persons as may thereafter be elected. Such persons
shall serve as the directors of the Surviving Corporation from and after the
Effective Time in accordance with the Bylaws of the Surviving Corporation.
(b) The executive officers of the Surviving Corporation shall be (i) the
executive officers of the Surviving Corporation immediately prior to the
Effective Time and (ii) such additional persons as may thereafter be elected.
Such persons shall serve as the executive officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE 3.
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of EMPIRE, or the shareholders of the foregoing, the shares of EMPIRE shall be
converted as follows:
(a) Each share of capital stock of FLAG issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of EMPIRE Common Stock (excluding shares held by any EMPIRE
Entity or any FLAG Entity, in each case other than in a fiduciary capacity or as
a result of debts previously contracted, and excluding shares held by
shareholders who perfect their statutory dissenter' rights as provided in
Section 3.4) issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive 42.50 shares of FLAG Common Stock (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event FLAG changes the number of
shares of FLAG Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) and prior to the
Effective Time, the Exchange Ratio shall be proportionately adjusted.
3.3 Shares Held by EMPIRE or FLAG. Each of the shares of EMPIRE Common
Stock held by any EMPIRE Entity or by any FLAG Entity, in each case other than
in a fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3
<PAGE>
3.4 Dissenting Shares. Any holder of shares of EMPIRE Common Stock who
perfects his dissenters/ rights in accordance with and as contemplated by
Article 13, Part 2 of Title 14 of the GBCC, shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the GBCC and surrendered to FLAG the certificates or certificates
representing the shares for which payment is being made. In the event that after
the Effective Time, a dissenting shareholder of EMPIRE fails to perfect, or
effectively withdraws or loses, his right to appraisal of and payment for his
shares, FLAG shall issue and deliver the consideration to which such holder of
shares of EMPIRE Common Stock is entitled under this Article 3 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of EMPIRE Common Stock held by him. If and to the extent
required by applicable Law, EMPIRE will establish (or cause to be established)
an escrow account with an amount sufficient to satisfy the maximum aggregate
payment that may be required to be paid to dissenting shareholders. Upon
satisfaction of all claims of dissenting shareholders, the remaining escrowed
amount, reduced by payment of the fees and expenses of the escrow agent, will be
returned to FLAG.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of EMPIRE Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of FLAG Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of FLAG Common Stock multiplied
by the market value of one share of FLAG Common Stock at the Effective Time. The
market value of one share of FLAG Common Stock at the Effective Time shall be
the last sale price of such common stock on the Nasdaq National Market (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by FLAG) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares.
ARTICLE 4.
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. Promptly after the Effective Time, FLAG shall
cause the exchange agent selected by FLAG (the "Exchange Agent") to mail to each
holder of record of a certificate or certificates which represented shares of
EMPIRE Common Stock immediately prior to the Effective Time (the "Certificates")
appropriate transmittal materials and instructions (which shall specify that
delivery shall be effected, and risk of loss and title to such Certificates
shall pass, only upon proper delivery of such Certificates to the Exchange
Agent). The Certificate or Certificates of EMPIRE Common Stock so delivered
shall be duly endorsed as the Exchange Agent may require. In the event of a
transfer of ownership of shares of EMPIRE Common Stock represented by
Certificates that are not registered in the transfer records of EMPIRE, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
4
<PAGE>
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such
bond, security or indemnity as FLAG and the Exchange Agent may reasonably
require, and (iii) any other documents necessary to evidence and effect the bona
fide exchange thereof, the Exchange Agent shall issue to such holder the
consideration into which the shares represented by such lost, stolen, mislaid or
destroyed Certificate shall have been converted. The Exchange Agent may
establish such other reasonable and customary rules and procedures in connection
with its duties as it may deem appropriate. After the Effective Time, each
holder of shares of EMPIRE Common Stock (other than shares to be canceled
pursuant to Section 3.3 or as to which statutory dissenter' rights have been
perfected as provided in Section 3.4) issued and outstanding at the Effective
Time shall surrender the Certificate or Certificates representing such shares to
the Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. FLAG shall not be obligated to
deliver the consideration to which any former holder of EMPIRE Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
Certificate or Certificates for exchange as provided in this Section 4.1. Any
other provision of this Agreement notwithstanding, neither FLAG nor the Exchange
Agent shall be liable to a holder of EMPIRE Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar Law. Approval of this Agreement by the
shareholders of EMPIRE shall constitute ratification of the appointment of the
Exchange Agent.
4.2 Rights of Former Shareholders of EMPIRE. At the Effective Time, the
stock transfer books of EMPIRE shall be closed as to holders of EMPIRE Common
Stock immediately prior to the Effective Time and no transfer of EMPIRE Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1, each
Certificate theretofore representing shares of EMPIRE Common Stock (other than
shares to be canceled pursuant to Sections 3.3 and 3.4) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Section 3.1 in exchange therefor, subject, however, to
FLAG's obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which have been declared or made by
EMPIRE in respect of such shares of EMPIRE Common Stock in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time. To the
extent permitted by Law, former shareholders of record of EMPIRE shall be
entitled to vote after the Effective Time at any meeting of FLAG shareholders
the number of whole shares of FLAG Common Stock into which their respective
shares of EMPIRE Common Stock are converted, regardless of whether such holders
have exchanged their Certificates for certificates representing FLAG Common
Stock in accordance with the provisions of this Agreement. Whenever a dividend
or other distribution is declared by FLAG on the FLAG Common Stock, the record
date for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of FLAG Common Stock issuable
pursuant to this Agreement, but no dividend or other distribution payable to the
holders of record of FLAG Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any Certificate until such
holder surrenders such Certificate for exchange as provided in Section 4.1.
5
<PAGE>
However, upon surrender of such Certificate, both the FLAG Common Stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered dividends and cash payments payable
hereunder (without interest) shall be delivered and paid with respect to each
share represented by such Certificate. No interest shall be payable with respect
to any cash to be paid under Section 3.1 of this Agreement except to the extent
required in connection with the exercise of dissenters' rights.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF EMPIRE
----------------------------------------
EMPIRE hereby represents and warrants to FLAG as follows:
5.1 Organization, Standing, and Power. EMPIRE is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. EMPIRE is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, an EMPIRE Material Adverse Effect. The minute book and other
organizational documents for EMPIRE have been made available to FLAG for its
review and, except as disclosed in Section 5.1 of the EMPIRE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.2 Authority of EMPIRE; No Breach By Agreement
(a) EMPIRE has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of EMPIRE, subject to the
approval of this Agreement by the holders of a majority of the outstanding
voting stock of EMPIRE, which is the only shareholder vote required for approval
of this Agreement, and consummation of the Merger by EMPIRE. Subject to such
requisite shareholder approval, this Agreement represents a legal, valid, and
binding obligation of EMPIRE, enforceable against EMPIRE in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
6
<PAGE>
(b) Neither the execution and delivery of this Agreement by EMPIRE, nor the
consummation by EMPIRE of the transactions contemplated hereby, nor compliance
by EMPIRE with any of the provisions hereof, will (i) conflict with or result in
a breach of any provision of EMPIRE's Articles of Incorporation or Bylaws, or
the Charter, Articles of Incorporation, or Bylaws of any EMPIRE Subsidiary or
any resolution adopted by the board of directors or the shareholders of any
EMPIRE Entity, or (ii) except as disclosed in Section 5.2 of the EMPIRE
Disclosure Memorandum, constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
EMPIRE Entity under, any Contract or Permit of any EMPIRE Entity, where such
Default or Lien, or any failure to obtain such Consent, is reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect, or
(iii) subject to receipt of the requisite Consents referred to in
Section 9.1(b), constitute or result in a Default under or require any Consent
pursuant to, any Law or Order applicable to any EMPIRE Entity or any of their
respective material Assets (including any FLAG Entity or any EMPIRE Entity
becoming subject to or liable for the payment of any Tax or any of the Assets
owned by any FLAG Entity or any EMPIRE Entity being reassessed or revalued by
any Taxing authority).
(c) Other than in connection or compliance with the provisions of
applicable federal banking laws, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents, filings,
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect, no
notice to, filing with, or Consent of, any public body or authority is necessary
for the consummation by EMPIRE of the Merger and the other transactions
contemplated in this Agreement.
5.3 Capital Stock
(a) As of the date of this Agreement, the authorized capital stock of
EMPIRE consists of 1,000,000 shares of EMPIRE Common Stock, of which 26,450
shares are issued and outstanding. All of the issued and outstanding shares of
capital stock of EMPIRE are duly and validly issued and outstanding and are
fully paid and nonassessable under the GBCC. None of the outstanding shares of
capital stock of EMPIRE has been issued in violation of any preemptive rights of
the current or past shareholders of EMPIRE.
(b) Except as set forth in Section 5.3(a), or as disclosed in
Section 5.3(b) of the EMPIRE Disclosure Memorandum, there are no shares of
capital stock or other equity securities of EMPIRE outstanding and no
outstanding Equity Rights relating to the capital stock of EMPIRE.
5.4 EMPIRE Subsidiaries. EMPIRE has disclosed in Section 5.4 of the EMPIRE
Disclosure Memorandum all of the EMPIRE Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the number of shares
owned and percentage ownership interest represented by such share ownership) and
all of the EMPIRE Subsidiaries that are general or limited partnerships, limited
7
<PAGE>
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which the character of its
Assets or the nature or conduct of its business requires it to be qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 5.4 of the EMPIRE Disclosure
Memorandum, EMPIRE or one of its wholly-owned Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity interests) of
each EMPIRE Subsidiary. No capital stock (or other equity interest) of any
EMPIRE Subsidiary is or may become required to be issued (other than to another
EMPIRE Entity) by reason of any Equity Rights, and there are no Contracts by
which any EMPIRE Subsidiary is bound to issue (other than to another EMPIRE
Entity) additional shares of its capital stock (or other equity interests) or
Equity Rights or by which any EMPIRE Entity is or may be bound to transfer any
shares of the capital stock (or other equity interests) of any EMPIRE Subsidiary
(other than to another EMPIRE Entity). There are no Contracts relating to the
rights of any EMPIRE Entity to vote or to dispose of any shares of the capital
stock (or other equity interests) of any EMPIRE Subsidiary. All of the shares of
capital stock (or other equity interests) of each EMPIRE Subsidiary held by an
EMPIRE Entity are fully paid and (except pursuant to 12 U.S.C. Section 55 in the
case of national banks and comparable, applicable State Law, if any, in the case
of State depository institutions) nonassessable and are owned by the EMPIRE
Entity free and clear of any Lien. Except as disclosed in Section 5.4 of the
EMPIRE Disclosure Memorandum, each EMPIRE Subsidiary is either a bank, savings
association or a corporation, and is duly organized, validly existing, and in
good standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each EMPIRE Subsidiary is duly qualified or licensed to transact business as a
foreign corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect. Each EMPIRE Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder. The minute book and other organizational
documents for each EMPIRE Subsidiary have been made available to FLAG for its
review, and, except as disclosed in Section 5.4 of the EMPIRE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.5 Financial Statements. Each of the EMPIRE Financial Statements
(including, in each case, any related notes) was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements), and fairly
presented in all material respects the consolidated financial position of EMPIRE
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
8
<PAGE>
5.6 Absence of Undisclosed Liabilities. No EMPIRE Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of EMPIRE as of
December 31, 1997 or March 31, 1998, included in the EMPIRE Financial Statements
or reflected in the notes thereto. No EMPIRE Entity has incurred or paid any
Liability since March 31, 1998, except for such Liabilities incurred or paid (i)
in the ordinary course of business consistent with past business practice and
which are not reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
5.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the EMPIRE Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the EMPIRE Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect, and (ii) EMPIRE Entities have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of EMPIRE provided in Article 7.
5.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any EMPIRE
Entities have been timely filed or requests for extensions have been timely
filed, granted, and, to the Knowledge of EMPIRE, have not expired for such
periods, except to the extent that all such failures to file, taken together,
are not reasonably likely to have an EMPIRE Material Adverse Effect, and all Tax
Returns filed are complete and accurate in all material respects. All Taxes
shown on filed Tax Returns have been paid. There is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, except as reserved against in the
EMPIRE Financial Statements delivered prior to the date of this Agreement or as
disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of EMPIRE Entities, except for any such Liens which are
not reasonably likely to have an EMPIRE Material Adverse Effect or with respect
to which the Taxes are not yet due and payable.
(b) None of the EMPIRE Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the EMPIRE
Entities for the period or periods through and including the date of the
respective EMPIRE Financial Statements that has been made and is reflected on
such EMPIRE Financial Statements is sufficient to cover all such Taxes.
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(d) Deferred Taxes of EMPIRE Entities have been provided for in accordance
with GAAP.
(e) Except as disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities is a party to any Tax allocation or sharing
agreement and none of EMPIRE Entities has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was EMPIRE) or has any Liability for Taxes of any Person (other
than EMPIRE and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign Law) as a transferee or
successor or by Contract or otherwise.
(f) Each of the EMPIRE Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities has made any payments, is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments that would be disallowed as a deduction under Sections 28OG or 162(m)
of the Internal Revenue Code.
(h) Exclusive of the Merger, there has not been an ownership change, as
defined in Internal Revenue Code Section 382(g), of EMPIRE Entities that
occurred during or after any Taxable Period in which EMPIRE Entities incurred a
net operating loss that carries over to any Taxable Period ending after December
31, 1997.
(i) No EMPIRE Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
(j) All material elections with respect to Taxes affecting EMPIRE Entities
have been or will be timely made.
5.9 Allowance for Possible Loan Losses. The allowance for possible loan or
credit losses (the "Allowance") shown on the consolidated balance sheets of
EMPIRE included in the most recent EMPIRE Financial Statements dated prior to
the date of this Agreement was, and the Allowance shown on the consolidated
balance sheets of EMPIRE included in the EMPIRE Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates thereof,
adequate (within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for all known or reasonably anticipated losses relating
to or inherent in the loan and lease portfolios (including accrued interest
receivables) of EMPIRE Entities and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by EMPIRE
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Entities as of the dates thereof, except where the failure of such Allowance to
be so adequate is not reasonably likely to have an EMPIRE Material Adverse
Effect.
5.10 Assets
(a) Except as disclosed in Section 5.10 of the EMPIRE Disclosure Memorandum
or as disclosed or reserved against in the EMPIRE Financial Statements delivered
prior to the date of this Agreement, EMPIRE Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have an EMPIRE Material Adverse Effect. All tangible properties used in the
businesses of the EMPIRE Entities are usable in the ordinary course of business
consistent with EMPIRE's past practices.
(b) All Assets which are material to EMPIRE's business on a consolidated
basis, held under leases or subleases by any of the EMPIRE Entities, are held
under valid Contracts enforceable against EMPIRE in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and,
assuming the enforceability of such Contract against the third party thereto,
each such Contract is in full force and effect.
(c) EMPIRE Entities currently maintain the insurance policies described in
Section 5.10(c) of the EMPIRE Disclosure Memorandum. None of the EMPIRE Entities
has received written notice from any insurance carrier that (i) any policy of
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no claims for amounts
exceeding in any individual case $25,000 pending under such policies of
insurance and no written notices of claims in excess of such amounts have been
given by any EMPIRE Entity under such policies.
(d) The Assets of the EMPIRE Entities include all material Assets required
to operate the business of the EMPIRE Entities as presently conducted.
5.11 Intellectual Property. Each EMPIRE Entity owns or has a license to use
all of the Intellectual Property used by such EMPIRE Entity in the ordinary
course of its business. Each EMPIRE Entity is the owner of or has a license to
any Intellectual Property sold or licensed to a third party by such EMPIRE
Entity in connection with such EMPIRE Entity's business operations, and such
EMPIRE Entity has the right to convey by sale or license any Intellectual
Property so conveyed. No EMPIRE Entity is in material Default under any of its
Intellectual Property licenses. No proceedings have been instituted, or are
pending or, to the Knowledge of EMPIRE, threatened, which challenge the rights
of any EMPIRE Entity with respect to Intellectual Property used, sold or
licensed by such EMPIRE Entity in the course of its business, nor has any person
claimed or alleged any rights to such Intellectual Property. To the Knowledge of
EMPIRE, the conduct of the business of the EMPIRE Entities does not infringe any
Intellectual Property of any other person. Except as disclosed in Section 5.11
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of the EMPIRE Disclosure Memorandum, no EMPIRE Entity is obligated to pay any
recurring royalties to any Person with respect to any such Intellectual
Property.
5.12 Environmental Matters.
(a) Except as disclosed in Section 5.12 of the EMPIRE Disclosure
Memorandum, to the Knowledge of EMPIRE, each EMPIRE Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of EMPIRE,
threatened, before any court, governmental agency, or authority or other forum
in which any EMPIRE Entity or any of its Operating Properties or Participation
Facilities (or EMPIRE in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the emission, migration, release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by any EMPIRE Entity or
any of its Operating Properties or Participation Facilities or any neighboring
property, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect, nor, to the Knowledge of EMPIRE, is there any reasonable basis
for any Litigation of a type described in this sentence, except such as is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect.
(c) Except as disclosed in Section 5.12 of the EMPIRE Disclosure
Memorandum, during the period of (i) any EMPIRE Entity's ownership or operation
of any of their respective current Assets, or (ii) any EMPIRE Entity's
participation in the management of any Participation Facility or any Operating
Property, to the Knowledge of EMPIRE, there have been no emissions, migrations,
releases, discharges, spillages, or disposals of Hazardous Material in, on, at,
under, adjacent to, or affecting (or potentially affecting) such properties or
any neighboring properties, except such as are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect. Except as
disclosed in Section 5.12 of the EMPIRE Disclosure Memorandum, prior to the
period of (i) any EMPIRE Entity's ownership or operation of any of their
respective current properties, (ii) any EMPIRE Entity's participation in the
management of any Participation Facility or any Operating Property, to the
Knowledge of EMPIRE, there were no releases, discharges, spillages, or disposals
of Hazardous Material in, on, under, or affecting any such property,
Participation Facility or Operating Property, except such as are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect.
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5.13 Compliance with Laws. Each EMPIRE Entity has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, an EMPIRE
Material Adverse Effect, and, to the Knowledge of EMPIRE, there has occurred no
Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect. Except as disclosed in Section 5.13 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for Defaults which are not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect; or
(c) since January 1, 1995, has received any written notification or written
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting that
any EMPIRE Entity is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, or (iii) requiring any EMPIRE
Entity to enter into or consent to the issuance of a cease and desist order,
formal agreement, directive, commitment, or memorandum of understanding, or to
adopt any Board resolution or similar undertaking, which restricts materially
the conduct of its business or in any material manner relates to its capital
adequacy, its credit or reserve policies, its management, or the payment of
dividends. Copies of all material reports, correspondence, notices and other
documents relating to any inspection, audit, monitoring or other form of review
or enforcement action by a Regulatory Authority have been made available to
FLAG.
5.14 Labor Relations. No EMPIRE Entity is the subject of any Litigation
asserting that it or any other EMPIRE Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other EMPIRE Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
EMPIRE Entity party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any EMPIRE Entity, pending or
threatened, or to the Knowledge of EMPIRE, is there any activity involving any
EMPIRE Entity's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
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5.15 Employee Benefit Plans.
(a) EMPIRE has disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, and has delivered or made available to FLAG prior to the execution
of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any EMPIRE Entity or ERISA
Affiliate (as defined in subparagraph (c) below) thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, "EMPIRE Benefit Plans"). Each EMPIRE Benefit Plan
which is an "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as an "EMPIRE ERISA Plan." Each EMPIRE
ERISA Plan which is also a "defined benefit plan" (as defined in Section 4140 of
the Internal Revenue Code) is referred to herein as an "EMPIRE Pension Plan." No
EMPIRE Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(b) All EMPIRE Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect. Each EMPIRE ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
EMPIRE has no Knowledge of any circumstances likely to result in revocation of
any such favorable determination letter. To the Knowledge of EMPIRE, no EMPIRE
Entity has engaged in a transaction with respect to any EMPIRE Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any EMPIRE Entity to a Tax imposed by either Section 4975
of the Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect.
(c) No EMPIRE Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions
set forth for such plan's most recent actuarial valuation. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of any EMPIRE Pension Plan, (ii) no change in the actuarial
assumptions with respect to any EMPIRE Pension Plan, and (iii) no increase in
benefits under any EMPIRE Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any EMPIRE Pension Plan nor any "single
employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any EMPIRE Entity, or the single-employer plan of any
entity which is considered one employer with EMPIRE under Section 4001 of ERISA
or Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or
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not waived) (an "ERISA Affiliate") has an "accumulated funding deficiency"
within the meaning of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, which is reasonably likely to have an EMPIRE Material Adverse Effect. No
EMPIRE Entity has provided, or is required to provide, security to an EMPIRE
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any EMPIRE Entity with respect to any ongoing, frozen, or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have an EMPIRE Material Adverse Effect. No
EMPIRE Entity has incurred any withdrawal Liability with respect to a
multiemployer plan under Subtitle B of Title IV of ERISA (regardless of whether
based on contributions of an ERISA Affiliate), which Liability is reasonably
likely to have an EMPIRE Material Adverse Effect. No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed for any
EMPIRE Pension Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof.
(e) Except as disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, no EMPIRE Entity has any Liability for retiree health and life
benefits under any of the EMPIRE Benefit Plans and there are no restrictions on
the rights of such EMPIRE Entity to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder, which Liability is
reasonably likely to have an EMPIRE Material Adverse Effect.
(f) Except as disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any EMPIRE Entity
from any EMPIRE Entity under any EMPIRE Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any EMPIRE Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit, where
such payment, increase, or acceleration is reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any EMPIRE Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the EMPIRE Financial Statements to the extent
required by and in accordance with GAAP.
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5.16 Material Contracts. Except as disclosed in Section 5.16 of the EMPIRE
Disclosure Memorandum or otherwise reflected in the EMPIRE Financial Statements,
none of the EMPIRE Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
EMPIRE Entity or the guarantee by any EMPIRE Entity of any such obligation
(other than Contracts evidencing deposit liabilities, purchases of federal
funds, fully-secured repurchase agreements, Federal Home Loan Bank advances and
trade payables and Contracts relating to borrowings or guarantees made in the
ordinary course of business), (iii) any Contract which prohibits or restricts
any EMPIRE Entity from engaging in any business activities in any geographic
area, line of business or otherwise in competition with any other Person, (iv)
any Contract between or among the EMPIRE Entities, (v) any Contract relating to
the provision of data processing, network communication, or other technical
services to or by any EMPIRE Entity, (vi) any exchange traded or
over-the-counter swap, forward, future, option, cap, floor, or collar financial
Contract, or any other interest rate or foreign currency protection Contract not
included on its balance sheet which is a financial derivative Contract, and
(vii) any other Contract or amendment thereto that would be required to be filed
as an exhibit to a Form 10-K filed by EMPIRE with the SEC (assuming EMPIRE were
subject to the reporting requirements of the 1934 Act) as of the date of this
Agreement (together with all Contracts referred to in Sections 5.10 and 5.15(a),
the "EMPIRE Contracts"). With respect to each EMPIRE Contract and except as
disclosed in Section 5.16 of the EMPIRE Disclosure Memorandum: (i) assuming the
enforceability of such Contract against the third party thereto, each such
Contract is in full force and effect; (ii) no EMPIRE Entity is in Default
thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect; (iii) no
EMPIRE Entity has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
EMPIRE, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect, or has repudiated or waived any material provision thereunder. Except as
disclosed in Section 5.16 of the EMPIRE Disclosure Memorandum, no officer,
director or employee of any EMPIRE Entity is party to any Contract which
restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including any EMPIRE Entity. All of the
indebtedness of any EMPIRE Entity for money borrowed (excluding deposits
obtained in the ordinary course of business) is prepayable at any time by such
EMPIRE Entity without penalty or premium.
5.17 Legal Proceedings. There is no Litigation instituted or pending or, to
the Knowledge of EMPIRE, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any EMPIRE Entity, or against any director,
employee or employee benefit plan (acting in such capacity) of any EMPIRE
Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any EMPIRE Entity,
that are reasonably likely to have, individually or in the aggregate, an EMPIRE
Material Adverse Effect. Section 5.17 of the EMPIRE Disclosure Memorandum
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contains a summary of all Litigation as of the date of this Agreement to which
any EMPIRE Entity is a party and which names an EMPIRE Entity as a defendant or
cross-defendant or for which, to the Knowledge of EMPIRE, any EMPIRE Entity has
any potential Liability.
5.18 Reports. Since January 1, 1995, or the date of organization if later,
each EMPIRE Entity has timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities, except for such filings which the failure to
so file is not reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect. As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.19 Statements True and Correct. No statement, certificate, instrument, or
other writing furnished or to be furnished by any EMPIRE Entity to FLAG pursuant
to this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any EMPIRE Entity for inclusion in the
registration statement to be filed by FLAG with the SEC in accordance with
Section 8.1 will, when such registration statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein not misleading. All documents that
any EMPIRE Entity is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law. No documents to be
filed by an EMPIRE Entity with any Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5.20 Accounting, Tax and Regulatory Matters. No EMPIRE Entity has taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying for pooling of
interest accounting treatment and as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
5.21 Charter Provisions. Each EMPIRE Entity has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Charter, Articles of
Incorporation, Bylaws or other governing instruments of any EMPIRE Entity or
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restrict or impair the ability of FLAG or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of any
EMPIRE Entity that may be directly or indirectly acquired or controlled by them.
5.22 Board Recommendation.
The Board of Directors of EMPIRE, at a meeting duly called and held, has by
unanimous vote of those directors present (who constituted all of the directors
then in office) (i) determined that this Agreement and the transactions
contemplated hereby are fair to and in the best interests of the shareholders
and (ii) resolved to recommend that the holders of the shares of EMPIRE Common
Stock approve this Agreement.
5.23 Y-2K. EMPIRE has formed a committee to review policies and directives
issued by Regulatory Authorities with respect to preparedness for year 2000 data
processing and other operations, and intends to implement such committee's
recommendations for ensuring compliance with such policies and directives.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF FLAG
--------------------------------------
FLAG hereby represents and warrants to EMPIRE as follows:
6.1 Organization, Standing, and Power. FLAG is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. FLAG is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a FLAG Material Adverse Effect. The minute book and other
organizational documents for FLAG have been made available to EMPIRE for its
review and, except as disclosed in Section 6.1 of the FLAG Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
6.2 Authority of FLAG; No Breach By Agreement.
(a) FLAG has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of FLAG. This Agreement
represents a legal, valid, and binding obligation of FLAG, enforceable against
FLAG in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
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receivership, conservatorship, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by FLAG, nor the
consummation by FLAG of the transactions contemplated hereby, nor compliance by
FLAG with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of FLAG's Articles of Incorporation or Bylaws, or the
Charter, or Articles of Incorporation or Bylaws of any FLAG Entity, or any
resolution adopted by the Board of Directors or the shareholders of any FLAG
Entity, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any FLAG
Entity under, any Contract or Permit of any FLAG Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, or (iii)
subject to receipt of the requisite Consents referred to in Section 9. 1 (b),
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any FLAG Entity or any of their respective material
Assets (including any FLAG Entity becoming subject to or liable for the payment
of any Tax or any of the Assets owned by any FLAG Entity being reassessed or
revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a FLAG Material Adverse Effect, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
FLAG of the Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of FLAG consists of (i) 20,000,000 shares
of FLAG Common Stock, of which 5,174,807 shares are issued and outstanding as of
the date of this Agreement, and (ii) 10,000,000 shares of FLAG Preferred Stock,
of which no shares are issued and outstanding. All of the issued and outstanding
shares of FLAG Capital Stock are, and all of the shares of FLAG Common Stock to
be issued in exchange for shares of EMPIRE Common Stock upon consummation of the
Merger, when issued in accordance with the terms of this Agreement, will be,
duly and validly issued and outstanding and fully paid and nonassessable under
the GBCC. None of the outstanding shares of FLAG Capital Stock has been, and
none of the shares of FLAG Common Stock to be issued in exchange for shares of
EMPIRE Common Stock upon consummation of the Merger will be, issued in violation
of any preemptive rights of the current or past shareholders of FLAG.
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(b) Except as set forth in Section 6.3(a), or as disclosed in Section 6.3
of the FLAG Disclosure Memorandum, there are no shares of capital stock or other
equity securities of FLAG outstanding and no outstanding Equity Rights relating
to the capital stock of FLAG.
6.4 FLAG Subsidiaries. FLAG has disclosed in Section 6.4 of the FLAG
Disclosure Memorandum all of the FLAG Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the number of shares
owned and percentage ownership interest represented by such share ownership) and
all of the FLAG Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which the character of its
Assets or the nature or conduct of its business requires it to be qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 6.4 of the FLAG Disclosure
Memorandum, FLAG or one of its wholly-owned Subsidiaries owns all of the issued
and outstanding shares of capital stock (or other equity interests) of each FLAG
Subsidiary. No capital stock (or other equity interest) of any FLAG Subsidiary
are or may become required to be issued (other than to another FLAG Entity) by
reason of any Equity Rights, and there are no Contracts by which any FLAG
Subsidiary is bound to issue (other than to another FLAG Entity) additional
shares of its capital stock (or other equity interests) or Equity Rights or by
which any FLAG Entity is or may be bound to transfer any shares of the capital
stock (or other equity interests) of any FLAG Subsidiary (other than to another
FLAG Entity). There are no Contracts relating to the rights of any FLAG Entity
to vote or to dispose of any shares of the capital stock (or other equity
interests) of any FLAG Subsidiary. All of the shares of capital stock (or other
equity interests) of each FLAG Subsidiary held by a FLAG Entity are fully paid
and nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the FLAG
Entity free and clear of any Lien. Each FLAG Subsidiary is either a bank,
savings association or a corporation, and is duly organized, validly existing,
and (as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each FLAG Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Each FLAG Subsidiary that is a depository
institution is an "insured institution" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder. The minute book and other
organizational documents for each FLAG Subsidiary have been made available to
EMPIRE for its review, and, except as disclosed in Section 6.4 of the FLAG
Disclosure Memorandum, are true and complete in all material respects as in
effect as of the date of this Agreement and accurately reflect in all material
respects all amendments thereto and all proceedings of the Board of Directors
and shareholders thereof.
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6.5 SEC Filings, Financial Statements.
(a) FLAG has timely filed and made available to EMPIRE all SEC Documents
required to be filed by FLAG since December 31, 1993 (the "FLAG SEC Reports").
The FLAG SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the Securities Laws and other applicable
Laws and (ii) did not, at the time they were filed (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such FLAG SEC Reports or necessary in
order to make the statements in such FLAG SEC Reports, in light of the
circumstances under which they were made, not misleading. No FLAG Subsidiary is
required to file any SEC Documents.
(b) Each of the FLAG Financial Statements (including, in each case, any
related notes) contained in the FLAG SEC Reports, including any FLAG SEC Reports
filed after the date of this Agreement until the Effective Time, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of FLAG
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
6.6 Absence of Undisclosed Liabilities. No FLAG Entity has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a FLAG
Material Adverse Effect, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of FLAG as of December 31, 1997 and
March 31, 1998, included in the FLAG Financial Statements delivered prior to the
date of this Agreement or reflected in the notes thereto. No FLAG Entity has
incurred or paid any Liability since March 31, 1998, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a FLAG Material Adverse Effect or (ii) in connection with the
transactions contemplated by this Agreement.
6.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the FLAG Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 6.7 of the FLAG Disclosure Memorandum,
(i) there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, and (ii) the FLAG Entities have not taken any action, or failed
to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of FLAG
provided in Article 7.
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6.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any of the FLAG
Entities have been timely filed or requests for extensions have been timely
filed, granted, and have not expired for periods ended on or before December 31,
1997, and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, except to the extent that all such failures to
file, taken together, are not reasonably likely to have a FLAG Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. There is no audit
examination, deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a FLAG Material Adverse Effect, except as reserved against in
the FLAG Financial Statements delivered prior to the date of this Agreement or
as disclosed in Section 6.8 of the FLAG Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of the FLAG Entities, except for any such Liens which are
not reasonably likely to have a FLAG Material Adverse Effect or with respect to
which the Taxes are not vet due and payable.
(b) None of the FLAG Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to veers currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the FLAG
Entities for the period or periods through and including the date of the
respective FLAG Financial Statements that has been made and is reflected on such
FLAG Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the FLAG Entities have been provided for in
accordance with GAAP.
(e) None of the FLAG Entities is a party to any Tax allocation or sharing
agreement and none of the FLAG Entities has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was FLAG) or has any Liability for Taxes of any Person (other
than FLAG and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign, Law) as a transferee or
successor or by Contract or otherwise.
(f) Each of the FLAG Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect. (g) Except as
disclosed in Section 6.8 of the FLAG Disclosure Memorandum, none of the FLAG
Entities has made any payments, is obligated to make any payments, or is a party
to any Contract that could obligate it to make any payments that would be
disallowed as a deduction under Sections 28OG or 162(m) of the Internal Revenue
Code.
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(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the FLAG Entities that occurred during or after any
Taxable Period in which the FLAG Entities incurred a net operating loss that
carries over to any Taxable Period ending after December 31, 1997.
(i) No FLAG Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
(j) All material elections with respect to Taxes affecting the FLAG
Entities have been or will be timely made.
6.9 Allowance for Possible Loan Losses. The Allowance shown on the
consolidated balance sheets of FLAG included in the most recent FLAG Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of FLAG included in the FLAG Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for all known or reasonably
anticipated losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the FLAG Entities and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by the FLAG Entities as of the dates thereof, except where the
failure of such Allowance to be so adequate is not reasonably likely to have a
FLAG Material Adverse Effect.
6.10 Assets.
(a) Except as disclosed in Section 6.10 of the FLAG Disclosure Memorandum
or as disclosed or reserved against in the FLAG Financial Statements delivered
prior to the date of this Agreement, the FLAG Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have a FLAG Material Adverse Effect. All tangible properties used in the
businesses of the FLAG Entities are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
FLAG's past practices.
(b) All Assets which are material to FLAG's business on a consolidated
basis, held under leases or subleases by any of the FLAG Entities, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect.
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(c) The FLAG Entities currently maintain insurance similar in amounts,
scope and coverage to that maintained by other peer banking organizations. None
of the FLAG Entities has received notice from any insurance carrier that (i) any
policy of insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no claims for
amounts exceeding in any individual case $25,000 pending under such policies of
insurance and no notices of claims in excess of such amounts have been given by
any FLAG Entity under such policies.
(d) The Assets of the FLAG Entities include all Assets required to operate
the business of the FLAG Entities as presently conducted.
6.11 Intellectual Property. Each FLAG Entity owns or has a license to use
all of the Intellectual Property used by such FLAG Entity in the course of its
business. Each FLAG Entity is the owner of or has a license to any Intellectual
Property sold or licensed to a third party by such FLAG Entity in connection
with such FLAG Entity's business operations, and such FLAG Entity has the right
to convey by sale or license any Intellectual Property so conveyed. No FLAG
Entity is in Default under any of its Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of FLAG
threatened, which challenge the rights of any FLAG Entity with respect to
Intellectual Property used, sold or licensed by such FLAG Entity in the course
of its business, nor has any person claimed or alleged any rights to such
Intellectual Property. The conduct of the business of the FLAG Entities does not
infringe any Intellectual Property of any other person. Except as disclosed in
Section 6.11 of the FLAG Disclosure Memorandum, no FLAG Entity is obligated to
pay any recurring royalties to any Person with respect to any such Intellectual
Property. Except as disclosed in Section 6.11 of the FLAG Disclosure Memorandum,
no officer, director or employee of any FLAG Entity is party to any Contract
which restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including any FLAG Entity.
6.12 Environmental Matters.
(a) To the Knowledge of FLAG, each FLAG Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect.
(b) To the Knowledge of FLAG, there is no Litigation pending or threatened
before any court, governmental agency, or authority or other forum in which any
FLAG Entity or any of its Operating Properties or Participation Facilities (or
FLAG in respect of such Operating Property or Participation Facility) has been
or, with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the emission, migration, release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any FLAG Entity or any of its Operating
Properties or Participation Facilities or any neighboring property, except for
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such Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, nor is there
any reasonable basis for any Litigation of a type described in this sentence,
except such as is not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect.
(c) During the period of (i) any FLAG Entity's ownership or operation of
any of their respective current properties, (ii) any FLAG Entity's participation
in the management of any Participation Facility or any Operating Property, there
have been no emissions, migrations, releases, discharges, spillages, or
disposals of Hazardous Material in, on, at, under, adjacent to, or affecting (or
potentially affecting) such properties or any neighboring properties, except
such as are not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Prior to the period of (i) any FLAG Entity's
ownership or operation of any of their respective current properties, (ii) any
FLAG Entity's participation in the management of any Participation Facility or
any Operating Property, to the Knowledge of FLAG, there were no releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such property, Participation Facility or Operating Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect.
6.13 Compliance with Laws. Each FLAG Entity has in effect all Permits
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect. Except as disclosed in Section 6.13
of the FLAG Disclosure Memorandum, none of the FLAG Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which are not
reasonably likely to, have, individually or in the aggregate, a FLAG Material
Adverse Effect; or
(c) since January 1, 1995, has received any notification or communication
from any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any FLAG Entity is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, (ii) threatening to revoke any Permits, the revocation of which
is reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, or (iii) requiring any FLAG Entity to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution or
similar undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends. Copies of all material reports,
correspondence, notices and other documents relating to any inspection, audit,
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monitoring or other form of review or enforcement action by a Regulatory
Authority have been made available to EMPIRE.
6.14 Labor Relations. No FLAG Entity is the subject of any Litigation
asserting that it or any other FLAG Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other FLAG Entity to bargain with any
labor organization as to wages or conditions of employment, nor is any FLAG
Entity party to any collective bargaining agreement, nor is there any strike or
other labor dispute involving any FLAG Entity, pending or threatened, or to the
Knowledge of FLAG, is there any activity involving any FLAG Entity's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
6.15 Employee Benefit Plans.
(a) FLAG has disclosed in Section 6.15 of the FLAG Disclosure Memorandum
and has delivered or made available to EMPIRE prior to the execution of this
Agreement copies in each case of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus, or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part
by, or contributed to by any FLAG Entity or ERISA Affiliate thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "FLAG Benefit Plans"). Each FLAG
Benefit Plan which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "FLAG ERISA Plan."
Each FLAG ERISA Plan which is also a "defined benefit plan" (as defined in
Section 4140) of the Internal Revenue Code) is referred to herein as a "FLAG
Pension Plan." No FLAG Pension Plan is or has been a multiemployer plan within
the meaning of Section 3(37) of ERISA.
(b) All FLAG Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect. Each FLAG ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
FLAG is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of Flag, no FLAG Entity
has engaged in a transaction with respect to any FLAG Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject any FLAG Entity to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a FLAG Material Adverse
Effect.
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(c) No FLAG Pension Plan has any "unfunded current liability," as that term
is defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions set
forth for such plan's most recent actuarial valuation. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of a FLAG Pension Plan, (ii) no change in the actuarial
assumptions with respect to any FLAG Pension Plan, and (iii) no increase in
benefits under any FLAG Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any FLAG Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any FLAG Entity, or the single-employer plan
of any ERISA Affiliate has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a FLAG Material Adverse Effect. No FLAG
Entity has provided, or is required to provide, security to a FLAG Pension Plan
or to any single-employer plan of an ERISA Affiliate pursuant to Section 40 1
(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any FLAG Entity with respect to any ongoing, frozen or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a FLAG Material Adverse Effect. No FLAG
Entity has incurred any withdrawal Liability with respect to a multiemployer
plan under Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably likely to
have a FLAG Material Adverse Effect. No notice of a "reportable event," within
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any FLAG Pension Plan or
by any ERISA Affiliate within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 6.15 of the FLAG Disclosure Memorandum,
no FLAG Entity has any Liability for retiree health and life benefits under any
of the FLAG Benefit Plans and there are no restrictions on the rights of such
FLAG Entity to amend or terminate any such retiree health or benefit Plan
without incurring any Liability thereunder, which Liability is reasonably likely
to have a FLAG Material Adverse Effect.
(f) Except as disclosed in Section 6.15 of the FLAG Disclosure Memorandum,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, or otherwise) becoming
due to any director or any employee of any FLAG Entity from any FLAG Entity
under any FLAG Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any FLAG Benefit Plan, or (iii) result in any acceleration of the
time of payment or vesting of any such benefit, where such payment, increase, or
acceleration is reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect.
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(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any FLAG Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the FLAG Financial Statements to the extent
required by and in accordance with GAAP.
6.16 Material Contracts. Except as disclosed in Section 6.16 of the FLAG
Disclosure Memorandum or otherwise reflected in the FLAG Financial Statements,
none of the FLAG Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
FLAG Entity or the guarantee by any FLAG Entity of any such obligation (other
than Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances of
depository institution Subsidiaries, trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any FLAG Entity from engaging in any
business activities in any geographic area, line of business or otherwise in
competition with any other Person, (iv) any Contract between or among FLAG
Entities, (v) any Contract relating to the provision of data processing, network
communication, or other technical services to or by any FLAG Entity, (vi) any
exchange-traded or over-the-counter swap, forward, future, option, cap, floor,
or collar financial Contract, or any other interest rate or foreign currency
protection Contract not included on its balance sheet which is a financial
derivative Contract, or (vii) any other Contract or amendment thereto that would
be required to be filed as an exhibit to a Form 10-K filed by FLAG with the SEC
as of the date of this Agreement that has not been filed as an exhibit to FLAG's
Form 10-K filed for the fiscal year ended December 31, 1997, or in an SEC
Document and identified to Empire (together with all Contracts referred to in
Sections 6.10 and 6.15(a), the "FLAG Contracts"). With respect to each FLAG
Contract and except as disclosed in Section 6.16 of the FLAG Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) no FLAG Entity is
in Default thereunder, other than Defaults which are not reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect; (iii) no
FLAG Entity has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
FLAG, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a FLAG Material Adverse
Effect, or has repudiated or waived any material provision thereunder. All of
the indebtedness of any FLAG Entity for money borrowed is prepayable at any time
by such FLAG Entity without penalty or premium.
6.17 Legal Proceedings. There is no Litigation instituted or pending or, to
the Knowledge of FLAG, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any FLAG Entity, or against any director,
employee or employee benefit plan of any FLAG Entity, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
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arbitrators outstanding against any FLAG Entity, that are reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect. Section
6.17 of the FLAG Disclosure Memorandum contains a summary of all Litigation as
of the date of this Agreement to which any FLAG Entity is a party and which
names a FLAG Entity as a defendant or cross-defendant or for which any FLAG
Entity has any potential Liability.
6.18 Reports. Since January 1, 1993, each FLAG Entity has timely filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with Regulatory Authorities
(except, in the case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
6.19 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any FLAG Entity to EMPIRE pursuant
to this Agreement or any other document, agreement or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any FLAG Entity for inclusion in the
Registration Statement to be filed by FLAG with the SEC, will, when such
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the documents to be filed by any FLAG
Entity with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
any FLAG Entity thereof is responsible for filing with any Regulatory Authority
in connection with the transactions contemplated hereby will comply as to form
in all material respects with the provisions of applicable Law.
6.20 Accounting, Tax and Regulatory Matters. No FLAG Entity has taken or
agreed to take any action or has any knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying for pooling of
interests accounting treatment and as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.l(b)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
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6.21 Charter Provisions. Each FLAG Entity has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Charter, Articles of Incorporation,
Bylaws or other governing instruments of any FLAG Entity or restrict or impair
the ability of FLAG or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of any FLAG Entity that may
be directly or indirectly acquired or controlled by them.
6.22 Board Recommendations. The Board of Directors of FLAG, at a meeting
duly called and held, has by unanimous vote of those directors present (who
constituted all of the directors then in office) determined that this Agreement
and the transactions contemplated hereby, including the Merger, taken together,
are fair to and in the best interests of the FLAG shareholders.
6.23 Y-2K. Each FLAG Entity is in compliance with all policies and
directives issued by Regulatory Authorities with respect to preparedness for
year 2000 data processing and other operations. Section 6.23 of the FLAG
Disclosure Memorandum sets forth a summary of the steps taken by FLAG to ensure
such compliance. FLAG has entered into an agreement with Phoenix International
Ltd., Inc. ("Phoenix") to license the Phoenix Retail Banking System, and FLAG is
scheduled to convert each of the existing FLAG Entities, as well as the EMPIRE
Subsidiaries, to the Phoenix Retail Banking System prior to March 31, 1999.
Phoenix has represented to FLAG that the Phoenix Retail Banking System is year
2000 compliant.
ARTICLE 7.
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Affirmative Covenants of EMPIRE. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of FLAG shall have been obtained, and except as
otherwise expressly contemplated herein, EMPIRE shall, and shall cause each of
its Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of EMPIRE. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of FLAG shall have been obtained, and except as otherwise
expressly contemplated herein, EMPIRE covenants and agrees that it will not do
or agree or commit to do, or permit any of its Subsidiaries to do or agree or
commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any EMPIRE entity, or
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(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of an EMPIRE Entity to another EMPIRE Entity) in
excess of an aggregate of $100,000 (for EMPIRE Entities on a consolidated basis)
except in the ordinary course of the business of the EMPIRE Subsidiaries
consistent with past practices (which shall include, for the EMPIRE Subsidiaries
that are depository institutions, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home Loan Bank,
and entry into repurchase agreements fully secured by U.S. government or agency
securities), or impose, or suffer the imposition, on any Asset of any EMPIRE
Entity of any Lien or permit any such Lien to exist (other than in connection
with deposits, repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business, the satisfaction
of legal requirements in the exercise of trust powers, and Liens in effect as of
the date hereof that are disclosed in Section 7.2(b) of the EMPIRE Disclosure
Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any EMPIRE Entity, or declare or pay any dividend or make any
other distribution in respect of EMPIRE's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock options
outstanding as of the date hereof and pursuant to the terms thereof in existence
on the date hereof, or as disclosed in Section 7.2(d) of the EMPIRE Disclosure
Memorandum, issue, sell, pledge, encumber, authorize the issuance of, enter into
any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or
otherwise permit to become outstanding, any additional shares of EMPIRE Common
Stock or any other capital stock of any EMPIRE Entity, or any stock appreciation
rights, or any option, warrant, or other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any EMPIRE
Entity or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of EMPIRE Common Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber any Asset having a book value in
excess of $100,000 other than in the ordinary course of business for reasonable
and adequate consideration or any shares of capital stock of any EMPIRE
Subsidiary (unless any such shares of stock are sold or otherwise transferred to
another EMPIRE Entity); or
(f) except for loans made in the ordinary course of its business, make any
material investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other than a
wholly owned EMPIRE Subsidiary, or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the ordinary
course of business, (ii) acquisitions of control by a depository institution
Subsidiary in its fiduciary capacity, or (iii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities otherwise permitted by
this Agreement; or
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(g) grant any increase in compensation or benefits to the employees or
officers of any EMPIRE Entity, except in accordance with past practice
specifically disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum or
as required by Law; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of this
Agreement and disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum;
and enter into or amend any severance agreements with officers of any EMPIRE
Entity; grant any material increase in fees or other increases in compensation
or other benefits to directors of any EMPIRE Entity except in accordance with
past practice disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum;
or voluntarily accelerate the vesting of any stock options or other stock-based
compensation or employee benefits or other Equity Rights; or
(h) enter into or amend any employment Contract between any EMPIRE Entity
and any Person having a salary thereunder in excess of $50,000 per year (unless
such amendment is required by Law) that the EMPIRE Entity does not have the
unconditional right to terminate without Liability (other than Liability for
services already rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any EMPIRE Entity or terminate
or withdraw from, or make any material change in or to, any existing employee
benefit plans of any EMPIRE Entity other than any such change that is required
by Law or that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan, or make any distributions from such
employee benefit plans, except as required by Law, the terms of such plans or
consistent with past practice; or
(j) make any significant change in any Tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform to
changes in Tax Laws or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past practice or
except as set forth in Section 7.2(k) of the EMPIRE Disclosure Memorandum,
settle any Litigation involving any Liability of any EMPIRE Entity for material
money damages or restrictions upon the operations of any EMPIRE Entity; or
(l) except in the ordinary course of business, enter into, modify, amend or
terminate any material Contract (including any loan Contract with an unpaid
balance exceeding $50,000) or waive, release, compromise or assign any material
rights or claims.
7.3 Affirmative Covenants of FLAG. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of EMPIRE shall have been obtained, and except as
otherwise expressly contemplated herein, FLAG shall and shall cause each of its
Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
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Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.4 Negative Covenants of FLAG. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of EMPIRE shall have been obtained, and except as
otherwise expressly contemplated herein, FLAG covenants and agrees that it will
not amend the Articles of Incorporation or Bylaws of FLAG in any manner adverse
to the holders of EMPIRE Common Stock, or take any action which will materially
adversely impact the ability of FLAG Entities to consummate the transactions
contemplated by this Agreement.
7.5 Adverse Changes in Condition. Each of FLAG and EMPIRE agrees to give
written notice promptly to the other upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect or a FLAG Material Adverse Effect,
as applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.6 Reports. Each of FLAG and EMPIRE and their Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other copies
of all such periodic reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material). As
of their respective dates, such reports filed with the SEC will comply in all
material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in accordance with Laws applicable to such reports.
ARTICLE 8.
ADDITIONAL AGREEMENTS
---------------------
8.1 Registration Statement. As soon as practicable after execution of this
Agreement, FLAG shall prepare and file the Registration Statement with the SEC,
and shall use its reasonable efforts to cause the Registration Statement to
become effective under the 1933 Act and take any action required to be taken
under the applicable state Blue Sky or Securities Laws in connection with the
issuance of the shares of FLAG Common Stock upon consummation of the Merger.
EMPIRE shall cooperate in the preparation and filing of the Registration
Statement and shall furnish all information concerning it and the holders of its
capital stock as FLAG may reasonably request in connection with such action.
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FLAG and EMPIRE shall make all necessary filings with respect to the Merger
under the Securities Laws.
8.2 Nasdaq Listing. FLAG shall use its reasonable efforts to list, prior to
the Effective Time, on the Nasdaq National Market the shares of FLAG Common
Stock to be issued to the holders of EMPIRE Common Stock pursuant to the Merger,
and FLAG shall give all notices and make all filings with the NASD required in
connection with the transactions contemplated herein.
8.3 Shareholder Approval. EMPIRE shall call a Shareholders' Meeting, to be
held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as it deems appropriate. In connection
with the Shareholders' Meeting, the Board of Directors of EMPIRE shall recommend
to its shareholders, subject to the conditions in such authorization and
recommendation by the Board of Directors, the approval of the matters submitted
for approval (subject to the Board of Directors of EMPIRE, after having
consulted with and considered the advice of outside counsel, reasonably
determining in good faith that the making of such recommendation, or the failure
to withdraw or modify its recommendation, would constitute a breach of fiduciary
duties of the members of such Board of Directors to EMPIRE's shareholders, under
applicable law), and the Board of Directors and officers of EMPIRE shall use
their reasonable efforts to obtain such shareholders' approval (subject to the
Board of Directors of EMPIRE, after having consulted with and considered the
advice of outside counsel, reasonably determining in good faith that the taking
of such actions would constitute a breach of fiduciary duties of the members of
such Board of Directors to the EMPIRE shareholders, under applicable law).
8.4 Applications. FLAG shall promptly prepare and file, and EMPIRE shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement, including without limitation, the Board of
Governors of the Federal Reserve System and the Georgia Department of Banking
and Finance, seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
8.5 Filings and State Offices. Upon the terms and subject to the conditions
of this Agreement, FLAG shall cause to be filed the Certificate of Merger with
the Secretary of State of the State of Georgia.
8.6 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
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referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.7 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the Party
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby, and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of any other Party.
(b) Each Party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
Party concerning its and its Subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Each Party shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to such Party to preserve the
confidentiality of the information relating to such Party and its Subsidiaries
provided to such Persons and their Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have an EMPIRE Material Adverse Effect or a
FLAG Material Adverse Effect, as applicable.
8.8 Press Releases. Prior to the Effective Time, EMPIRE and FLAG shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.8
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.9 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no EMPIRE Entity nor any Representatives
thereof retained by any EMPIRE Entity shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent the Board of Directors
of EMPIRE, after having consulted with and considered the advice of outside
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counsel, reasonably determines in good faith that the failure to take such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to EMPIRE's shareholders, under applicable Law, no EMPIRE
Entity or Representative thereof shall furnish any non-public information that
it is not legally obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, but EMPIRE may
communicate information about such an Acquisition Proposal to its shareholders
if and to the extent that it is required to do so in order to comply with its
legal obligations. EMPIRE shall promptly advise FLAG following the receipt of
any Acquisition Proposal and the details thereof, and advise FLAG of any
developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof. EMPIRE shall (i) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the foregoing, and (ii) direct and
use its reasonable efforts to cause its Representatives not to engage in any of
the foregoing.
8.10 Accounting and Tax Treatment. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger to, and to take no
action which would cause the Merger not to, qualify for pooling of interests
accounting treatment and as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.11 Charter Provisions. Each Party shall take, and shall cause its
Subsidiaries to take, all necessary action to ensure that the entering into of
this Agreement and the consummation of the Merger and the other transactions
contemplated hereby do not and will not result in the grant of any rights to any
Person under the charter, articles of incorporation, bylaws or other governing
instruments of such Party or any of its Subsidiaries or restrict or impair the
ability of FLAG or any of its Subsidiaries to vote, or otherwise to exercise the
rights of a shareholder with respect to, shares of any EMPIRE Entity that may be
directly or indirectly acquired by them.
8.12 Agreements of Affiliates. EMPIRE has disclosed in Section 8.12 of the
EMPIRE Disclosure Memorandum each Person whom it reasonably believes is an
"affiliate" of EMPIRE for purposes of Rule 145 under the 1933 Act. EMPIRE shall
use its reasonable efforts to cause each such Person to deliver to FLAG not
later than 30 days after the date of this Agreement a written agreement,
substantially in the form of Exhibit 1, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of the EMPIRE Common
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of FLAG Common Stock to be received by such Person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder and until such time as financial results
covering at least 30 days of combined operations of FLAG and EMPIRE have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, except that transfers may be made in compliance
with Staff Accounting Bulletin No. 76 issued by the SEC. Except for transfers
made in compliance with Staff Accounting Bulletin No. 76, shares of FLAG Common
Stock issued to such affiliates of EMPIRE shall not be transferable until such
time as financial results covering at least 30 days of combined operations of
FLAG and EMPIRE have been published within the meaning of Section 201.01 of the
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SEC's Codification of Financial Reporting Policies, regardless of whether each
such affiliate has provided the written agreement referred to in this Section
8.12. FLAG shall be entitled to place restrictive legends upon certificates for
shares of FLAG Common Stock issued to affiliates of EMPIRE pursuant to this
Agreement to enforce the provisions of this Section 8.12. FLAG shall not be
required to maintain the effectiveness of the Registration Statement under the
1933 Act for the purposes of resale of FLAG Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective Time, FLAG
shall either (i) continue to provide to officers and employees of the EMPIRE
Entities employee benefits under EMPIRE's existing employee benefit and welfare
plans or, (ii) if FLAG shall determine to provide to officers and employees of
the EMPIRE Entities employee benefits under other employee benefit plans and
welfare plans, provide generally to officers and employees of the EMPIRE
Entities employee benefits under employee benefit and welfare plans, on terms
and conditions which when taken as a whole are substantially similar to those
currently provided by the FLAG Entities to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) under FLAG's employee benefit plans, (i) service under any qualified
defined benefit plan of EMPIRE shall be treated as service under FLAG's defined
benefit plan, if any, (ii) service under any qualified defined contribution
plans of EMPIRE shall be treated as service under FLAG's qualified defined
contribution plans, and (iii) service under any other employee benefit plans of
EMPIRE shall be treated as service under any similar employee benefit plans
maintained by FLAG. With respect to officers and employees of the EMPIRE
Entities who, at or after the Effective Time, become employees of a FLAG Entity
and who, immediately prior to the Effective Time, are participants in one or
more employee welfare benefit plans maintained by the EMPIRE Entities, FLAG
shall cause each comparable employee welfare benefit plan which is substituted
for an EMPIRE welfare benefit plan to waive any evidence of insurability or
similar provision, to provide credit for such participation prior to such
substitution with regard to the application of any pre-existing condition
limitation, and to provide credit towards satisfaction of any deductible or
out-of-pocket provisions for expenses incurred by such participants during the
period prior to such substitution, if any, that overlaps with the then current
plan year for each such substituted employee welfare benefit plans. FLAG also
shall cause the Surviving Bank and its Subsidiaries to honor in accordance with
their terms all employment, severance, consulting and other compensation
Contracts disclosed in Section 8.13 of the EMPIRE Disclosure Memorandum to FLAG
between any EMPIRE Entity and any current or former director, officer, or
employee thereof, and all provisions for vested benefits or other vested amounts
earned or accrued through the Effective Time under the EMPIRE Benefit Plans.
8.14 Indemnification.
(a) Subject to the conditions set forth in paragraph (b) below, for a
period of six years after the Effective Time, FLAG shall indemnify, defend and
hold harmless each person entitled to indemnification from an EMPIRE Entity
(each, an "Indemnified Party") against all Liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the fullest extent permitted
under Georgia Law and by EMPIRE's Articles of Incorporation and Bylaws as in
effect on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any Litigation. Without limiting the foregoing, in
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any case in which approval by FLAG is required to effectuate any
indemnification, FLAG shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between FLAG and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 8.14, upon learning of any such Liability or Litigation,
shall promptly notify FLAG thereof. In the event of any such Liability or
Litigation (whether arising before or after the Effective Time), (i) FLAG shall
have the right to assume the defense thereof (provided FLAG acknowledges
responsibility for such indemnification) and FLAG shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if FLAG elects not to assume such defense or
counsel for the Indemnified Parties advises that there are substantive issues
which raise conflicts of interest between FLAG and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and FLAG shall pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that FLAG shall be
obligated pursuant to this paragraph (b) to pay for only one firm of counsel for
all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such Litigation, and (iii) FLAG shall not be
liable for any settlement effected without its prior written consent; and
provided further that FLAG shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Shareholder Approval. The shareholders of EMPIRE shall have approved
this Agreement, and the consummation of the transactions contemplated hereby,
including the Merger, as and to the extent required by Law or by the provisions
of any governing instruments. The shareholders of FLAG shall have approved the
issuance of shares of FLAG Common Stock pursuant to the Merger, as and to the
extent required by Law, by the provisions of any governing instruments, or by
the rules of the NASD.
(b) Regulatory Approvals. All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for consummation of
the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
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(including requirements relating to the raising of additional capital or the
disposition of Assets) which in the reasonable judgment of the Board of
Directors of any Party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement that, had
such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(c) Consents and Approvals. Each Party shall have obtained any and all
Consents required for consummation of the Merger (other than those referred to
in Section 9.1 (b)) or for the preventing of any Default under any Contract or
Permit of such Party which, if not obtained or made, is reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect or a
FLAG Material Adverse Effect, as applicable. No Consent so obtained which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of any Party would so materially adversely impact the
economic or business benefits of the transactions contemplated by this Agreement
that, had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(d) Legal Proceedings. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, restricts, makes illegal or, in good faith,
inadvisable, the consummation of the transactions contemplated by this
Agreement.
(e) Registration Statement. The Registration Statement shall be effective
under the 1933 Act, and no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of FLAG Common Stock issuable pursuant to the Merger shall have been
received.
(f) Nasdaq Listing. The shares of FLAG Common Stock issuable pursuant to
the Merger shall have been approved for listing on the Nasdaq National Market.
(g) Tax Matters. Each Party shall have received a written opinion of
counsel from Powell, Goldstein, Frazer & Murphy LLP, in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, (ii) the exchange in the Merger of EMPIRE Common
Stock for FLAG Common Stock will not give rise to gain or loss to the
shareholders of EMPIRE with respect to such exchange (except to the extent of
any cash received), and (iii) neither EMPIRE nor FLAG will recognize gain or
loss as a consequence of the Merger (except for amounts resulting from any
required change in accounting methods and any income and deferred gain
recognized pursuant to Treasury regulations issued under Section 1502 of the
Internal Revenue Code). In rendering such Tax Opinion, such counsel shall be
entitled to rely upon representations of officers of EMPIRE and FLAG reasonably
satisfactory in form and substance to such counsel.
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(h) Employment Matters. Leonard H. Bateman, Rhonda R. Robbins, and Daniel
G. Morris shall have negotiated a mutually satisfactory employment relationship
with FLAG, and the agreements between each of Mr. Bateman, Ms. Robbins, and Mr.
Morris and EMPIRE concerning post termination payments subsequent to a change in
ownership shall have been terminated.
9.2 Conditions to Obligations of FLAG. The obligations of FLAG to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by FLAG pursuant to Section 11.6(a):
(a) Representations and Warranties. For purposes of this Section 9.2(a),
the accuracy of the representations and warranties of EMPIRE set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 5.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties set forth in Sections
5.20 and 5.21 shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of EMPIRE set forth
in this Agreement (including the representations and warranties set forth in
Sections 5.3, 5.20 and 5.21) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, an EMPIRE Material Adverse Effect;
provided that, for purposes of this sentence only, those representations and
warranties which are qualified by references to "material" or "Material Adverse
Effect" or to the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements
and covenants of EMPIRE to be performed and complied with pursuant to this
Agreement and the other agreements contemplated hereby prior to the Effective
Time shall have been duly performed and complied with in all material respects.
(c) Certificates. EMPIRE shall have delivered to FLAG (i) a certificate,
dated as of the Effective Time and signed on its behalf by its chief executive
officer and its secretary, to the effect that to the best of their Knowledge the
conditions set forth in Section 9.1 as relates to EMPIRE and in Section 9.2(a)
and 9.2(b) have been satisfied; provided, however, that the representations,
warranties and covenants to which such certificate relates shall not been deemed
to have survived the Closing, and (ii) certified copies of resolutions duly
adopted by EMPIRE's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as FLAG and its counsel shall
request.
(d) Opinion of Counsel. FLAG shall have received an opinion of Kilpatrick
Stockton L.L.P., counsel to EMPIRE, dated as of the Closing Date, in form
reasonably satisfactory to FLAG, as to the matters set forth in Exhibit 2.
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(e) Pooling Letters. FLAG shall have received an opinion of Porter Keadle
Moore, LLP, dated as of the date of filing of the Registration Statement with
the SEC and as of the Closing Date, addressed to FLAG and in form and substance
reasonably acceptable to FLAG, to the effect that the Merger, for accounting
purposes, shall qualify for treatment as a pooling of interests.
(f) Affiliates Agreements. FLAG shall have received from each affiliate of
EMPIRE the affiliates letter referred to in Section 8.12 and Exhibit 1.
(g) Claims Letters. Each of the directors and officers of EMPIRE shall have
executed and delivered to FLAG letters in substantially the form of Exhibit 3.
9.3 Conditions to Obligations of EMPIRE. The obligations of EMPIRE to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by EMPIRE pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section 9.3(a),
the accuracy of the representations and warranties of FLAG set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 6.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties of FLAG set forth in
Section 6.16 and 6.17 shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of FLAG set
forth in this Agreement (including the representations and warranties set forth
in Sections 6.3, 6.16 and 6.17) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a FLAG Material Adverse
Effect; provided that, for purposes of this sentence only, those representations
and warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements
and covenants of FLAG to be performed and complied with pursuant to this
Agreement and the other agreements contemplated hereby prior to the Effective
Time shall have been duly performed and complied with in all material respects.
(c) Certificates. FLAG shall have delivered to EMPIRE (i) a certificate,
dated as of the Closing Date and signed on its behalf by its chief executive
officer and its chief financial officer, to the effect that to the best of their
knowledge the conditions set forth in Section 9.1 as relates to FLAG and in
Section 9.3(a) and 9.3(b) have been satisfied, provided, however, that the
representations, warranties and covenants to which such certificate relates
shall not been deemed to have survived the Closing, and (ii) certified copies of
resolutions duty adopted by FLAG's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
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execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, all in such reasonable detail as EMPIRE
and its counsel shall request.
(d) Opinion of Counsel. EMPIRE shall have received an opinion of Powell,
Goldstein, Frazer & Murphy LLP, counsel to FLAG, dated as of the Closing Date,
in form reasonably acceptable to EMPIRE, as to the matters set forth in Exhibit
4.
ARTICLE 10.
TERMINATION
-----------
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
EMPIRE, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of FLAG and EMPIRE; or
(b) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written notice to
the breaching Party of such breach and which breach is reasonably likely, in the
opinion of the non-breaching Party, to have, individually or in the aggregate,
an EMPIRE Material Adverse Effect or a FLAG Material Adverse Effect, as
applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any covenant or agreement contained in this Agreement which cannot be
or has not been cured within 30 days after the giving of written notice to the
breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final non-appealable action of
such authority or if any action taken by such authority is not appealed within
the time limit for appeal, or (ii) the shareholders of EMPIRE fail to vote their
approval of the matters relating to this Agreement and the transactions
contemplated hereby at the Shareholders' Meeting where such matters were
presented to such shareholders for approval and voted upon; or
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(e) By either Party in the event that the Merger shall not have been
consummated by December 31, 1998, if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach of this
Agreement by the Party electing to terminate pursuant to this Section 10.1(e).
10.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 10.1, this Agreement shall become void and
have no effect, except that (i) the provisions of this Section 10.2 and Article
11 and Section 8.7(b) shall survive any such termination and abandonment, and
(ii) a termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(e) shall not
relieve the breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Section 8.10.
ARTICLE 11.
MISCELLANEOUS
-------------
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" with respect to a Party shall mean any tender offer
or exchange offer or any proposal for a merger, acquisition of all of the stock
or assets of, or other business combination involving the acquisition of such
Party or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any of its
Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits, the FLAG Disclosure Memorandum and the EMPIRE Disclosure Memorandum
delivered pursuant hereto and incorporated herein by reference.
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"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, or any Affiliate of such Person and wherever located.
"Certificate of Merger" shall mean the Certificate of Merger to be executed
by FLAG and EMPIRE and filed with the Secretary of State of the State of Georgia
relating to the Merger as contemplated by Section 1.1.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement (provided such oral
agreement is, in any one year period, in excess of $5,000 individually, or
$25,000 in the aggregate), arrangement, authorization, commitment, contract,
indenture, instrument, lease, obligation, plan, practice, restriction,
understanding, or undertaking of any kind or character, or other document to
which any Person is a party or that is binding on any Person or its capital
stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, after
failing to cure any such breach, violation, default, contravention or conflict
within any applicable grace or cure period (ii) any occurrence of any event that
with the passage of time or the giving of notice or both would constitute a
breach or violation of, default under, contravention of, or conflict with, any
Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with
or without the passage of time or the giving of notice would give rise to a
right of any Person to exercise any remedy or obtain any relief under, terminate
or revoke, suspend, cancel, or modify or change the current terms of, or
renegotiate, or to accelerate the maturity or performance of, or to increase or
impose any Liability under, any Contract, Law, Order, or Permit.
"EMPIRE Common Stock" shall mean the $1.00 par value common stock of
EMPIRE.
"EMPIRE Disclosure Memorandum" shall mean the written information entitled
"EMPIRE Disclosure Memorandum" delivered prior to execution of this Agreement to
FLAG describing in reasonable detail the matters contained therein and, with
respect to each disclosure made therein, specifically referencing each Section
of this Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be disclosed for
purposes of any other Section not specifically referenced with respect thereto,
unless it is clear from the disclosure of such information that it applies to
other Sections.
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"EMPIRE Entities" shall mean, collectively, EMPIRE and all EMPIRE
Subsidiaries.
"EMPIRE Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of EMPIRE as of June 30,
1998, and as of December 31, 1997 and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for the six months ended June 30, 1998, and for the Fiscal year ended
December 31, 1997, and (ii) the consolidated balance sheets of EMPIRE (including
related notes and schedules, if any) and related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) with respect to periods ended subsequent to June 30, 1998.
"EMPIRE Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business, or results of
operations of EMPIRE and its Subsidiaries, taken as a whole, or (ii) the ability
of EMPIRE to perform its obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this Agreement, provided that
an "EMPIRE Material Adverse Effect" shall not be deemed to include the impact of
(a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, and (c) actions and
omissions of EMPIRE (or any of its Subsidiaries) taken with the prior informed
written Consent of FLAG in contemplation of the transactions contemplated
hereby.
"EMPIRE Subsidiaries" shall mean the Subsidiaries of EMPIRE, which shall
include the EMPIRE Subsidiaries described in Section 5.4 and any corporation,
bank, savings association, or other organization acquired as a Subsidiary of
EMPIRE in the future and held as a Subsidiary by EMPIRE at the Effective Time.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and other federal, state and local agencies with jurisdiction
over, and including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation and
Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and
other Laws relating to emissions, migrations, discharges, releases, or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution use, treatment, storage, disposal,
generation, recycling, transport, or handling of any Hazardous Material.
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"Equity Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exhibits 1 through 4," inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"FLAG Capital Stock" shall mean, collectively, the FLAG Common Stock, the
FLAG Preferred Stock and any other class or series of capital stock of FLAG.
"FLAG Common Stock" shall mean the $1.00 par value common stock of FLAG.
"FLAG Disclosure Memorandum" shall mean the written information entitled
"FLAG Financial Corporation Disclosure Memorandum" delivered prior to execution
of this Agreement to EMPIRE describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto, unless it is clear from the
disclosure of such information that it applies to other Sections.
"FLAG Entities" shall mean, collectively, FLAG and all FLAG Subsidiaries.
"FLAG Financial Statements" shall mean (i) the consolidated balance sheets
(including related notes and schedules, if any) of FLAG as of June 30, 1998 and
as of December 31, 1997 and 1996, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for the six months ended June 30, 1998, and for each of the three fiscal
years ended December 31, 1997, 1996 and 1995, as filed by FLAG in SEC Documents,
and (ii) the consolidated balance sheets of FLAG (including related notes and
schedules, if any) and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) included
in SEC Documents filed with respect to periods ended subsequent to June 30,
1998.
"FLAG Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business, or results of
operations of FLAG and its Subsidiaries, taken as a whole, or (ii) the ability
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of FLAG Entities to perform their obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to savings associations, banks, and their holding
companies, and (c) actions and omissions of FLAG (or any of its Subsidiaries)
taken with the prior informed written Consent of EMPIRE in contemplation of the
transactions contemplated hereby.
"FLAG Preferred Stock" shall mean the shares of preferred stock of FLAG.
"FLAG Subsidiaries" shall mean the Subsidiaries of FLAG, which shall
include the FLAG Subsidiaries described in Section 6.4 and any corporation,
bank, savings association, or other organization acquired as a Subsidiary of
FLAG in the future and held as a Subsidiary by FLAG at the Effective Time.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
constituent, hazardous waste, solid waste, special waste, regulated substance,
or toxic substance (as those terms are listed, defined or regulated by any
applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants,
petroleum, petroleum products, or oil (and specifically shall include asbestos
requiring abatement. removal, or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, and licenses, computer
software (including any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, inventions, and other intellectual
property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a FLAG Entity (including references to
being aware of a particular matter) shall mean those facts that are known or
should reasonably have been known after due inquiry by the chairman, president,
chief financial officer, chief accounting officer, chief operating officer,
chief credit officer, general counsel, any assistant or deputy general counsel,
or any senior, executive or other vice president of such FLAG Entity.
"Knowledge" as used with respect to an EMPIRE Entity (including references to
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being aware of a particular matter) shall mean those facts that are actually
known (with no obligation of inquiry) by the president and chief executive
officer of such EMPIRE Entity.
"Law" shall mean any code, law (including common law), ordinance,
regulation, decision, judicial interpretation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets, Liabilities,
or business, including those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the ordinary course of the banking
business, and (iii) Liens which do not materially impair the use of or title to
the Assets subject to such Lien.
"Litigation" shall mean any action, arbitration, cause of action. claim,
complaint investigation hearing, criminal prosecution, governmental or other
examination or other administrative or other proceeding relating to or affecting
a Party, its business. its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement. but shall not include regular.
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq National Market" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"Operating Property" shall mean any property owned, leased, or operated by
the Party in question or by any of its Subsidiaries and, where required by the
context, includes the owner or operator of such property, but only with respect
to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency, or Regulatory Authority.
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"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management and,
where required by the context, said term means the owner or operator of such
facility or property, but only with respect to such facility or property.
"Party" shall mean either EMPIRE or FLAG, and "Parties" shall mean EMPIRE
and FLAG.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets, or
business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by FLAG under the 1933 Act
with respect to the shares of FLAG Common Stock to be issued to the shareholders
of EMPIRE in connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the SEC, the NASD, the
Federal Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the Office of Thrift Supervision
(including its predecessor, the Federal Home Loan Bank Board), the Federal
Deposit Insurance Corporation, the Georgia Department of Banking and Finance,
and all other federal, state, county, local or other governmental or regulatory
agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over the
Parties and their respective Subsidiaries.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a Person.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
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"Shareholders Meeting" shall mean the meeting of the shareholders of EMPIRE
to be held pursuant to Section 8. 3, including any adjournment or adjournments
thereof.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (provided, there
shall not be included any such entity the equity securities of which are owned
or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves
as a general partner, (iii) in the case of a limited liability company, serves
as a managing member, or (iv) otherwise has the ability to elect a majority of
the directors, trustees or managing members thereof.
"Surviving Corporation" shall mean FLAG as the surviving corporation
resulting from the Merger.
"Tax Return" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group that
includes a Party or its Subsidiaries.
"Tax" or Taxes" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, county, local or foreign government or
subdivision or agency thereof, including any interest, penalties, and additions
imposed thereon or with respect thereto.
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(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
Allowance Section 5.9
Certificates Section 4.1
Closing Section 1.2
Effective Time Section 1.3
EMPIRE Benefit Plans Section 5.15(a)
EMPIRE Contracts Section 5.16
EMPIRE ERISA Plan Section 5.15(a)
EMPIRE Pension Plan Section 5.15(a)
ERISA Affiliate Section 5.15(c)
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(b)
FLAG Benefit Plans Section 6.15(a)
FLAG ERISA Plan Section 6.15(a)
FLAG Pension Plan Section 6.15(a)
FLAG SEC Reports Section 6.5(a)
Indemnified Party Section 8.14(a)
Merger Section 1.1
Tax Opinion Section 9.1(g)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each Party shall
bear and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
(b) If this Agreement is terminated by FLAG pursuant to Sections 10.1(b),
(c) or (d)(ii), EMPIRE shall pay to FLAG an amount equal to the lesser of
$100,000 or FLAG's actual out of pocket expenses incurred in connection with the
transactions contemplated by this Agreement.
(c) If this Agreement is terminated by EMPIRE pursuant to Sections 10.1(b)
or (c), FLAG shall pay to EMPIRE an amount equal to the lesser of $100,000 or
EMPIRE's actual out of pocket expenses incurred in connection with the
transactions contemplated by this Agreement.
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(d) Nothing contained in this Section 11.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
11.3 Brokers and Finders. Except as disclosed in Section 11.3 of the FLAG
Disclosure Memorandum, and except as disclosed in Section 11.3 of the Empire
Disclosure Memorandum, each of the Parties represents and warrants that neither
it nor any of its officers, directors, employees, or Affiliates has employed any
broker or finder or incurred any Liability for any financial advisory fees,
investment bankers' fees, brokerage fees, commissions, or finders' fees in
connection with this Agreement or the transactions contemplated hereby. In the
event of a claim by any broker or finder based upon his or its representing or
being retained by or allegedly representing or being retained by EMPIRE or by
FLAG, each of EMPIRE and FLAG, as the case may be, agrees to indemnify and hold
the other Party harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of EMPIRE Common Stock, there shall be made no amendment that, pursuant
to the GBCC, requires further approval by such shareholders without the further
approval of such shareholders; and further provided, that after any such
approval by the holders of FLAG Common Stock, the provisions of this Agreement
relating to the manner or basis in which shares of EMPIRE Common Stock will be
exchanged for shares of FLAG Common Stock shall not be amended after the
Shareholders' Meeting in a manner adverse to the holders of FLAG Common Stock
without any requisite approval of the holders of the issued and outstanding
shares of FLAG Common Stock entitled to vote thereon.
11.6 Waivers.
(a) Prior to or at the Effective Time, FLAG, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
EMPIRE, to waive or extend the time for the compliance or fulfillment by EMPIRE
of any and all of its obligations under this Agreement, and to waive any or all
of the conditions precedent to the obligations of FLAG under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of FLAG.
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(b) Prior to or at the Effective Time, EMPIRE, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
FLAG, to waive or extend the time for the compliance or fulfillment by FLAG, of
any and all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of EMPIRE under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of EMPIRE.
(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
EMPIRE: Empire Bank Corp.
115 E. Dame Avenue
Homerville, GA 31634-1934
Telecopy Number: (912) 487-2471
Attention: Leonard H. Bateman
Copy to Counsel: Kilpatrick Stockton LLP
Suite 2800
1100 Peachtree Street
Atlanta, GA 30309-4530
Telecopy Number: (404) 815-6555
Attention: Richard R. Cheatham, Esq.
FLAG: FLAG Financial Corporation
101 North Greenwood St.
LaGrange, GA 30240
Telecopy Number: (706) 845-5155
Attention: J. Daniel Speight, Jr.
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<PAGE>
Copy to Counsel: Powell Goldstein Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, GA 30303
Telecopy Number: (404) 572-5958
Attention: Walter G. Moeling IV, Esq.
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions, Articles and Sections. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
[SIGNATURES APPEAR ON NEXT PAGE]
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[SIGNATURES TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
FLAG FINANCIAL CORPORATION
By: /s/ J. Daniel Speight, Jr.
-----------------------------------
J. Daniel Speight, Jr.
President & Chief Executive Officer
EMPIRE BANK CORP.
By: /s/ Leonard H. Bateman
-------------------------------------
Leonard H. Bateman
President and Chief Executive Officer
55
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Exhibit 1
AFFILIATE AGREEMENT
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
Attention: J. Daniel Speight, Jr., President and Chief Executive Officer
Gentlemen:
The undersigned is a shareholder of Empire Bank Corp. ("EMPIRE"), a Georgia
Corporation, and will become a shareholder of FLAG Financial Corporation
("FLAG"), a Georgia corporation, pursuant to the transactions described in the
Agreement and Plan of Merger, dated as of July 30, 1998 (the "Agreement"), by
and between FLAG, and EMPIRE. Under the terms of the Agreement, EMPIRE will be
merged with and into FLAG (the "Merger"), and the shares of the $10.00 par value
common stock of EMPIRE ("EMPIRE Common Stock") will be converted into and
exchanged for shares of the $1.00 par value common stock of FLAG ("FLAG Common
Stock"). This Affiliate Agreement represents an agreement between the
undersigned and FLAG regarding certain rights and obligations of the undersigned
in connection with the shares of FLAG to be received by the undersigned as a
result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and FLAG hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
EMPIRE he is an "affiliate" under Rule 145(c) as defined in Rule 405 of the
Rules and Regulations of the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended ("1933 Act"), and the undersigned
anticipates that he will be such an "affiliate" at the time of the Merger.
2. Initial Restrictions on Disposition. The undersigned agrees that he will
not sell, transfer or otherwise dispose of his interests in, or reduce his risk
relative to, any of the shares of FLAG Common Stock into which his shares of
EMPIRE Common Stock are converted upon consummation of the Merger until such
time as FLAG notifies the undersigned that the requirements of SEC Accounting
Series Release Nos. 130 and 135 ("ASR 130 and 135") have been met except that
transfers may be made in compliance with Staff Accounting Bulletin No. 76 issued
by the SEC. The undersigned understands that ASR 130 and 135 relate to
publication of financial results of post-Merger combined operations of FLAG and
EMPIRE. FLAG agrees that it will publish such results within 45 days after the
end of the first fiscal quarter of FLAG containing the required period of
post-Merger combined operations and that it will notify the undersigned promptly
following such publication.
<PAGE>
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) At any meeting of shareholders of EMPIRE called to vote upon the Merger
and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval with respect to the
Merger and the Merger Agreement is sought (the "Shareholders' Meeting"), the
undersigned shall, to the extent that the Shareholder has the power, vote (or
cause to be voted) the Shareholder's Shares in favor of the Merger, the
execution and delivery by EMPIRE of the Merger Agreement, and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement, provided that the terms of the Merger Agreement shall not have been
amended to reduce the consideration payable in the Merger to a lesser amount of
FLAG Common Stock or otherwise to materially and adversely impair the
Shareholder's rights or increase the Shareholder's obligations thereunder. The
undersigned hereby waives any rights of appraisal, or rights to dissent from the
Merger, that the undersigned may have.
(b) The FLAG Common Stock received by the undersigned as a result of the
Merger will be taken for his own account and not for others, directly or
indirectly, in whole or in part.
(c) FLAG has informed the undersigned that any distribution by the
undersigned of FLAG Common Stock has not been registered under the 1933 Act and
that shares of FLAG Common Stock received pursuant to the Merger can only be
sold by the undersigned (1) following registration under the 1933 Act, or (2) in
conformity with the volume and other requirements of Rule 145(d) promulgated by
the SEC as the same now exist or may hereafter be amended, or (3) to the extent
some other exemption from registration under the 1933 Act might be available.
The undersigned understands that FLAG is under no obligation to file a
registration statement with the SEC covering the disposition of the
undersigned's shares of FLAG Common Stock or to take any other action necessary
to make compliance with an exemption from such registration available.
(d) The undersigned will, and will cause each of the other parties whose
shares are deemed to be beneficially owned by the undersigned pursuant to
Section 9 hereof, have all shares of EMPIRE Common Stock beneficially owned by
the undersigned registered in the name of the undersigned or such parties, as
applicable, prior to the effective date of the Merger and not in the name of any
bank, broker-dealer, nominee or clearinghouse.
(e) During the thirty (30) days immediately preceding the Effective Time of
the Merger, the undersigned has not sold, transferred, or otherwise disposed of
his interests in, or reduced his risk relative to, any of the shares of EMPIRE
Common Stock beneficially owned by the undersigned as of the record date for
determination of shareholders entitled to vote at the Shareholders' Meeting of
EMPIRE held to approve the Merger.
(f) The undersigned is aware that FLAG intends to treat the Merger as a
tax-free reorganization under Section 368 of the Code for federal income tax
purposes. The undersigned agrees to treat the transaction in the same manner as
FLAG for federal income tax purposes.
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<PAGE>
4. Restrictions on Transfer. The undersigned understands and agrees that
stop-transfer instructions with respect to the shares of FLAG Common Stock
received by the undersigned pursuant to the Merger will be given to FLAG's
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and may
not be sold, nor may the owner thereof reduce his risks relative thereto in any
way, until such time as FLAG Financial Corporation ("FLAG") has published the
financial results covering at least 30 days of combined operations after the
effective date of the merger through which the business combination was
effected. In addition, the shares represented by this certificate may not be
sold, transferred or otherwise disposed of except or unless (1) covered by an
effective registration statement under the Securities Act of 1933, as amended,
(2) in accordance with (i) Rule 145(d) (in the case of shares issued to an
individual who is an affiliate of FLAG) of the Rules and Regulations of such
Act, or (3) in accordance with a legal opinion satisfactory to counsel for FLAG
that such sale or transfer is otherwise exempt from the registration
requirements of such Act.
Such legend will also be placed on any certificate representing FLAG
securities issued subsequent to the original issuance of FLAG Common Stock
pursuant to the Merger as a result of any transfer of such shares or any stock
dividend, stock split, or other recapitalization as long as the FLAG Common
Stock issued to the undersigned pursuant to the Merger has not been transferred
in such manner as to justify the removal of the legend therefrom. Upon the
request of the undersigned, FLAG shall cause the certificates representing the
shares of FLAG Common Stock issued to the undersigned in connection with the
Merger to be reissued free of any legend relating to restrictions on transfer by
virtue of ASR 130 and 135 as soon as practicable after the requirements of ASR
130 and 135 have been met. In addition, if the provisions of Rules 144 and 145
are amended to eliminate restrictions applicable to the FLAG Common Stock
received by the undersigned pursuant to the Merger, or at the expiration of the
restrictive period set forth in Rule 145(d), FLAG, upon the request of the
undersigned, will cause the certificates representing the shares of FLAG Common
Stock issued to the undersigned in connection with the Merger to be reissued
free of any legend relating to the restrictions set forth in Rules 144 and
145(d) upon receipt by FLAG of an opinion of its counsel to the effect that such
legend may be removed.
5. Understanding of Restrictions on Disposition. The undersigned has
carefully read the Agreement and this Affiliate Agreement and has discussed
their requirements and impact upon his ability to sell, transfer or otherwise
dispose of the shares of FLAG Common Stock received by the undersigned, to the
extent he believes necessary, with his counsel or counsel for EMPIRE.
6. Filing of Reports by FLAG. FLAG agrees, for a period of three years
after the effective date of the Merger, to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended, so that the public information provisions of Rule 145(d)
promulgated by the SEC as the same are presently in effect will be available to
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<PAGE>
the undersigned in the event the undersigned desires to transfer any shares of
FLAG Common Stock issued to the undersigned pursuant to the Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of FLAG Common Stock received by him in connection
with the Merger at any time during the restrictive period set forth in Rule
145(d), the undersigned will provide the necessary representation letter to the
transfer agent for FLAG Common Stock, together with such additional information
as the transfer agent may reasonably request. If FLAG's counsel concludes that
such proposed sale or transfer complies with the requirements of Rule 145(d),
FLAG shall cause such counsel to provide such opinions as may be necessary to
FLAG's transfer agent so that the undersigned may complete the proposed sale or
transfer.
8. Certain Actions. The undersigned covenants and agrees with FLAG that,
for a period of two (2) years after the effective time of the Merger, the
undersigned shall not, without the prior written consent of FLAG, directly or
indirectly serve as a consultant to, serve as a management official of, or be or
become a major shareholder of any financial institution having an office in
Clinch, Ware and Pierce Counties, Georgia. It is expressly understood that the
covenants contained in this paragraph 8 do not apply to (i) "management
official" positions which the undersigned holds with financial institutions
(other than FLAG, EMPIRE, and their subsidiaries) as of the date of this
Agreement, (ii) securities holdings which cause the undersigned to be deemed a
major shareholder of a financial institution (other than FLAG, EMPIRE, and their
subsidiaries) as of the date of this Agreement, or (iii) advisory relationships
with a financial institution which the undersigned has as of the date of this
Agreement or may have after the date hereof solely in the capacity as legal
counsel. For the purposes of the covenants contained in this paragraph 8, the
following terms shall have the following respective meanings:
(a) The term "management official" shall refer to service of any type which
gives the undersigned the authority to participate, directly or indirectly, in
policy-making functions of the financial institution. This includes, but is not
limited to, service as an organizer, officer, director, or advisory director of
the financial institution. It is expressly understood that the undersigned may
be deemed a management official of the financial institution whether or not he
holds any official, elected, or appointed position with such financial
institution.
(b) The term "financial institution" shall refer to any bank, bank holding
company, savings and loan association, savings and loan holding company,
banking-related company, or any other similar financial institution which
engages in the business of accepting deposits or making loans or which owns or
controls a company which engages in the business of accepting deposits or making
loans. It is expressly understood that the term "financial institution" shall
include any financial institution as defined herein that, after the date of this
Agreement, makes application for an appropriate federal or state regulatory
authority for approval to organize.
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(c) The term "major shareholder" shall refer to the beneficial ownership of
five percent (5%) or more of any class of voting securities or the ownership of
five percent (5%) of the total equity interest in such company, however
denominated.
The provisions of this paragraph 8 shall be of no further force and effect
if the undersigned is not offered employment as a director of FLAG or any of its
subsidiaries (to include the subsidiaries of EMPIRE acquired at the Effective
Time of the Merger) at the Effective Time of the Merger or, if the undersigned
is so employed, the undersigned's employment is terminated by FLAG after the
Effective Time of the Merger.
9. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of EMPIRE and
FLAG that are deemed to be beneficially owned by the undersigned pursuant to
applicable federal securities laws, which the undersigned agrees may include,
without limitation, shares owned or held in the name of (i) the undersigned's
spouse, (ii) any relative of the undersigned or of the undersigned's spouse who
has the same home as the undersigned, (iii) any trust or estate in which the
undersigned, the undersigned's spouse and any such relative collectively own at
least a ten-percent (10%) beneficial interest or of which any of the foregoing
serves as trustee, executor, or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least ten-percent (10%) of any
class of equity securities or of the equity interest. The undersigned further
recognizes that, in the event that the undersigned is a director or officer of
FLAG or becomes a director or officer of FLAG upon consummation of the Merger,
among other things, any sale of FLAG Common Stock by the undersigned within a
period of less than six (6) months following the Effective Time of the Merger
may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
10. Miscellaneous. This Affiliate Agreement is the complete agreement
between FLAG and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
SIGNATURES CONTAINED ON NEXT PAGE
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<PAGE>
This Affiliate Agreement is executed as of the _________ day of
________________, 1998.
Very truly yours,
__________________________________________
Signature
__________________________________________
Print Name
Address:__________________________________
__________________________________________
__________________________________________
[add below the signatures of all registered
owners of shares deemed beneficially owned
by the affiliate]
__________________________________________
Name
__________________________________________
Name
__________________________________________
Name
AGREED TO AND ACCEPTED as of
the _______ day of _____________________, 1998.
FLAG FINANCIAL CORPORATION
By: ____________________________________
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Exhibit 2
MATTERS AS TO WHICH KILPATRICK STOCKTON, LLP WILL OPINE
1. Empire Bank Corp. ("EMPIRE") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia with full
corporate power and authority to carry on the business in which it is engaged,
and to own and use its Assets.
2. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of EMPIRE or, to our knowledge but without any
independent investigation, result in any conflict with, breach of, or default or
acceleration under any Contract disclosed in the Agreement, Law, Order or Permit
(subject to the approval of Regulatory Authorities) to which EMPIRE is a party
or by which EMPIRE is bound.
3. The Agreement has been duly and validly executed and delivered by EMPIRE
and, assuming valid authorization, execution and delivery by FLAG, constitutes a
valid and binding agreement of EMPIRE enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; provided,
however, that we express no opinion as to the availability of the equitable
remedy of specific performance.
4. The authorized capital stock of EMPIRE consists of 1,000,000 shares of
the EMPIRE Common Stock, of which 26,450 shares were issued and outstanding as
of _______________________, 1998. The shares of the EMPIRE Common Stock that are
issued and outstanding were not issued in violation of any statutory preemptive
rights of shareholders, were duly issued, and are fully paid and nonassessable
under the GBCC. To our knowledge, except as set forth above, or as disclosed in
Section 5.3 of the EMPIRE Disclosure Memorandum, as of ______________, 1998,
there were no shares of capital stock or other equity securities of EMPIRE
outstanding and no outstanding Equity Rights relating to the capital stock of
EMPIRE.
<PAGE>
Exhibit 3
____________________, 1998
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
RE: Empire Bank Corp. ("EMPIRE")
Homerville, Georgia
Ladies and Gentlemen:
This letter is delivered pursuant to Section 9.2(g) of the Agreement and
Plan of Merger, dated as of July 30, 1998, by and between FLAG Financial
Corporation and EMPIRE.
In my capacity as an officer or a director of EMPIRE, and as of the date of
this letter, I do not, to the best of my knowledge, have any claims, and I am
not aware of any facts or circumstances that I believe are likely to give rise
to any claim, for indemnification under EMPIRE's Articles of Incorporation or
Bylaws as existing on the date hereof or as may be afforded by the laws of the
State of Georgia or the United States.
Very truly yours,
______________________________________
Signature of Officer or Director
______________________________________
Name of Officer or Director
______________________________________
Position at EMPIRE
<PAGE>
Exhibit 4
MATTERS AS TO WHICH POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
WILL OPINE
1. FLAG Financial Corporation ("FLAG") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia
with full corporate power and authority to carry on the business in which it is
engaged, and to own and use its Assets.
2. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of FLAG or, to our knowledge but without any independent
investigation, result in any conflict with, breach of, or default under any
Contract disclosed in the Agreement, Law, Order or Permit (subject to the
approval of Regulatory Authorities) to which FLAG is a party or by which FLAG is
bound.
3. The Agreement has been duly and validly executed and delivered by FLAG,
and assuming valid authorization, execution and delivery by Empire Bank Corp.,
constitutes a valid and binding agreement of FLAG enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting creditors' rights generally, provided,
however, that we express no opinion as to the availability of the equitable
remedy of specific performance.
4. The authorized capital stock of FLAG consists of 20,000,000 shares of
FLAG Common Stock, of which 5,174,807 shares are issued and outstanding as of
____________ 1998, and (ii) 10,000,000 shares of FLAG Preferred Stock, of which
no shares are issued and outstanding as of _____________________ 1998. The
shares of FLAG Common Stock that are issued and outstanding were not issued in
violation of any statutory preemptive rights of shareholders, were duly issued
and are fully paid and nonassessable under the Georgia Business Corporation
Code. To our knowledge, except as set forth above, or as disclosed in Section
6.3 of the FLAG Disclosure Memorandum, as of _________________________, 1998,
there were no shares of capital stock or other equity securities of FLAG
outstanding and no outstanding Equity Rights relating to the capital stock of
FLAG. The shares of FLAG Common Stock to be issued to the shareholders of Empire
Bank Corp. as contemplated by the Agreement have been registered under the
Securities Act of 1933, as amended, and when properly issued and delivered
following consummation of the Merger will be fully paid and non-assessable under
the Georgia Business Corporation Code.
<PAGE>
APPENDIX B
SUBTITLE 13. DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
GEORGIA FINANCIAL INSTITUTIONS CODE
SECTION 7-1-537
RIGHT OF SHAREHOLDER TO DISSENT
AND
GEORGIA BUSINESS CORPORATION CODE
ARTICLE 13
DISSENTERS' RIGHTS
7-1-537. Right of shareholder to dissent.
(a) A shareholder of a bank or trust company which is a party to a plan
of proposed merger or consolidation under this part who objects to the plan
shall be entitled to the rights and remedies of a dissenting shareholder as
determined under Chapter 2 of Title 14, known as the "Georgia Business
Corporation Code."
[Part (b) omitted.]
14-2-1302. Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his or her shares in the event of,
any of the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party:
(A) If approval of the shareholders of the
corporation is required for the merger by Code Section
14-2-1103 or the articles of incorporation and the shareholder
is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged
with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
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(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholder within one
year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(D) Excludes or limits the rights of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Code Section
14-2-604; or
(F) Cancels, redeems, or repurchases all or part of
the shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this article may not challenge the corporate action creating his or
her entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be
no right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
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exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan of
merger or share exchange to accept for their shares anything except
shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share exchange
are either listed on a national securities exchange or held of record
by more than 2000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his or her name only if dissents with respect to all
shares beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which dissents and his or her
other shares were registered in the names of different shareholders.
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322.
14-2-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his or her intent to demand payment for his or her
shares if the proposed action is effectuated; and
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(2) Must not vote his or her shares in favor of the proposed
action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his or her
shares under this article.
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the notice required in subsection (a) of this Code
section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his or her certificates in
accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his or her
shares under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his or
her share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this article.
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14-2-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with Code Section 14-2-1323 the amount the corporation estimates to be the fair
value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand
payment under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer, payment
for his or her shares shall be made within 60 days after the making of the offer
or the taking of the proposed corporate action, whichever is later.
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14-2-1326. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1422 and repeat the payment demand
procedure.
14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate of the fair value of his or her shares and
interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code section unless he notifies the corporation of his or her demand in writing
under subsection (a) of this Code section within 30 days after the corporation
made or offered payment for his or her shares.
(c) If the corporation does not offer payment within the time set forth
in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the
limitations period of Code Section 14-2-1332, notify the corporation of
his or her own estimate of the fair value of his or her shares and the
amount of interest due and demand payment of his or her estimate of the
fair value of his or her shares and interest due.
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14-2-1330. Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail and publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of the Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his or her
shares, plus interest to the date of judgment.
14-2-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
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(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Code Sections 14-2-1320 through
14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
14-2-1332. Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be
brought more than three years after the corporate action was taken, regardless
of whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
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APPENDIX C
OPINION OF THE CARSON MEDLIN COMPANY
<PAGE>
July 30, 1998
Board of Directors
Empire Bank Corp.
P.O. Box 375
Homerville, Georgia 31631
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of Empire Bank
Corp. ("Empire") under the terms of a certain Agreement and Plan of Merger dated
July 30, 1998 (the "Agreement") pursuant to which Empire shall be merged with
and into FLAG Financial Corporation, LaGrange, Georgia ("FLAG") (the "Merger").
Under the terms of the Agreement, each of the outstanding shares of Empire
Common Stock shall be converted into and exchanged for the right to receive 42.5
shares of FLAG Common Stock. The foregoing summary of the Merger is qualified in
its entirety by reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in the Southeast and the major commercial banks
operating in that market. We have been retained by Empire in a financial
advisory capacity to render our opinion hereunder, for which we will receive
compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of FLAG and Empire. We have reviewed: (i) the
Agreement; (ii) the annual reports to shareholders of FLAG, including audited
financial statements for the five years ended December 31, 1997; (iii) audited
financial statements of Empire for the five years ended December 31, 1997; (iv)
the unaudited interim and proforma financial statements of FLAG for the five
months ended May 31, 1998; (v) the unaudited interim financial statements of
Empire for the five months ended May 31, 1998; and (vi) certain financial and
operating information with respect to the business, operations and prospects of
FLAG and Empire. We also: (i) held discussions with members of the senior
management of FLAG and Empire regarding historical and current business
operations, financial condition and future prospects of their respective
companies; (ii) reviewed the historical market prices and trading activity for
the common stocks of FLAG and Empire and compared them with those of certain
publicly traded companies which we deemed to be relevant; (iii) compared the
results of operations of FLAG and Empire with those of certain banking companies
which we deemed to be relevant; (iv) compared the proposed financial terms of
the Merger with the financial terms, to the extent publicly available, of
certain other recent business combinations of commercial banking organizations;
(v) analyzed the pro forma financial impact of the Merger on FLAG; and (vi)
conducted such other studies, analyses, inquiries and examinations as we deemed
appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of FLAG or
Empire. The opinion we express herein is necessarily based upon market, economic
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and other relevant considerations as they exist and can be evaluated as of the
date of this letter.
Based upon the foregoing, it is our opinion that the consideration provided for
in the Agreement is fair, from a financial point of view, to the shareholders of
Empire Bank Corp.
Very truly yours,
THE CARSON MEDLIN COMPANY
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FLAG FINANCIAL CORPORATION
101 North Greenwood Street
LaGrange, Georgia 30240
To the Shareholders of November __, 1998
FLAG Financial Corporation
You are cordially invited to attend a Special Meeting of the
Shareholders (the "Special Meeting") of FLAG Financial Corporation ("FLAG") to
be held at the main office of First Federal Savings Bank of LaGrange, located at
101 North Greenwood Street, LaGrange, Georgia 30240, on _________,
_______________, 1998, at 8:00 a.m., local time, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote to
approve the issuance of shares of FLAG common stock pursuant to the Agreement
and Plan of Merger, dated as of July 30, 1998 (the "Merger Agreement"), by and
between FLAG Financial Corporation and Empire Bank Corp. ("Empire") pursuant to
which Empire will merge with and into FLAG (the "Merger"). Upon consummation of
the Merger, each share of Empire common stock issued and outstanding at the
effective time of the Merger (except for certain shares held by Empire or FLAG,
or their respective subsidiaries, in each case other than shares held in a
fiduciary capacity or in satisfaction of debts previously contracted, and
excluding shares held by Empire shareholders who perfect their dissenters'
rights) will be exchanged for 42.5 shares of FLAG common stock, with cash being
paid in lieu of issuing fractional shares.
Enclosed are the Notice of Meeting, Proxy Statement and Proxy, FLAG's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and FLAG's
Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended December
31, 1997. The Proxy Statement includes a description of the proposed Merger and
provides other specific information concerning the Special Meeting. Please read
these materials carefully and consider thoughtfully the information set forth in
them.
The Merger Agreement has been approved by your Board of Directors and
the issuance of shares of FLAG Common Stock pursuant to the Merger Agreement is
recommended by the Board to you for approval. Your Board believes that, among
other benefits, the Merger will result in a company with greater financial
strength and increased opportunity and flexibility for profitable expansion and
diversification. Consummation of the Merger is subject to certain conditions,
including approval of the Merger Agreement and the transactions contemplated
therein by Empire shareholders and approval of the Merger by various regulatory
agencies. Empire shareholders approved the Merger on September 29, 1998.
To hold a vote on any proposal, a quorum must be assembled, which is a
majority of the votes entitled to be cast by the holders of the outstanding
shares of FLAG common stock. In determining whether a quorum exists at the
Special Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, will be counted. It is important to
understand that approval of the issuance of shares of FLAG common stock pursuant
to the Merger Agreement will require that the number of votes cast in favor of
the action exceed the number of votes cast opposing the action at a meeting in
which a quorum exists. Accordingly, whether or not you plan to attend the
Special Meeting, you are urged to complete, sign, and promptly return the
enclosed proxy card. If you attend the Special Meeting, you may vote in person
if you wish, even if you previously have returned your proxy card. The proposed
Merger with Empire is a significant step for FLAG shareholders and your vote on
this matter is of great importance.
On behalf of the board of directors, I urge you to vote FOR approval of
the issuance of shares of FLAG Common Stock pursuant to Merger Agreement by
marking the enclosed proxy card "FOR" item one.
Sincerely,
J. Daniel Speight, Jr.
President and Chief Executive Officer
<PAGE>
FLAG FINANCIAL CORPORATION
101 North Greenwood Street
LaGrange, Georgia 30240
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______________, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Special Meeting") of FLAG Financial Corporation will be held at the main office
of First Federal Savings Bank of LaGrange, located at 101 North Greenwood
Street, LaGrange, Georgia 30240, on ___________, _______________, 1998, at 8:00
a.m., local time, for the following purposes:
1. Merger. To consider and vote upon a proposal to approve the issuance
of FLAG Common Stock pursuant to an Agreement and Plan of Merger, dated as of
July 30, 1998 (the "Merger Agreement"), by and between Empire and FLAG Financial
Corporation ("FLAG"), pursuant to which, among other matters, Empire will merge
with and into FLAG (the "Merger"). Each share of Empire common stock issued and
outstanding at the effective time of the Merger will be converted into the right
to receive 42.5 shares of FLAG common stock, as more fully described in the
accompanying Proxy Statement. A copy of the Merger Agreement is set forth as
Appendix A to the accompanying Proxy Statement.
2. Other Business. To transact such other business as may come properly
before the Special Meeting.
Only shareholders of record at the close of business on _____________,
1998, will be entitled to receive notice of and to vote at the Special Meeting
or any adjournment or postponement thereof. To hold a vote on any proposal, a
quorum must be assembled, which is a majority of the votes entitled to be cast
by the holders of the outstanding shares of FLAG common stock. In determining
whether a quorum exists at the Special Meeting for purposes of all matters to be
voted on, all votes "for" or "against," as well as all abstentions, will be
counted. Approval of the proposal to approve the issuance of FLAG common stock
pursuant to the Merger Agreement and the transactions contemplated therein
requires that the number of votes cast in favor of the action exceed the number
of votes cast opposing the action at a meeting in which a quorum exists.
The Board of Directors of FLAG recommends that shareholders vote FOR
approval of the issuance of FLAG Common Stock pursuant to the Merger Agreement.
BY ORDER OF THE BOARD OF DIRECTORS
J. Daniel Speight, Jr.
President and Chief Executive Officer
LaGrange, Georgia
____________, 1998
Whether or not you plan to attend the Special Meeting, please
complete, date, and sign the enclosed form of proxy and
promptly return it in the enclosed postage paid return
envelope in order to ensure that your shares will be
represented at the Special Meeting.
--------------------
<PAGE>
PROXY STATEMENT
FLAG FINANCIAL CORPORATION
Special Meeting Of Shareholders
To Be Held On _____________, 1998
This Proxy Statement of FLAG is being furnished to the shareholders of
FLAG in connection with the solicitation of proxies by the Board of Directors of
FLAG for use at its special meeting of shareholders to be held on _________,
____________, 1998 (including any adjournment or postponement thereof, the
"Special Meeting"). At the Special Meeting, the shareholders of FLAG will
consider and vote upon the issuance of shares of FLAG Common Stock pursuant to
the Agreement and Plan of Merger, dated as of July 30, 1998 (the "Merger
Agreement"), by and between FLAG and Empire Bank Corp. ("Empire"). This Proxy
Statement (the "Proxy Statement") is being mailed to shareholders of FLAG on or
about ____________, 1998. The shareholders of Empire approved the Merger
Agreement on September 29, 1998.
At the effective time of the merger of Empire with and into FLAG (the
"Merger"), except as described herein, each issued and outstanding share of
common stock, par value $10.00 per share, of Empire ("Empire Common Stock") will
be converted into and exchanged for 42.5 shares of FLAG Common Stock (the
"Exchange Ratio"). See "DESCRIPTION OF MERGER."
On May 29, 1998, the last day prior to public announcement of the
proposed merger between FLAG and Empire, the last reported sale price per share
of FLAG Common Stock on The Nasdaq Stock Market's National Market ("Nasdaq
National Market") was $15.33, as adjusted for the 3-for-2 stock split effective
June 3, 1998, (or equivalent pro forma per share of Empire Common Stock (based
on the 42.5 Exchange Ratio) of $651.53). On ___________, 1998, the last reported
sale price per share of FLAG Common Stock as reported on the Nasdaq National
Market was $_____ (or equivalent pro forma per share of Empire Common Stock of
$______).
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is ___________, 1998
<PAGE>
AVAILABLE INFORMATION
FLAG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy and information statements, and
other information with the Securities and Exchange Commission (the "SEC").
Copies of such reports, proxy and information statements, and other information
can be obtained, at prescribed rates, from the SEC by addressing written
requests for such copies to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such
reports, proxy and information statements, and other information can be
inspected at the public reference facilities referred to above and at the
regional offices of the SEC at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as FLAG that file electronically with the SEC. The address of
the SEC Web site is http://www.sec.gov.
This Proxy Statement constitutes part of the Registration Statement on
Form S-4 of FLAG (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Proxy Statement does not include all of the information contained in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the SEC. For further information about FLAG and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above.
Certain financial and other information relating to FLAG is contained
in the documents indicated below under "DOCUMENTS INCORPORATED BY REFERENCE."
All information contained in this Proxy Statement or incorporated
herein by reference with respect to FLAG was supplied by FLAG, and all
information contained in this Proxy Statement with respect to Empire was
supplied by Empire.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement, and, if given or made, such information or representation should not
be relied upon as having been authorized. This Proxy Statement does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Proxy Statement in any jurisdiction to or from any
person to whom it is unlawful to make such an offer or solicitation in such
jurisdiction. Neither the delivery of this Proxy Statement nor any distribution
of the securities being offered pursuant to this Proxy Statement shall, under
any circumstances, create an implication that there has been no change in the
affairs of FLAG or Empire or the information set forth herein since the date of
this Proxy Statement
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by FLAG pursuant
to the Exchange Act are hereby incorporated by reference herein:
(a) FLAG's Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1997; (b) FLAG's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997;
i
<PAGE>
(c) FLAG's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998; and
(d) FLAG's Current Reports on Form 8-K dated February 18, 1998, April 18,
1998, May 12, 1998, May 14, 1998, May 18, 1998, May 28, 1998, June 1,
1998, August 10, 1998, August 11, 1998 and August 25, 1998.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
Accompanying this Proxy Statement is a copy of FLAG's Amendment No. 1
to Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and a
copy of FLAG's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from Investor Relations, FLAG Financial Corporation, 101 North Greenwood
Street, LaGrange, Georgia (telephone: (706) 845-5000). In order to ensure timely
delivery of the documents, any request should be made by ____________, 1998.
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TABLE OF CONTENTS
c Page
SUMMARY.......................................................................1
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.............1
THE PARTIES................................................................2
MEETING OF FLAG SHAREHOLDERS; RECORD DATE; VOTE REQUIRED...................3
MEETING OF EMPIRE SHAREHOLDERS.............................................3
THE MERGER.................................................................4
COMPARATIVE PER SHARE DATA.................................................8
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA...................9
SELECTED FINANCIAL DATA...................................................10
RECENT DEVELOPMENTS.......................................................13
MEETING OF FLAG SHAREHOLDERS.................................................14
DATE, PLACE, TIME, AND PURPOSE............................................14
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND REVOCABILITY OF PROXIE.....14
DESCRIPTION OF MERGER........................................................15
GENERAL...................................................................15
BACKGROUND OF AND REASONS FOR THE MERGER..................................16
FAIRNESS OPINION..........................................................18
EFFECTIVE TIME OF THE MERGER..............................................19
DISTRIBUTION OF FLAG CERTIFICATES.........................................19
CONDITIONS TO CONSUMMATION OF THE MERGER..................................20
REGULATORY APPROVALS......................................................21
WAIVER, AMENDMENT, AND TERMINATION........................................22
DISSENTERS' RIGHTS........................................................22
CONDUCT OF BUSINESS PENDING THE MERGER....................................23
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS OF
CERTAIN PERSONS IN THE MERGER..........................................25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................26
ACCOUNTING TREATMENT......................................................28
EXPENSES AND FEES.........................................................28
RESALES OF FLAG COMMON STOCK..............................................29
DESCRIPTION OF FLAG COMMON STOCK.............................................30
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS...............................30
AUTHORIZED CAPITAL STOCK..................................................31
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS.........................31
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING............33
REMOVAL OF DIRECTORS......................................................33
INDEMNIFICATION...........................................................33
SPECIAL MEETINGS OF SHAREHOLDERS..........................................34
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING.................................35
MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS..............................35
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS.........................36
DIVIDENDS.................................................................36
COMPARATIVE MARKET PRICES AND DIVIDENDS......................................37
BUSINESS OF EMPIRE...........................................................38
GENERAL...................................................................38
MANAGEMENT STOCK OWNERSHIP................................................39
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR EACH OF THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997..................................................52
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS...........................54
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF EMPIRE....................54
YEAR 2000 ISSUES..........................................................55
BUSINESS OF FLAG.............................................................55
GENERAL...................................................................55
DIRECTORS AND EXECUTIVE OFFICERS..........................................56
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.................................61
SHAREHOLDER PROPOSALS........................................................68
EXPERTS......................................................................68
LEGAL MATTERS................................................................69
OTHER MATTERS................................................................69
INDEX TO EMPIRE FINANCIAL DATA..............................................F-1
INDEX TO EMPIRE FINANCIAL DATA..............................................F-1
Appendix A -- Agreement and plan of merger by and between
flag financial corporation and empire bank corp........................A-1
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SUMMARY
The following is a summary of certain information contained in this
Proxy Statement and the documents incorporated herein by reference. This summary
is not intended to be a complete description of the matters covered in this
Proxy Statement and is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Proxy
Statement. Shareholders are urged to read carefully the entire Proxy Statement,
including the Appendices. As used in this Proxy Statement, the terms "FLAG" and
"Empire" refer to those entities, respectively, and, where the context requires,
to those entities and their respective subsidiaries.
Special Cautionary Notice Regarding Forward-Looking Statements
Certain statements contained in this Proxy Statement, the exhibits
hereto and in documents incorporated by reference herein which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). In
addition, certain statements in future filings by FLAG with the Securities and
Exchange Commission, in press releases, and in oral and written statements made
by or with the approval of FLAG which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of FLAG or its management or Board of Directors, including
those relating to products or services; (iii) statements of future economic
performance; and (iv) statements of assumptions underlying such statements.
Words such as "believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from those in such statements. Facts
that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (i) the strength of
the U.S. economy in general and the strength of the local economies in which
operations are conducted; (ii) the effects of and changes in trade, monetary and
fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (iii) inflation, interest rate, market
and monetary fluctuations; (iv) the timely development of and acceptance of new
products and services and perceived overall value of these products and services
by users; (v) changes in consumer spending, borrowing and saving habits; (vi)
technological changes; (vii) acquisitions; (viii) the ability to increase market
share and control expenses; (ix) the effect of changes in laws and regulations
(including laws and regulations concerning taxes, banking, securities and
insurance) with which FLAG and its subsidiaries must comply; (x) the effect of
changes in accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting Standards Board; (xi)
changes in FLAG's organization, compensation and benefit plans; (xii) the costs
and effects of litigation and of unexpected or adverse outcomes in such
litigation; and (xiii) the success of FLAG at managing the risks involved in the
foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and FLAG undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
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The Parties
Empire. Empire is a bank holding company headquartered in Homerville,
Georgia, with two banking offices located in Homerville and Waycross, Georgia.
As of June 30, 1998, Empire had total consolidated assets of approximately $69.8
million, total consolidated deposits of approximately $58.8 million, and total
consolidated shareholders' equity of approximately $7.2 million. Through its
wholly-owned banking subsidiary, Empire Banking Company ("Empire Bank"), Empire
offers a broad range of banking and banking-related services. E.B.C. Financial
Services, Inc., a Georgia corporation and a wholly-owned subsidiary of Empire,
provides various insurance products.
Empire Bank was organized under the laws of the State of Georgia and
commenced operations in 1945. Empire is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Empire's
principal executive office is located at 115 East Dame Avenue, Homerville,
Georgia 31634, and its telephone number at such address is (912) 487-5355.
Additional information with respect to Empire and its subsidiaries is
included in this Proxy Statement. See "BUSINESS OF EMPIRE."
FLAG. FLAG is a multi-bank holding company headquartered in LaGrange,
Georgia. FLAG is the sole shareholder of the following depository institutions:
Citizens Bank ("Citizens"), Bank of Milan ("Milan") and First Federal Savings
Bank of LaGrange ("First Federal"). FLAG acquired Citizens through a merger with
Middle Georgia Bankshares, Inc. and acquired Milan through a merger with Three
Rivers Bancshares, Inc. ("Three Rivers"), which mergers were consummated in
March 1998 and May 1998, respectively. Citizens and Milan are state banks
organized under the laws of the State of Georgia, with ten banking offices
located in the cities of Unadilla, Vienna, Byromville, Montezuma, Oglethorpe,
Cordele, Pinehurst, Milan and McRae. First Federal is a federal savings bank
organized under the laws of the United States, with five offices located in
LaGrange, Georgia, which serve markets located in western Georgia. As of June
30, 1998, FLAG had total consolidated assets of approximately $442.8 million,
total consolidated deposits of approximately $339.2 million and total
consolidated shareholders' equity of approximately $38.5 million. FLAG offers a
full array of deposit accounts and retail and commercial banking services,
engages in small business lending, residential and commercial real estate
lending, mortgage banking services, brokerage services and performs real estate
appraisal services through its subsidiaries, First Federal, Citizens and Milan,
as well as First Federal's wholly-owned subsidiary, Piedmont Mortgage Services,
Inc. ("Piedmont").
FLAG was organized under the laws of the State of Georgia and commenced
operations in 1993 as a registered savings and loan holding company under the
Home Owners' Loan Act of 1933, as amended ("HOLA"). FLAG became a registered
bank holding company under the BHC Act in March 1998 upon the merger of Middle
Georgia with and into FLAG. FLAG's principal executive office is located at 101
North Greenwood Street, LaGrange, Georgia 30240, and its telephone number at
such address is (706) 845-5000.
Effective June 3, 1998, FLAG declared a 3-for-2 stock split. All per
share amounts and prices have been adjusted to reflect this stock split.
As a routine part of its business, FLAG evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy Statement,
discussions and, in some cases, negotiations and due diligence activities
looking toward or culminating in the execution of preliminary or definitive
documents respecting potential acquisitions may occur or be in progress. These
transactions may involve FLAG acquiring such financial institutions in exchange
2
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for cash or capital stock, and depending upon the terms of these transactions,
they may have a dilutive effect upon the FLAG Common Stock to be issued to
holders of Empire Common Stock in the Merger.
Additional information with respect to FLAG and its subsidiaries is
included in this Proxy Statement, and in documents incorporated by reference in
this Proxy Statement. See "AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY
REFERENCE," and "BUSINESS OF FLAG."
Meeting of FLAG Shareholders; Record Date; Vote Required
This Proxy Statement is being furnished to the holders of FLAG Common
Stock in connection with the solicitation by the FLAG Board of Directors of
proxies for use at the Special Meeting at which FLAG shareholders will be asked
to vote upon a proposal to approve the issuance of FLAG Common Stock pursuant to
the Merger Agreement. The Special Meeting will be held at the main office of
First Federal located at 101 North Greenwood Street, LaGrange, Georgia, on
_____________, ______________, 1998, at 8:00 a.m., local time. See "MEETING OF
FLAG SHAREHOLDERS--Date, Place, Time, and Purpose."
FLAG's Board of Directors has fixed the close of business on
____________, 1998, as the record date (the "FLAG Record Date") for
determination of the shareholders entitled to notice of and to vote at the
Special Meeting. Only holders of record of shares of FLAG Common Stock on the
FLAG Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of FLAG Common Stock is entitled to one vote. Shareholders
who execute proxies retain the right to revoke them at any time prior to their
being voted at the Special Meeting. On the FLAG Record Date, there were ______
shares of FLAG Common Stock issued and outstanding and entitled to vote at the
Special Meeting, which shares were held by ___ holders of record.
To hold a vote on any proposal, a quorum must be assembled, which
is a majority of the votes entitled to be cast by the holders of the outstanding
shares of FLAG Common Stock. In determining whether a quorum exists at the FLAG
Special Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, will be counted. Approval of the issuance
of FLAG Common Stock pursuant to the Merger Agreement requires that the number
of votes cast in favor of the action exceed the number of votes cast opposing
the action at a meeting in which a quorum exists. As of the FLAG Record Date,
all directors and executive officers of FLAG as a group (13 persons) were
entitled to vote approximately 1,336,464 shares of FLAG Common Stock,
constituting approximately 25% of the total number of shares of FLAG Common
Stock outstanding at that date, and have committed to vote their shares of FLAG
Common Stock in favor of the issuance of FLAG Common Stock pursuant to the
Merger Agreement. As of the FLAG Record Date, Empire and its affiliates held no
shares of FLAG Common Stock. See "MEETING OF FLAG SHAREHOLDERS--Record Date,
Voting Rights, Required Vote, and Revocability of Proxies; FLAG" and "BUSINESS
OF FLAG--Management."
Meeting of Empire Shareholders
On August 31, 1998, FLAG and Empire delivered to Empire shareholders
who were holders of record of Empire Common Stock on August 21, 1998 (the
"Empire Record Date") a document that constituted (i) a Prospectus of FLAG
relating to the 1,124,125 shares of FLAG Common Stock issuable to Empire
shareholders upon consummation of the Merger and (ii) a Proxy Statement of
Empire in connection with the solicitation of proxies by the Board of Directors
of Empire for use at the Special Meeting of Empire shareholders, which was held
on September 29, 1998 at the main office of Empire Banking Co. in Homerville,
Georgia (the "Empire Special Meeting"). At the Empire Special Meeting, the
shareholders of Empire approved the Merger Agreement and the transactions
contemplated thereby.
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The Merger
General. The Merger Agreement provides for the acquisition of Empire by
FLAG pursuant to the Merger of Empire with and into FLAG. A copy of the Merger
Agreement is set forth at Appendix A to this Proxy Statement, and the Merger
Agreement is incorporated herein by reference.
Consideration and Exchange Ratio. At the Effective Time, each share
of Empire Common Stock then issued and outstanding (excluding shares held by
Empire, FLAG, or their respective subsidiaries, in each case other than shares
held in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by Empire shareholders who perfect their statutory
dissenters' rights) will be converted into and exchanged for the right to
receive 42.5 shares of FLAG Common Stock.
No fractional shares of FLAG Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Empire shareholder would otherwise be entitled upon consummation of
the Merger, in an amount equal to such fractional part of a share of FLAG Common
Stock multiplied by the last sale price of FLAG Common Stock on the Nasdaq
National Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by FLAG) on the last trading
day preceding the Effective Time. No Empire shareholder who would have been
entitled to receive fractional shares of FLAG Common Stock will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares. See "DESCRIPTION OF MERGER--General."
As of the Empire Record Date, there were 26,450 shares of Empire Common
Stock issued and outstanding. Based on the number of shares of Empire Common
Stock outstanding on the Empire Record Date and the Exchange Ratio of 42.5, it
is anticipated that upon consummation of the Merger, FLAG would issue
approximately 1,124,125 shares of FLAG Common Stock to holders of Empire Common
Stock. Accordingly, FLAG would then have issued and outstanding approximately
6,298,932 shares of FLAG Common Stock, based on the number of shares of FLAG
Common Stock issued and outstanding on June 30, 1998. Following the Merger, and
assuming no exercise of dissenters' rights, the current shareholders of Empire
will beneficially own approximately 17.85% of the FLAG Common Stock that will
then be outstanding.
Reasons for the Merger, Recommendation of the Board of Directors of
Empire and FLAG. The Empire Board of Directors believes that the Merger is in
the best interests of Empire and its shareholders, has unanimously approved the
Merger Agreement and unanimously recommended that the shareholders vote "FOR"
approval of the Merger Agreement. In deciding to approve the Merger Agreement
and the consummation of the transactions contemplated therein, the Empire Board
of Directors considered a number of factors, including, among other matters, the
diversification of lending risks, increased stock liquidity, the market
characteristics of the markets in which FLAG currently operates, and a shared
vision for future expansion. The Empire shareholders approved the Merger
Agreement on September 29, 1998.
The FLAG Board of Directors believes that the Merger is in the best
interests of FLAG and its shareholders, has unanimously approved the Merger
Agreement. The FLAG Board of Directors unanimously recommends that the
shareholders vote "FOR" approval of the issuance of FLAG Common Stock pursuant
to the Merger Agreement. In deciding to approve the Merger Agreement and the
consummation of the transactions contemplated therein, including the issuance of
shares of FLAG Common Stock pursuant to the Merger Agreement, the FLAG Board of
Directors considered a number of factors, including the financial condition of
Empire, the likelihood of the Merger being approved by regulatory authorities
without undue conditions or delay, the financial and nonfinancial terms of the
Merger, and the compatibility of the community bank orientation of the
operations of FLAG and Empire.
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The Boards of Directors of Empire and FLAG believe that the Merger
will result in a company with expanded opportunities for profitable growth and
that the combined resources and capital of Empire and FLAG will provide an
enhanced ability to compete in the changing and competitive financial services
industry. See "DESCRIPTION OF MERGER--Background of and Reasons for the Merger."
Fairness Opinion. The Carson Medlin Company ("Carson Medlin") has
rendered an opinion to Empire that, based on and subject to the procedures,
matters and limitations described in its opinion and such other matters as it
considered relevant, as of the date of its opinion, the terms of the Merger are
fair, from a financial point of view to the shareholders of Empire. See
"DESCRIPTION OF MERGER--Fairness Opinion."
Effective Time. Subject to the conditions to the obligations of the
parties to effect the Merger, the Effective Time will occur on the date and at
the time that the certificate of merger, which is to be executed by FLAG and
filed with the Secretary of State of the State of Georgia relating to the Merger
(the "Certificate of Merger"), becomes effective with the Secretary of State of
the State of Georgia. Unless otherwise agreed upon by Empire and FLAG, and
subject to the terms and conditions contained in the Merger Agreement, the
parties will use their reasonable efforts to cause the Effective Time to occur
on the fifth business day following the last to occur of (i) the effective date
(including the expiration of any applicable waiting period) of the last consent
required by the Merger Agreement of any regulatory authority having authority
over and approving or exempting the Merger, and (ii) the date on which the
shareholders of Empire have approved the Merger Agreement. See "DESCRIPTION OF
MERGER--Effective Time of the Merger," "--Conditions to Consummation of the
Merger," and "--Waiver, Amendment, and Termination."
The Empire shareholders approved the Merger on September 29, 1998.
Empire and FLAG anticipate that all conditions to the consummation of the Merger
will be satisfied so that the Merger can be consummated by the end of the fourth
quarter of 1998. However, delays in the consummation of the Merger could occur.
Exchange of Stock Certificates. Promptly after the Effective Time,
FLAG will cause its transfer agent, acting in its capacity as exchange agent for
FLAG (the "Exchange Agent"), to mail to each holder of record of a certificate
or certificates (collectively, the "Empire Certificates") which, immediately
prior to the Effective Time, represented outstanding shares of Empire Common
Stock, appropriate transmittal materials and instructions for use in effecting
the surrender and cancellation of the Empire Certificates in exchange for
certificates representing shares of FLAG Common Stock ("FLAG Certificates").
Cash will be paid to the holders of Empire Common Stock in lieu of the issuance
of any fractional shares of FLAG Common Stock.
In no event will the holder of any surrendered Empire Certificate(s) be
entitled to receive interest on any cash to be issued to such holder, and in no
event will FLAG or the Exchange Agent be liable to any holder of Empire Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property, escheat, or similar law.
Regulatory Approvals and Other Conditions. The Merger is subject to
approval by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") and the Georgia Department of Banking and Finance (the "GDBF"). FLAG
and Empire filed applications with the Federal Reserve and GDBF for the
requisite approvals. The Federal Reserve approved the Merger on September 16,
1998. The GDBF approved the Merger on September 14, 1998.
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Consummation of the Merger is subject to various other conditions,
including receipt of the required approval of the Merger Agreement by Empire
shareholders, receipt of an opinion of counsel as to the tax-free nature of
certain aspects of the Merger, receipt of a letter from the independent
accountants of FLAG that the Merger will qualify for pooling-of-interests
accounting treatment, and certain other conditions. See "DESCRIPTION OF
MERGER--Conditions to Consummation of the Merger."
Conduct of Business Pending the Merger. Each party has agreed in the
Merger Agreement to: (i) operate its business only in the usual, regular and
ordinary course; (ii) preserve intact its business organization and assets and
maintain its rights and franchises; and (iii) take no action that would (a)
materially adversely affect the ability of any party to the Merger Agreement to
obtain any consents required for the transactions contemplated by the Merger
Agreement without the imposition of certain materially adverse conditions or
restrictions as contemplated by the Merger Agreement, or (b) materially
adversely affect the ability of any party to the Merger Agreement to perform its
covenants and agreements under the Merger Agreement. In addition, each party to
the Merger Agreement has agreed not to take certain actions relating to the
operation of their respective businesses pending consummation of the Merger
without the prior written consent of the other party, except as otherwise
permitted by the Merger Agreement. See "DESCRIPTION OF MERGER--Conduct of
Business Pending the Merger."
Waiver, Amendment, and Termination. The Merger Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time by
mutual consent of Empire and FLAG, or by either Empire or FLAG under certain
circumstances, including if the Merger is not consummated by December 31, 1998,
unless the failure to consummate by such time is due to a breach of the Merger
Agreement by the party seeking to so terminate. Pursuant to the Merger
Agreement, in certain instances, including a breach of a representation,
warranty, covenant or agreement or failure of the Empire shareholders to approve
the Merger Agreement, either FLAG or Empire, as the case may be, will be
required to pay the non-breaching party the lesser of $100,000 or actual costs
of the non-breaching party incurred in connection with the Merger. If for any
reason the Merger is not consummated, FLAG will continue to operate as a bank
holding company under its present management and Empire will continue to operate
as a bank holding company under its present management. See "DESCRIPTION OF
MERGER--Waiver, Amendment, and Termination," and "? Expenses and Fees."
Dissenters' Rights. The holders of FLAG Common Stock are not entitled
to dissenters rights. The holders of Empire Common Stock were entitled to
dissenters rights if they complied with Title 14, Chapter 2, Article 13 of the
GBCC. A dissenting Empire shareholder who perfected his dissenter's rights is
entitled to receive an amount in cash equal to the "fair value" of such holder's
shares. See "DESCRIPTION OF MERGER--Dissenters' Rights."
Interests of Certain Persons in the Merger. Certain members of Empire's
management and Board of Directors have interests in the Merger in addition to
their interests as shareholders of Empire generally. The Merger Agreement states
that, as a condition to consummating the Merger, FLAG will provide Leonard
Bateman, President and Chief Executive Officer of Empire, with a Separation
Agreement. Pursuant to the terms of the Separation Agreement, Mr. Bateman will
receive severance payments equal to his annual base salary and bonus paid over
the previous three fiscal years in the event Mr. Bateman is involuntarily
terminated, as such term is defined in the Separation Agreement. In addition,
pursuant to the terms of the Separation Agreement, Mr. Bateman will make certain
covenants not to compete with FLAG during the term of the Separation Agreement
and for a 12-month period following the termination of the Separation Agreement
or the termination of Mr. Bateman's status as an employee of FLAG. The Merger
Agreement provides that Mr. Bateman will be appointed to the Board of Directors
of FLAG upon consummation of the Merger. Mr. Bateman will also continue to serve
as President of Empire Bank. The Merger Agreement also contains provisions
relating to the indemnification of Empire directors and officers by FLAG, and
provisions relating to the eligibility of the officers and employees of Empire
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for certain FLAG employee benefits. As of the Empire Record Date, none of the
directors and officers of Empire beneficially owned any shares of FLAG Common
Stock. See "DESCRIPTION OF MERGER--Management and Operations After the Merger;
Interests of Certain Persons in the Merger."
Certain Federal Income Tax Consequences of the Merger. Consummation of
the Merger is conditioned on the receipt by Empire and FLAG of an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to FLAG, to the effect that,
among other things, (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) the exchange in the Merger of Empire Common Stock for shares of
FLAG Common Stock will not result in gain or loss to the shareholders of Empire,
except that gain or loss will be recognized to the extent of any cash received
by such Empire shareholders in the Merger, and (iii) Empire shareholders who
perfect their dissenters' rights and receive solely cash in redemption of their
Empire Common Stock will be subject to federal income tax on any income or gain
recognized. For a further discussion of the federal income tax consequences of
the Merger, see "DESCRIPTION OF MERGER--Certain Federal Income Tax
Consequences."
Accounting Treatment. It is intended that the Merger will be accounted
for as a pooling-of-interests for accounting and financial reporting purposes.
See "DESCRIPTION OF MERGER--Accounting Treatment."
Certain Differences in Shareholders' Rights. At the Effective Time,
Empire shareholders, whose rights are governed by Empire's Articles of
Incorporation and Bylaws and by the GBCC, will automatically become FLAG
shareholders, and their rights as FLAG shareholders will be determined by FLAG's
Articles of Incorporation and Bylaws and by the GBCC. The rights of FLAG
shareholders differ from the rights of Empire shareholders in certain important
respects, some of which constitute additional anti-takeover provisions provided
for in FLAG's governing documents. See "EFFECT OF THE MERGER ON RIGHTS OF
SHAREHOLDERS."
Comparative Market Prices of Common Stock; Dividends. FLAG Common Stock
is traded in the over-the-counter market and quoted on the Nasdaq National
Market under the symbol "FLAG." Empire Common Stock is not traded in any
established market. On May 29, 1998, the last day prior to public announcement
of the proposed merger between FLAG and Empire, the last reported sale price per
share of FLAG Common Stock on the Nasdaq National Market was $15.33, as adjusted
for the 3-for-2 stock split effective June 3, 1998, and the resulting equivalent
pro forma price per share of Empire Common Stock (based on the 42.5 Exchange
Ratio) was $651.53. On ____________, 1998, the latest practicable date prior to
the mailing of this Proxy Statement, the last reported sale price per share of
FLAG Common Stock on the Nasdaq National Market was $_____, and the resulting
equivalent pro forma price per share of Empire Common Stock was $______. The
equivalent per share price of a share of Empire Common Stock at each specified
date represents the closing sale price of a share of FLAG Common Stock on such
date multiplied by the Exchange Ratio of 42.5. To the knowledge of Empire, the
most recent trade of Empire Common Stock prior to May 29, 1998, the last day
prior to public announcement of the proposed merger between FLAG and Empire, was
a sale of 400 shares on April 17, 1998 for a purchase price of $271.26 per
share. There can be no assurance as to what the market price of the FLAG Common
Stock will be if and when the Merger is consummated. See "COMPARATIVE MARKET
PRICES AND DIVIDENDS."
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Comparative Per Share Data
The following table sets forth certain unaudited comparative per share
data relating to income, cash dividends, and book value on (i) an historical
basis for FLAG and Empire; (ii) a pro forma combined basis per share of FLAG
Common Stock, giving effect to the Merger; and (iii) an equivalent pro forma
basis per share of Empire Common Stock, giving effect to the Merger. The Empire
and FLAG pro forma combined information and the Empire pro forma equivalent
information give effect to the Merger on a pooling-of-interests accounting basis
and reflect the Exchange Ratio of 42.5 shares of FLAG Common Stock for each
share of Empire Common Stock. See "DESCRIPTION OF MERGER--Accounting Treatment."
The pro forma data are presented for information purposes only and are not
necessarily indicative of the results of combined operations or financial
position that would have resulted had the Merger been consummated at the dates
or during the periods indicated, nor are they necessarily indicative of future
results of combined operations or financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of FLAG and
Empire contained or incorporated by reference herein, including the respective
notes thereto, and the pro forma financial information contained herein,
including the notes thereto. See "DOCUMENTS INCORPORATED BY REFERENCE,"
"--Selected Financial Data," "--Selected Condensed Consolidated Pro Forma
Financial Data," "BUSINESS OF EMPIRE --Management's Discussion and Analysis of
Financial Condition and Results of Operations," "EMPIRE FINANCIAL DATA," and
"PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
8
<PAGE>
Comparative Per Share Data
<TABLE>
<CAPTION>
As of and for the
-----------------
Six Months Ended
June 30, Year Ended December 31,
-------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Per Common Share
FLAG Historical $ .41 $ .38 $ .73 $ .25 $ .68
Empire historical 15.90 13.77 26.85 9.50 21.09
FLAG and Empire pro forma combined (1) .40 .37 .71 .25 .65
Empire pro forma equivalent (2) 17.00 15.73 30.18 10.63 27.63
Dividends Declared Per Common Share
FLAG historical $ .08 $ .11 $ .15 $ .14 $ .13
Empire historical 1.70 1.60 3.20 3.20 3.20
FLAG and Empire pro forma combined (1) (4) .08 .11 .15 .14 .13
Empire pro forma equivalent (3) 3.40 4.68 6.38 5.95 5.53
Book Value Per Common Share (period end)
FLAG historical $ 7.52 $ 6.77 $ 7.11 $ 6.47 $ 6.48
Empire historical 276.95 252.31 264.46 240.02 234.30
FLAG and Empire pro forma combined (1) 7.32 6.60 6.95 6.33 6.30
Empire pro forma equivalent (2) 311.10 281.35 295.38 269.03 267.75
</TABLE>
(1) Represents the pro forma combined information of FLAG and Empire as if the
Merger was consummated at the beginning of the period, and were accounted
for as a pooling-of-interests.
(2) Represents the pro forma combined per common share amounts multiplied by
the Exchange Ratio of 42.5 shares of FLAG Common Stock for each share of
Empire Common Stock.
(3) Represents historical dividends declared per share by FLAG multiplied by
the Exchange Ratio of 42.5 shares of FLAG Common Stock for each share of
Empire Common Stock.
(4) Represents historical dividends paid by FLAG, as it is assumed that FLAG
will not change its dividend policy as a result of
the Merger.
Selected Condensed Consolidated Pro Forma Financial Data
The following selected unaudited pro forma financial data give effect
to the Merger as of the dates and for the periods indicated, assuming the Merger
is accounted for as a pooling of interests. The selected unaudited pro forma
financial data are presented for informational purposes only and are not
necessarily indicative of the combined financial position or results of
operations which actually would have occurred if the transactions had been
consummated at the date and for the periods indicated or which may be obtained
in the future. The information should be read in conjunction with the unaudited
pro forma financial information appearing elsewhere in this Proxy Statement. See
"COMPARATIVE PER SHARE DATA" and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
9
<PAGE>
Selected Pro Forma Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Six Months Ended For the Year Ended
June 30, December 31,
-------- ------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Data
Interest income $ 20,479 $ 17,011 $ 35,902 $ 32,438 $ 31,472
Interest expense 10,129 8,004 17,290 15,411 15,221
Net interest income 10,350 9,007 18,612 17,027 16,251
Provision for loan losses 479 578 1,016 4,375 1,418
Noninterest income 3,985 2,835 5,873 5,071 4,058
Noninterest expense 10,281 7,997 17,139 15,822 13,195
Income taxes 1,043 963 1,888 370 1,677
Net earnings 2,532 2,304 4,442 1,531 4,019
Earnings per common share .40 .37 .71 .25 .65
As of
June 30, 1998
Balance Sheet Data
Total assets $ 512,699
Federal funds sold 13,270
Investment securities 88,038
Loans, net 354,924
Deposits 398,071
Other borrowings 59,235
Stockholders' equity 45,908
</TABLE>
Selected Financial Data
The following tables present certain selected historical financial
information for FLAG and Empire and are derived from the respective consolidated
financial statements of FLAG and Empire including the respective notes thereto,
contained or incorporated by reference herein. The data should be read in
conjunction with the historical financial statements, including the respective
notes thereto, and other financial information concerning FLAG and Empire
contained or incorporated by reference herein. Interim unaudited data for the
six month periods ended June 30, 1998 and 1997, of FLAG and Empire reflect, in
the opinion of the respective managements of FLAG and Empire, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the six month periods ended June 30, 1998
and 1997 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole. See "AVAILABLE INFORMATION,"
"DOCUMENTS INCORPORATED BY REFERENCE" and "EMPIRE FINANCIAL DATA."
10
<PAGE>
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended June 30, As of and For the Year Ended December 31,
-------------- -----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FLAG
Balance Sheet Data
Total assets $442,879 $370,141 $411,285 $350,519 $337,857 $326,229 $293,935
Loans, net 306,527 254,849 279,286 239,652 216,204 207,715 191,029
Deposits 339,245 312,461 324,852 294,420 270,853 251,828 242,062
Stockholders' equity 38,889 34,936 36,771 33,415 32,254 28,741 28,785
Statement of Earnings Data
Net interest income $ 8,996 $ 7,684 $ 15,997 $ 14,757 $ 13,933 $ 11,824 $ 10,253
Provision for loan losses 444 407 765 3,744 775 490 955
Noninterest income 3,718 2,562 5,332 4,637 3,706 2,915 2,938
Noninterest expense 9,226 6,941 15,020 14,018 11,687 9,578 8,400
Net earnings 2,115 1,948 3,749 1,286 3,472 3,117 3,175
Per Share Data
Book value (period end) $ 7.52 $ 6.77 $ 7.11 $ 6.47 $ 6.48 $ 5.61 $ 5.60
Net earnings .41 .38 .73 .25 .68 .61 .62
Dividends .11 .08 .15 .14 .13 .13 .11
Total shares outstanding 5,175 5,162 5,172 5,164 4,979 5,120 5,143
Weighted average shares outstanding 5,172 5,164 5,167 5,121 5,088 5,110 5,143
Ratios
Return on average assets .99% 1.08% 1.01% .39% 1.05% 1.00% 1.12%
Return on average stockholders' equity 11.23 11.40 10.68 3.97 11.07 10.76 11.42
Average equity to average assets 8.82 9.48 9.49 9.72 9.53 9.28 9.79
Average loans to average deposits 88.21 81.48 83.81 81.92 82.62 83.47 85.00
</TABLE>
11
<PAGE>
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended June 30, As of and For the Year Ended December 31,
-------------- -----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> ` <C> <C> <C> <C> <C> <C> <C>
Empire
Balance Sheet Data
Total assets $69,820 $64,361 $70,002 $60,589 $51,479 $47,583 $45,736
Loans, net 48,396 44,267 45,462 39,785 36,628 32,504 29,670
Deposits 58,826 53,953 59,295 50,621 42,523 40,846 40,455
Stockholders' equity 7,218 6,523 6,832 6,195 6,089 5,517 5,022
Statement of Earnings Data
Net interest income $ 1,354 $ 1,323 $ 2,616 $ 2,269 $ 2,319 $ 2,102 $ 2,131
Provision for loan losses 35 171 251 631 643 131 56
Noninterest income 267 273 541 434 352 336 331
Noninterest expense 1,054 1,056 2,119 1,804 1,509 1,478 1,434
Net earnings 418 357 693 246 548 671 749
Per Share Data
Book value (period end) $272.89 $252.31 $264.46 $240.02 $234.30 $212.32 $193.23
Net earnings 15.80 13.77 26.85 9.50 21.09 25.80 28.83
Dividends 1.70 1.60 3.20 3.20 3.20 3.20 3.20
Total shares outstanding 26,450 25,852 25,832 25,812 25,987 25,987 25,987
Weighted average shares outstanding 26,279 25,842 25,822 25,900 25,987 25,987 25,987
Ratios
Return on average assets 1.20% 1.12% 1.05% 0.42% 1.08% 1.44% 1.70%
Return on average stockholders' equity 5.90% 5.64% 10.64% 4.01% 9.44% 12.73% 15.98%
Average equity to average assets 10.14% 9.91% 9.88% 10.60% 11.39% 11.29% 10.63%
Average loans to average deposits 79.59% 81.23% 80.71% 81.11% 84.68% 76.47% 74.40%
</TABLE>
12
<PAGE>
Recent Developments
FLAG's Pending Acquisitions. Effective July 24, 1998, FLAG and The
Brown Bank ("Brown") entered into an Agreement and Plan of Merger (the "Brown
Agreement") pursuant to which Brown will merge with and into FLAG's wholly-owned
bank subsidiary, Citizens. The Brown Agreement provides that FLAG will exchange
1.5 shares of FLAG Common Stock for each share of Brown Common Stock
outstanding, with approximately 262,500 shares of FLAG Common Stock expected to
be issued to Brown shareholders. The parties expect the merger to be accounted
for as a pooling of interests and expect to consummate the transaction during
the fourth quarter of 1998, subject to approval of Brown shareholders in
accordance with applicable law, approval of various regulatory authorities and
other customary conditions of closing.
Brown is a federal savings bank located in Cobbtown, Georgia. Brown has
three bank offices located in Cobbtown, Reidsville and Metter, Georgia.
On August 19, 1998, FLAG and Heart of Georgia Bancshares, Inc. ("Heart")
entered into an Agreement and Plan of Merger (the "Heart Agreement") pursuant to
which Heart would have merged with and into FLAG. The Heart Agreement provided
that FLAG would have exchanged 2.025 shares of FLAG Common Stock for each share
of Heart Common Stock outstanding, with approximately 445,500 shares of FLAG
Common Stock expected to be issued to Heart shareholders. On October __, 1998,
management of FLAG and Heart terminated the Heart Agreement based on their
mutual determination that it was in the best interests of their respective
shareholders if the parties cancelled their plans to merge. The parties believe
that the timing is not right to consummate a merger between the two parties.
Each party will bear its own expenses incurred with respect to the Heart
Agreement.
Additional information with respect to the Brown and Heart transactions
is set forth in FLAG's Current Reports on Form 8-K dated May 14, 1998, May 28,
1998, August 11, 1998 and August 25, 1998 and ___________, 1998 (the "FLAG
8-Ks"). The FLAG 8-Ks include or incorporate by reference certain forward
looking statements, estimates, and projections concerning the transactions with
Brown and Heart, which are subject to various uncertainties and risks. Estimates
and projections concerning the future financial performance of FLAG are
predicated on certain assumptions and depend upon future events, the course of
which cannot be ascertained with certainty, and therefore such estimates and
projections should be considered only as estimates and understood to be
uncertain and subject to risks of inaccuracy. Future events may cause FLAG's
actual experience to differ materially from such estimates and projections.
13
<PAGE>
MEETING OF FLAG SHAREHOLDERS
Date, Place, Time, and Purpose
This Proxy Statement is being furnished to the holders of FLAG Common
Stock in connection with the solicitation by the FLAG Board of Directors of
proxies for use at the Special Meeting at which FLAG shareholders will be asked
to vote upon a proposal to approve the issuance of FLAG Common Stock pursuant to
the Merger Agreement. The costs associated with the solicitation of proxies for
the Special Meeting will be borne by FLAG. The Special Meeting will be held at
the main office of First Federal, located at 101 North Greenwood Street,
LaGrange, Georgia, on __________, __________, 1998, at 8:00 a.m., local time.
Record Date, Voting Rights, Required Vote, and Revocability of Proxies
The close of business on ___________, 1998, has been fixed as the FLAG
Record Date for determining holders of outstanding shares of FLAG Common Stock
entitled to notice of and to vote at the Special Meeting. Only holders of FLAG
Common Stock of record on the books of FLAG at the close of business on the FLAG
Record Date are entitled to notice of and to vote at the Special Meeting. As of
the FLAG Record Date, there were ______ shares of FLAG Common Stock issued and
outstanding and entitled to vote at the Special Meeting, which shares were held
by ___ holders of record.
Holders of record of FLAG Common Stock are entitled to one vote per
share on each matter to be considered and voted upon at the FLAG Special
Meeting. To hold a vote on any proposal, a quorum must be assembled, which is a
majority of the votes entitled to be cast by the holders of the outstanding
shares of FLAG Common Stock. In determining whether a quorum exists at the FLAG
Special Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, will be counted. Approval of the proposal
to approve the issuance of FLAG Common Stock pursuant to the Merger Agreement
requires that the number of votes cast in favor of the action exceed the number
of votes cast opposing the action in a meeting in which a quorum exists.
Accordingly, provided a quorum is present at the FLAG Special Meeting,
abstentions and broker non-votes will be disregarded in determining whether any
action taken at the FLAG Special Meeting has received sufficient votes for
approval.
Shares of FLAG Common Stock represented by properly executed proxies,
if such proxies are received in time and not revoked, will be voted in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, such proxies will be voted for approval of the issuance of FLAG
Common Stock pursuant to the Merger Agreement and, in the discretion of the
proxy holder, as to any other matter which may properly come before the Special
Meeting. If necessary, the proxy holder may vote in favor of a proposal to
adjourn the Special Meeting in order to permit further solicitation of proxies
in the event there are not sufficient votes to approve the foregoing proposal at
the time of the Special Meeting. No proxy that is voted against the approval of
the Merger Agreement will be voted in favor of an adjournment of the Special
Meeting in order to permit further solicitation of proxies.
A FLAG shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of FLAG, (ii) properly submitting to FLAG a duly
executed proxy bearing a later date, or (iii) attending the Special Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: FLAG
Financial Corporation, 101 North Greenwood Street, LaGrange, Georgia 30240;
Attention: Investor Relations.
14
<PAGE>
As of the FLAG Record Date, all directors and executive officers of
FLAG as a group (___ persons) were entitled to vote approximately 1,336,464
shares of FLAG Common Stock, constituting approximately 25% of the total number
of shares of FLAG Common Stock outstanding at that date, and have committed to
vote their shares of FLAG Common Stock in favor of the issuance of FLAG Common
Stock pursuant to the Merger Agreement. None of Empire or any of its directors
and executive officers beneficially owned, as of the FLAG Record Date, any
shares of FLAG Common Stock. See "BUSINESS OF EMPIRE -- Management."
DESCRIPTION OF MERGER
The following information describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Merger Agreement, which is
attached as Appendix A to this Proxy Statement and incorporated herein by
reference. All shareholders are urged to read the Appendices in their entirety.
General
Upon consummation of the Merger, Empire will merge with and into FLAG.
FLAG will survive the Merger and the separate existence of Empire will cease.
Empire Bank will become a wholly-owned subsidiary of FLAG following the
consummation of the Merger. As soon as practicable after the Effective Time of
the Merger, FLAG plans to cause Empire Bank to merge with and into Citizens. At
the Effective Time, each share of Empire Common Stock then issued and
outstanding (excluding shares held by Empire, FLAG, or their respective
subsidiaries, in each case other than shares held in a fiduciary capacity or in
satisfaction of debts previously contracted, and excluding shares held by Empire
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for the right to receive 42.5 shares of FLAG Common Stock.
No fractional shares of FLAG Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Empire shareholder would otherwise be entitled upon consummation of
the Merger, in an amount equal to such fractional part of a share of FLAG Common
Stock multiplied by the last sale price of FLAG Common Stock on the Nasdaq
National Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by FLAG) on the last trading
day preceding the Effective Time.
As of the Empire Record Date, Empire had 26,450 shares of Empire Common
Stock issued and outstanding. Based on the number of shares of Empire Common
Stock outstanding on the Empire Record Date and the Exchange Ratio of 42.5, it
is anticipated that upon consummation of the Merger, FLAG would issue
approximately 1,124,125 shares of FLAG Common Stock to holders of Empire Common
Stock. Accordingly, FLAG would then have issued and outstanding approximately
6,298,932 shares of FLAG Common Stock based on the number of shares of FLAG
Common Stock issued and outstanding on June 30, 1998. Following the Merger, and
assuming no exercise of dissenters' rights, the current shareholders of Empire
will beneficially own approximately 17.85% of the FLAG Common Stock that will
then be outstanding.
16
<PAGE>
Background of and Reasons for the Merger
Background of the Merger. On March 11, 1998, certain shareholders of
Empire granted an option to purchase an aggregate of 7,200 shares or
approximately 27% of Empire Common Stock to Habersham Bancorp, a bank holding
company located in Cornelia, Georgia. Thereafter, Empire began to assess its
strategic alternatives and contacted a number of potential merger partners,
including FLAG. Executive officers of Empire began discussions with such
potential merger partners, including FLAG, in early May 1998. Representatives
from FLAG met with the Board of Directors of Empire on May 20, 1998 to discuss a
combination of Empire and FLAG.
In negotiating the final Exchange Ratio, Empire and FLAG considered the
relative book value and earnings of each entity, as well as certain special
factors relating to historical performance, market growth potential, ancillary
businesses and future growth plans. Empire and FLAG did not follow a precise
formula in the negotiation of the final Exchange Ratio, which was based on a
determination by management of each institution (as well as by Habersham Bancorp
as to Empire) that the Exchange Ratio fairly represented equivalent value for
the shareholders of each institution participating in the merger.
The Board of Directors of Empire met on July 13, 1998, to discuss the
Merger Agreement and related agreements that were finalized on that date. After
review of the matters considered by the Board of Directors and Executive
Committee of Empire, the Board of Directors of Empire unanimously approved the
Merger Agreement and authorized the President and Chief Executive Officer of
Empire to take the appropriate actions necessary to execute the Merger
Agreement.
The Board of Directors of FLAG met on July 20, 1998, to discuss the
Merger Agreement and related agreements. After review of the matters considered
by the Board of Directors and Executive Committee of FLAG, the Board of
Directors of FLAG unanimously approved the Merger Agreement and authorized the
President and Chief Executive Officer of FLAG to take the appropriate actions
necessary to execute the Merger Agreement in substantially the form approved by
the Board.
The Merger Agreement was executed as of July 30, 1998. FLAG and Empire
each conducted a due diligence review of the material financial, operating and
legal information relating to the other party.
Empire's Reasons for the Merger and Recommendation of Directors. The
Empire Board of Directors, with the assistance of outside legal advisors,
evaluated the financial, legal and market considerations bearing on the decision
to recommend the Merger to the shareholders of Empire. In reaching its
conclusion that the Merger Agreement is in the best interests of Empire and its
shareholders, the Empire Board of Directors carefully considered the following
material factors:
(a) the business, operations, earnings and financial
condition, including the capital levels and asset quality, of FLAG on
an historical, prospective, and pro forma basis and in comparison to
other financial institutions in the area;
(b) the demographic, economic and financial characteristics of
the markets in which FLAG operates, including the similarity to the
markets in which Empire operates, existing competition, history of the
market areas with respect to financial institutions, and average demand
for credit, on an historical and prospective basis;
(c) the local autonomy that FLAG provides its subsidiary
banking operations;
16
<PAGE>
(d) the results of Empire's due diligence review of FLAG and a
variety of factors affecting and relating to the overall strategic focus
of Empire, including Empire's desire to expand into markets outside the
general vicinity of its core markets;
(e) the opinion from Carson Medlin that the terms of the
Merger are fair, from a financial point of view, to the shareholders of
Empire;
(f) the potential increases in access to the public capital
markets and stock liquidity;
(g) the vision shared by Empire and FLAG relating to future
expansion; and
(h) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay.
While each member of the Empire Board of Directors individually
considered the foregoing and other factors, the Empire Board of Directors did
not collectively assign any specific or relative weights to the factors
considered and did not make any determination with respect to any individual
factor. The Empire Board of Directors collectively made its determination with
respect to the Merger based on the unanimous conclusion reached by its members,
in light of the factors that each of them consider as appropriate, that the
Merger is in the best interests of the Empire shareholders.
The terms of the Merger, including the Exchange Ratio, were the result
of arm's-length negotiations between representatives of Empire and
representatives of FLAG. Based upon its consideration of the foregoing factors,
the Board of Directors of Empire approved the Merger Agreement and the Merger as
being in the best interests of Empire and its shareholders.
The Empire Board of Directors unanimously recommended to Empire
shareholders that they vote "for" approval of the Merger Agreement. The Empire
shareholders approved the Merger Agreement on September 29, 1998.
FLAG's Reasons for the Merger and Recommendation of Directors. Since
the completion of the merger of Middle Georgia with FLAG in March 1998, FLAG has
explored opportunities that would further FLAG's goal of building a strong
presence in Georgia through a partnership of community banks. The FLAG Board of
Directors, with the assistance of outside legal advisors, evaluated the
financial, legal and market considerations relating to the Merger. In reaching
its conclusion that the Merger Agreement is in the best interests of FLAG and
its shareholders, the FLAG Board of Directors carefully considered the following
material factors:
(a) the information presented to the directors by the
management of FLAG concerning the business, operations, earnings, asset
quality, and financial condition of Empire, including the composition
of the earning assets portfolio of Empire;
(b) the financial terms of the Merger, including the
relationship of the value of the consideration issuable in the Merger
to the market value, tangible book value, and earnings per share of
Empire Common Stock;
(c) the nonfinancial terms of the Merger, including the
treatment of the Merger as a tax-free exchange of Empire Common Stock
for FLAG Common Stock for federal income tax purposes;
17
<PAGE>
(d) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay;
(e) the opportunity for reducing the noninterest expense of
the operations of Empire and the ability of the operations of Empire
after the Effective Time to contribute to the earnings of FLAG;
(f) the attractiveness of the Empire franchise, the market
position of Empire in Homerville and Waycross, the compatibility of the
franchise of Empire with the operations of FLAG and the ability of
Empire to contribute to the business strategy of FLAG;
(g) the compatibility of the community bank orientation of the
operations of Empire to that of FLAG; and
(h) the opportunity to leverage the infrastructure of FLAG.
While each member of the FLAG Board of Directors individually
considered the foregoing and other factors, the Board of Directors did not
collectively assign any specific or relative weights to the factors considered
and did not make any determination with respect to any individual factor. The
FLAG Board of Directors collectively made its determination with respect to the
Merger based on the unanimous conclusion reached by its members, in light of the
factors that each of them consider as appropriate, that the Merger is in the
best interests of the FLAG shareholders.
The terms of the Merger, including the Exchange Ratio, were the result
of arm's-length negotiations between representatives of FLAG and representatives
of Empire. Based upon its consideration of the foregoing factors, the Board of
Directors of FLAG approved the Merger Agreement and the Merger as being in the
best interests of FLAG and its shareholders.
FLAG's Board of Directors unanimously recommends that FLAG shareholders
vote "FOR" the approval of the issuance of shares of FLAG Common Stock pursuant
to Merger Agreement.
Fairness Opinion
Pursuant to an engagement letter dated June 1, 1998, Carson Medlin
was engaged to provide the Board of Directors of Empire with a written opinion
regarding the fairness of the Merger from a financial point of view. Empire
selected Carson Medlin as its financial adviser on the basis of Carson Medlin's
experience and expertise in representing community banks in acquisition
transactions. Carson Medlin is an investment banking firm which specializes in
the securities of financial institutions located in the southeastern United
States. As part of its investment banking activities, Carson Medlin is regularly
engaged in the valuation of financial institutions and transactions relating to
their securities.
As part of its engagement, representatives of Carson Medlin attended
the meeting of Empire's Board held on July 13, 1998, at which meeting the terms
of the proposed Merger were discussed and considered. Carson Medlin delivered
its written opinion dated July 30, 1998 to the Board of Directors of Empire
stating that the aggregate consideration to be provided for in the Agreement is
fair, from a financial point of view, to the shareholders of Empire.
18
<PAGE>
Effective Time of the Merger
Subject to the conditions to the obligations of the parties to effect
the Merger, the Effective Time will occur on the date and at the time that the
Certificate of Merger is declared effective with the Secretary of State of the
State of Georgia. Unless otherwise agreed upon in writing by Empire and FLAG,
and subject to the conditions to the obligations of the parties to effect the
Merger, the parties will use their reasonable efforts to cause the Effective
Time to occur on the fifth business day following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required consent of any regulatory authority having authority over and
approving or exempting the Merger, and (ii) the date on which the shareholders
of Empire have approved the Merger Agreement.
The Empire shareholders approved the Merger Agreement on September 29,
1998. The Federal Reserve and the GDBF approved the applications of FLAG to
acquire Empire on September 16, 1998 and September 14, 1998, respectively.
Empire and FLAG anticipate that all conditions to consummation of the Merger
will be satisfied so that the Merger can be consummated by the end of the fourth
quarter of 1998. However, delays in the consummation of the Merger could occur.
The Board of Directors of either Empire or FLAG generally may terminate
the Merger Agreement if the Merger is not consummated by December 31, 1998,
unless the failure to consummate by that date is the result of a breach of the
Merger Agreement by the party seeking termination. See "-- Conditions to
Consummation of the Merger" and "-- Waiver, Amendment, and Termination."
Distribution of FLAG Certificates
Promptly after the Effective Time, FLAG will cause its transfer agent,
acting in its capacity as Exchange Agent, to mail to each holder of record of an
Empire Certificate or Certificates which, immediately prior to the Effective
Time, represented outstanding shares of Empire Common Stock, appropriate
transmittal materials and instructions for use in effecting the surrender and
cancellation of the Empire Certificates in exchange for FLAG Certificates
representing shares of FLAG Common Stock.
Upon surrender to the Exchange Agent of Empire Certificates, together
with the properly completed transmittal materials, there will be issued and
mailed to each holder of Empire Common Stock (other than shares as to which
holders have perfected dissenters' rights) surrendering such items a FLAG
Certificate or Certificates representing the number of shares of FLAG Common
Stock to which such holder is entitled, if any, and a check for the amount to be
paid in lieu of any fractional shares (without interest), together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon).
After the Effective Time, to the extent permitted by law, holders of
Empire Common Stock of record as of the Effective Time will be entitled to vote
at any meeting of FLAG shareholders the number of whole shares of FLAG Common
Stock into which their shares of Empire Common Stock have been converted,
regardless of whether such shareholders have surrendered their Empire
Certificates. Whenever a dividend or other distribution is declared by FLAG on
FLAG Common Stock, the record date for which is at or after the Effective Time,
the declaration will include dividends or other distributions on all shares
issuable pursuant to the Merger Agreement, but no dividend or other distribution
payable after the Effective Time with respect to FLAG Common Stock will be paid
to the holder of any unsurrendered Empire Certificate until the holder duly
surrenders such Empire Certificate. Upon surrender of such Empire Certificate,
however, both the FLAG Certificate, together with all undelivered dividends or
other distributions (without interest) and any undelivered cash payments to be
paid in lieu of fractional shares (without interest), will be delivered and paid
with respect to each share represented by such Empire Certificate. In no event
will the holder of any surrendered Empire Certificate(s) be entitled to receive
19
<PAGE>
interest on any cash to be issued to such holder, and in no event will FLAG or
the Exchange Agent be liable to any holder of Empire Common Stock for any
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property, escheat, or similar law.
After the Effective Time, no transfers of shares of Empire Common Stock
on Empire's stock transfer books will be recognized. If Empire Certificates are
presented for transfer after the Effective Time, they will be canceled and
exchanged for the shares of FLAG Common Stock and a check for the amount due in
lieu of fractional shares, if any, deliverable in respect thereof.
After the Effective Time, holders of Empire Certificates will have no
rights with respect to the shares of Empire Common Stock formerly represented
thereby other than the right to surrender such Empire Certificates and receive
in exchange therefor the shares of FLAG Common Stock, if any, to which such
holders are entitled, as described above, or the right to perfect their
dissenters' rights.
If any FLAG Certificate is to be issued in a name other than that in
which the Empire Certificate surrendered for exchange is issued, the Empire
Certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the Empire Certificates surrendered,
shall provide funds for the purchase of any stock transfer tax stamps, or shall
establish to the exchange agent's satisfaction that such taxes are not payable.
Conditions to Consummation of the Merger
Consummation of the Merger is subject to various conditions, including:
(a) approval of the Merger Agreement by the shareholders of Empire as
required by any law or by the provisions of any governing instruments of
Empire;
(b) receipt of certain regulatory approvals required for consummation of
the Merger (see "-- Regulatory Approvals");
(c) receipt of all consents required for consummation of the Merger or for
the preventing of any default under any contract or permit which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect;
(d) the absence of any law or order or any action taken by any court,
governmental, or regulatory authority prohibiting, restricting, or making
illegal the consummation of the transactions contemplated by the Merger
Agreement;
(e) the Registration Statement being declared effective and the receipt of
all necessary SEC and state approvals relating to the issuance or trading
of the shares of FLAG Common Stock issuable pursuant to the Merger
Agreement;
(f) approval of the shares of FLAG Common Stock issuable pursuant to the
Merger Agreement for listing on the Nasdaq National Market;
(g) receipt of an opinion of Powell, Goldstein, Frazer & Murphy LLP as to
the qualification of the Merger as a tax-free reorganization (see "--
Certain Federal Income Tax Consequences");
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(h) the accuracy, as of the date of the Merger Agreement and as of the
Effective Time, of the representations and warranties of Empire and FLAG as
set forth in the Merger Agreement;
(i) the performance of all agreements and the compliance with all covenants
of Empire and FLAG as set forth in the Merger Agreement;
(j) receipt by FLAG of a letter from Porter Keadle Moore, LLP to the effect
the Merger will qualify for pooling-of-interests accounting treatment; and
(k) satisfaction of certain other conditions, including the receipt of
certain agreements of the affiliates of Empire, the execution of certain
claims letters by the directors and officers of Empire, the receipt of
certain opinion letters from counsel for FLAG and counsel for Empire, and
receipt of various certificates from the officers of Empire and FLAG.
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before
December 31, 1998, the Merger Agreement may be terminated and the Merger
abandoned by either Empire or FLAG, unless the failure to consummate the Merger
by that date is the result of a breach of the Merger Agreement by the party
seeking termination. See "-- Waiver, Amendment, and Termination."
Regulatory Approvals
The Merger may not be consummated in the absence of the receipt of the
requisite regulatory approvals.
Empire and FLAG are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it presently is
contemplated that such approval or action would be sought.
The Merger requires the prior approval of the Federal Reserve, pursuant
to Section 3 of the BHC Act. FLAG filed all required applications with the
Federal Reserve. In evaluating the Merger, the Federal Reserve must consider,
among other factors, the financial and managerial resources and future prospects
of the institutions and the convenience and needs of the communities to be
served. The relevant statutes prohibit the Federal Reserve from approving the
Merger if (i) it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the United States or (ii) its effect in any section of
the country may be to substantially lessen competition or to tend to create a
monopoly, or if it would be a restraint of trade in any other manner, unless the
Federal Reserve finds that any anticompetitive effects are outweighed clearly by
the public interest and the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The Merger may not be
consummated until the 30th day (which the Federal Reserve may reduce to 15 days)
following the date of the Federal Reserve approval, during which time the United
States Department of Justice may challenge the transaction on antitrust grounds.
The commencement of any antitrust action would stay the effectiveness of the
approval of the agencies, unless a court of competent jurisdiction specifically
orders otherwise. The Federal Reserve approved the application of FLAG to
acquire Empire on September 16, 1998.
The Merger also requires the prior approval of the GDBF pursuant to the
Financial Institutions Code of Georgia. FLAG has filed all applications required
to be filed with the GDBF in connection with the Merger. The GDBF approved the
application of FLAG to acquire Empire on September 14, 1998.
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Waiver, Amendment, and Termination
To the extent permitted by applicable law, Empire and FLAG may amend
the Merger Agreement by written agreement at any time before approval of the
Merger Agreement by the Empire shareholders. After the Empire shareholders
approve the Merger Agreement no amendment shall be made to the Merger Agreement
that, pursuant to Sections 14-2-1101 and 14-2-1103 of the GBCC, requires further
approval by such shareholders without the further approval of such shareholders.
In addition, prior to or at the Effective Time, either Empire or FLAG, or both,
acting through their respective Boards of Directors, chief executive officers or
other authorized officers may waive any default in the performance of any term
of the Merger Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Merger Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of any applicable law or
governmental regulation. No such waiver will be effective unless written and
unless signed by a duly authorized officer of Empire or FLAG, as the case may
be.
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time (i) by the mutual consent of Empire and FLAG or
(ii) by Empire or FLAG (a) in the event of any material breach of any
representation or warranty of the other party contained in the Merger Agreement
which cannot be or has not been cured within 30 days after giving written notice
to the breaching party of such inaccuracy and which breach is reasonably likely,
in the opinion of the non-breaching party, to have, individually or in the
aggregate, an Empire or FLAG Material Adverse Effect (as defined in the Merger
Agreement), as applicable, on the breaching party (provided that the terminating
party is not then in material breach of any representation, warranty, covenant,
or other agreement contained in the Merger Agreement), (b) in the event of a
material breach by the other party of any covenant or agreement contained in the
Merger Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach (provided that
the terminating party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in the Merger Agreement), (c)
if the Merger is not consummated by December 31, 1998, provided that the failure
to consummate is not due to a breach by the party electing to terminate, or (d)
provided that the terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in the Merger
Agreement, if (1) any approval of any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the Merger
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal or (2) the
shareholders of Empire fail to vote their approval of the matters submitted for
the approval by such shareholders at the Special Meeting.
If the Merger is terminated as described above, the Merger Agreement
will become void and have no effect, except that certain provisions of the
Merger Agreement, including those relating to the obligations to maintain the
confidentiality of certain information obtained, will survive. In addition,
termination of the Merger Agreement will not relieve any breaching party from
liability for any uncured willful breach of a representation, warranty,
covenant, or agreement giving rise to such termination.
Dissenters' Rights
If the Merger Agreement and the transactions contemplated thereby are
consummated, any shareholder of Empire who properly dissented from the Merger in
connection with the Special Meeting of Empire shareholders held on September 29,
1998 would be entitled to receive in cash the fair value of such shareholder's
shares of Empire Common Stock determined immediately prior to the Merger,
excluding any appreciation or depreciation in anticipation of the Merger. No
Empire shareholders dissented from the Merger.
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The holders of FLAG Common Stock are not entitled to dissenters' rights
under the GBCC with respect to the Merger.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Empire and FLAG have agreed that
unless the prior written consent of the other party has been obtained, and
except as otherwise expressly contemplated in the Merger Agreement, each of
Empire and FLAG will, and will cause its respective subsidiaries to (i) operate
its business only in the usual, regular, and ordinary course, (ii) preserve
intact its business organization and assets and maintain its rights and
franchises, and (iii) take no action which would (a) materially adversely affect
the ability of any party to obtain any consents required for the transactions
contemplated by the Merger Agreement without the imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c) of the Merger Agreement, or (b) materially adversely affect the ability
of any party to perform its covenants and agreements under the Merger Agreement.
In addition, Empire has agreed that, from the date of the Merger
Agreement until the earlier of the Effective Time or the termination of the
Merger Agreement, unless FLAG has given prior written consent, and except as
otherwise expressly contemplated by the Merger Agreement, Empire will not do or
agree or commit to do, or permit any of its subsidiaries to do or agree or
commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Empire entity;
(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of an Empire entity to another Empire
entity) in excess of an aggregate of $100,000 (for the Empire entities on a
consolidated basis) except in the ordinary course of the business of the
Empire subsidiaries consistent with past practices (which shall include,
for Empire subsidiaries that are depository institutions, creation of
deposit liabilities, purchases of federal funds, advances from the Federal
Reserve Bank or Federal Home Loan Bank, and entry into repurchase
agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any asset of any Empire entity of any
lien or permit any such lien to exist (other than in connection with
deposits, repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and
liens in effect as of the date of the Merger Agreement that were previously
disclosed to FLAG by Empire);
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Empire entity, or declare or pay any dividend or
make any other distribution in respect of Empire's capital stock;
(d) except for the Merger Agreement, or pursuant to the exercise of stock
options outstanding as of the date thereof and pursuant to the terms
thereof in existence on the date thereof, or as previously disclosed to
FLAG by Empire, issue, sell, pledge, encumber, authorize the issuance of,
enter into any contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional
shares of Empire Common Stock or any other capital stock of any Empire
entity, or any stock appreciation rights, or any option, warrant, or other
equity right;
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(e) adjust, split, combine or reclassify any capital stock of any Empire
entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Empire Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any asset
having a book value in excess of $100,000 other than in the ordinary course
of business for reasonable and adequate consideration or any shares of
capital stock of any Empire subsidiary (unless any such shares of stock are
sold or otherwise transferred to another Empire entity);
(f) enter into or amend any employment contract between any Empire entity
and any person having a salary thereunder in excess of $50,000 per year
(unless such amendment is required by law) that the Empire entity does not
have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the
Effective Time of the Merger;
(g) except for loans made in the ordinary course of its business, make any
material investment, either by purchase of stock or securities,
contributions to capital, asset transfers, or purchase of any assets, in
any entity other than a wholly owned Empire subsidiary, or otherwise
acquire direct or indirect control over any entity, other than in
connection with (i) foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution subsidiary in its
fiduciary capacity, or (iii) the creation of new wholly owned subsidiaries
organized to conduct or continue activities otherwise permitted by the
Merger Agreement;
(h) grant any increase in compensation or benefits to the employees or
officers of any Empire entity, except in accordance with past practice
previously disclosed to FLAG by Empire or as required by law; pay any
severance or termination pay or any bonus other than pursuant to written
policies or written contracts in effect on the date of the Merger Agreement
and previously disclosed to FLAG by Empire; enter into or amend any
severance agreements with officers of any Empire entity; grant any material
increase in fees or other increases in compensation or other benefits to
directors of any Empire entity except in accordance with past practice
previously disclosed to FLAG by Empire; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or employee
benefits or other equity rights;
(i) adopt any new employee benefit plan of any Empire entity or terminate
or withdraw from, or make any material change in or to, any existing
employee benefit plans of any Empire entity other than any such change that
is required by law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any such plan, or make
any distributions from such employee benefit plans, except as required by
law, the terms of such plans or consistent with past practice;
(j) make any significant change in any tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform to
changes in tax laws or regulatory accounting requirements or GAAP;
(k) commence any litigation other than in accordance with past practice or
except as previously disclosed to FLAG by Empire, settle any litigation
involving any liability of any Empire entity for material money damages or
restrictions upon the operations of any Empire entity; or
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(l) except in the ordinary course of business, enter into, modify, amend or
terminate any material contract (including any loan contract with an unpaid
balance exceeding $50,000) or waive, release, compromise or assign any
material rights or claims.
The Merger Agreement also provides that from the date of the Merger
Agreement until the earlier of the Effective Time or the termination of the
Merger Agreement, unless Empire has given prior written consent, and except as
otherwise expressly contemplated by the Merger Agreement, FLAG will not or agree
or commit to amend the Articles of Incorporation or Bylaws of FLAG in any manner
adverse to the holders of Empire Common Stock or take any action that will
materially adversely impact the ability of the FLAG entities to consummate the
Merger.
Management and Operations After the Merger; Interests of Certain Persons in the
Merger
FLAG will be the surviving corporation resulting from the Merger.
Certain members of Empire's management and the Empire Board of Directors have
interests in the Merger in addition to their interests as shareholders of Empire
generally. These include, among other things, provisions in the Merger Agreement
relating to indemnification of directors and officers and eligibility for
certain FLAG employee benefits. Promptly after the Effective Time, Leonard H.
Bateman, President and Chief Executive of Empire, will become a member of FLAG's
Board of Directors and will continue to serve as President of Empire Bank.
Additionally, the Merger Agreement provides that Mr. Bateman and FLAG will
execute a Separation Agreement. As of the Empire Record Date, none of the
directors and officers of Empire beneficially owned any shares of FLAG Common
Stock.
Indemnification and Advancement of Expenses. The Merger Agreement
provides that FLAG will indemnify, defend and hold harmless each person entitled
to indemnification from an Empire entity against all liabilities arising out of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by the Merger Agreement) to the fullest extent
permitted under Georgia law and by Empire's Articles of Incorporation and Bylaws
as in effect on the date of the Merger Agreement, including provisions relating
to advances of expenses incurred in the defense of any litigation. Without
limiting the foregoing, in any case in which approval by FLAG is required to
effectuate any indemnification, FLAG will direct, at the election of the
indemnified party, that the determination of any such approval shall be made by
independent counsel mutually agreed upon between FLAG and the indemnified party.
Separation Agreement. The Merger Agreement provides that, as a
condition to consummation of the Merger, FLAG will provide Mr. Bateman with a
Separation Agreement. Pursuant to the terms of the Separation Agreement, Mr.
Bateman will receive severance payments equal to his annual base salary and
bonus paid over the previous three fiscal years in the event Mr. Bateman is
involuntarily terminated, as such term is defined in the Separation Agreement.
In addition, pursuant to the terms of the Separation Agreement, Mr. Bateman will
make certain covenants not to compete with FLAG during the term of the
Separation Agreement and for a 12-month period following the termination of the
Separation Agreement or the termination of Mr. Bateman's status as an employee
of FLAG.
Other Matters Relating to Employee Benefit Plans. The Merger Agreement
also provides that, after the Effective Time, FLAG will either (i) continue to
provide to officers and employees of the Empire entities employee benefits under
Empire's existing employee benefit and welfare plans or, (ii) if FLAG determines
to provide to officers and employees of the Empire entities employee benefits
under other employee benefit plans and welfare plans, provide generally to
officers and employees of the Empire entities employee benefits under employee
benefit and welfare plans (other than stock option or other plans involving the
potential issuance of FLAG Common Stock), on terms and conditions which when
taken as a whole are substantially similar to those currently provided by the
FLAG entities to their similarly situated officers and employees. For purposes
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of participation and vesting (but not accrual of benefits) under FLAG's employee
benefit plans, (i) service under any qualified defined benefit plan of Empire
will be treated as service under FLAG's defined benefit plan, if any, (ii)
service under any qualified defined contribution plans of Empire will be treated
as service under FLAG's qualified defined contribution plans, and (iii) service
under any other employee benefit plans of Empire will be treated as service
under any similar employee benefit plans maintained by FLAG. With respect to
officers and employees of the Empire entities who, at or after the Effective
Time, become employees of a FLAG entity and who, immediately prior to the
Effective Time, are participants in one or more employee welfare benefit plans
maintained by the Empire entities, FLAG will cause each comparable employee
welfare benefit plan which is substituted for an Empire welfare benefit plan to
waive any evidence of insurability or similar provision, to provide credit for
such participation prior to such substitution with regard to the application of
any pre-existing condition limitation, and to provide credit towards
satisfaction of any deductible or out-of-pocket provisions for expenses incurred
by such participants during the period prior to such substitution, if any, that
overlaps with the then current plan year for each such substituted employee
welfare benefit plan. FLAG also will cause the surviving corporation and its
subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation contracts previously disclosed to FLAG by
Empire between any Empire entity and any current or former director, officer, or
employee thereof, and all provisions for vested benefits or other vested amounts
earned or accrued through the Effective Time under the Empire benefit plans.
Certain Federal Income Tax Consequences
The following is a summary of the material anticipated federal income
tax consequences of the Merger. This summary is based on the federal income tax
laws now in effect and as currently interpreted; it does not take into account
possible changes in such laws or interpretations, including amendments to
applicable statutes or regulations or changes in judicial decisions or
administrative rulings, some of which may have retroactive effect. This summary
does not purport to address all aspects of the possible federal income tax
consequences of the Merger and is not intended as tax advice to any person. In
particular, and without limiting the foregoing, this summary does not address
the federal income tax consequences of the Merger to shareholders in light of
their particular circumstances or status (for example, as foreign persons,
tax-exempt entities, dealers in securities, and insurance companies, among
others). Nor does this summary address any consequences of the Merger under any
state, local, estate, or foreign tax laws. Shareholders, therefore, are urged to
consult their own tax advisors as to the specific tax consequences to them of
the Merger, including tax return reporting requirements, the application and
effect of federal, foreign, state, local, and other tax laws, and the
implications of any proposed changes in the tax laws.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service ("IRS"). Instead, Powell, Goldstein,
Frazer & Murphy LLP, counsel to FLAG, will render an opinion to Empire and FLAG
concerning material federal income tax consequences of the proposed Merger under
federal income tax law. It is such firm's opinion that, based upon the
assumption the Merger is consummated in accordance with the Merger Agreement and
the representations made by the management of Empire and FLAG, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Assuming the Merger does qualify as a reorganization pursuant to
Section 368(a) of the Code, the shareholders of Empire will have the following
federal income tax consequences:
(a) The shareholders of Empire will recognize no gain or loss
upon the exchange of all of their Empire Common Stock solely for shares
of FLAG Common Stock.
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(b) The aggregate tax basis of the FLAG Common Stock received
by the Empire shareholders in the Merger will, in each instance, be the
same as the aggregate tax basis of the Empire Common Stock surrendered
in exchange therefor, less the basis of any fractional share of FLAG
Common Stock settled by cash payment.
(c) The holding period of the FLAG Common Stock received by
the Empire shareholders will, in each instance, include the period
during which the Empire Common Stock surrendered in exchange therefor
was held, provided that the Empire Common Stock was held as a capital
asset on the date of the exchange.
(d) The payment of cash to Empire shareholders in lieu of
fractional share interests of FLAG Common Stock will be treated for
federal income tax purposes as if the fractional shares were
distributed as part of the exchange and then were redeemed by FLAG.
These cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed.
Generally, any gain or loss recognized upon such exchange will be
capital gain or loss, provided the fractional share would constitute a
capital asset in the hands of the exchanging shareholder.
(e) Where solely cash is received by an Empire shareholder in
exchange for Empire Common Stock pursuant to the exercise of
dissenters' rights, the former Empire shareholder will be subject to
federal income tax as a result of such transaction. The cash will be
treated as having been received as a redemption in exchange for such
holder's Empire Common Stock, subject to the provisions and limitations
of Section 302 of the Code.
Upon the subsequent sale or exchange of FLAG Common Stock, a holder of
such stock generally will recognize capital gain or loss equal to the difference
between the amount of cash and the fair market value of any property received
upon the sale or exchange and such holder's adjusted tax basis in the FLAG
Common Stock. Under recently enacted legislation, capital gains recognized by
certain non-corporate holders of FLAG Common Stock generally will be subject to
a maximum federal income tax rate of 20% if the shares sold or exchanged are
held for more than 18 months, and to a maximum federal income tax rate of 28% if
such shares are held for more than one year but are not held for more than 18
months. Tax consequences to dealers in FLAG Common Stock, non-United States
holders of FLAG Common Stock or others who have a special tax status (including,
without limitation, financial institutions, insurance companies and tax-exempt
entities) or to persons who received their shares through the exercise of
employee stock options or otherwise as compensation may be different and such
persons should consult their tax advisors as to the tax consequences of a sale
or exchange of FLAG Common Stock.
Each Empire shareholder who receives FLAG Common Stock in the Merger
will be required to attach a statement to such shareholder's federal income tax
return for the year of the Merger which describes the facts of the Merger,
including the shareholder's basis in the Empire Common Stock exchanged, and the
number of shares of FLAG Common Stock received in exchange for Empire Common
Stock. Each shareholder should also keep as part of such shareholder's permanent
records information necessary to establish such shareholder's basis in, and
holding period for, the FLAG Common Stock received in the Merger.
If the Merger fails to qualify as a tax-free reorganization for any
reason, the principal federal income tax consequences, under currently
applicable law, would be as follows: (i) gain or loss would be recognized to
Empire as a result of the Merger; (ii) gain or loss would be recognized by the
holders of Empire Common Stock upon the exchange of such shares in the Merger
for shares of FLAG Common Stock; (iii) the tax basis of the FLAG Common Stock to
be received by the holders of Empire Common Stock in the Merger would be the
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fair market value of such shares of FLAG Common Stock at the Effective Time; and
(iv) the holding period of such shares of FLAG Common Stock to be received by
Empire shareholders pursuant to the Merger would begin the day after the
Effective Time. If the condition of receiving this tax opinion is waived by
Empire, Empire will resolicit its shareholders prior to proceeding with the
Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER CIRCUMSTANCES, EACH
HOLDER OF EMPIRE COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISORS
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS).
Accounting Treatment
It is anticipated that the Merger will be accounted for as a pooling of
interests. Under the pooling-of-interests method of accounting, the recorded
amounts of the assets and liabilities of Empire will be carried forward at their
previously recorded amounts.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding Empire Common
Stock must be exchanged for FLAG Common Stock with substantially similar terms.
There are certain other criteria that must be satisfied in order for the Merger
to qualify as a pooling of interests, some of which criteria cannot be satisfied
until after the Effective Time.
For information concerning certain conditions to be imposed on the
exchange of Empire Common Stock for FLAG Common Stock in the Merger by
affiliates of Empire and certain restrictions to be imposed on the
transferability of the FLAG Common Stock received by those affiliates in the
Merger in order, among other things, to ensure the availability of
pooling-of-interests accounting treatment, see "-- Resales of FLAG Common
Stock."
Expenses and Fees
The Merger Agreement provides that each of the parties will bear and
pay all direct costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated by the Merger Agreement, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
In the event the Merger Agreement is terminated by FLAG as a result of
a material breach by Empire of any representation, warranty, covenant or
agreement, which cannot be or has not been cured within 30 days after FLAG has
given Empire written notice of such breach, and the breach of any representation
or warranty, in the opinion of FLAG is reasonably likely to have a material
adverse effect or if the Empire shareholders do not approve the Merger
Agreement, then Empire shall pay to FLAG an amount equal to the lesser of
$100,000 or FLAG's actual out of pocket expenses incurred in connection with the
Merger transaction.
In the event that the Merger Agreement is terminated by Empire as a
result of a material breach by FLAG of any representation, warranty, covenant or
agreement, which cannot or has not been cured within 30 days after Empire has
given FLAG written notice of such breach, and the breach of any representation
or warranty, in the opinion of Empire, is reasonably likely to have a material
adverse effect, then FLAG shall pay to Empire an amount equal to the lesser of
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$100,000 or Empire's actual out of pocket expenses incurred in connection with
the Merger transaction.
Resales of FLAG Common Stock
FLAG Common Stock to be issued to shareholders of Empire in connection
with the Merger will be registered under the Securities Act. All shares of FLAG
Common Stock received by holders of Empire Common Stock and all shares of FLAG
Common Stock issued and outstanding immediately prior to the Effective Time,
upon consummation of the Merger will be freely transferable by those
shareholders of Empire and FLAG not deemed to be "Affiliates" of Empire or FLAG.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Empire or FLAG at the time of
the Special Meetings (generally, directors, executive officers and 10%
shareholders).
Rules 144 and 145 promulgated under the Securities Act restrict the
sale of FLAG Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, during the
one-year period following the Effective Time, Affiliates of Empire or FLAG may
resell publicly the FLAG Common Stock received by them in the Merger within
certain limitations as to the amount of FLAG Common Stock sold in any
three-month period and as to the manner of sale. After this one-year period,
such Affiliates of Empire who are not Affiliates of FLAG may resell their shares
without restriction. The ability of Affiliates to resell shares of FLAG Common
Stock received in the Merger under Rule 144 or 145 as summarized herein
generally will be subject to FLAG's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates will
receive additional information regarding the effect of Rules 144 and 145 on
their ability to resell FLAG Common Stock received in the Merger. Affiliates
also would be permitted to resell FLAG Common Stock received in the Merger
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Proxy Statement does not cover any resales of FLAG Common Stock received by
persons who may be deemed to be Affiliates of Empire or FLAG.
Empire has agreed to use its reasonable efforts to cause each person
who may be deemed to be an Affiliate of Empire to execute and deliver to FLAG
prior to the Effective Time, an agreement (each, an "Empire Affiliate
Agreement") providing that such Affiliate will not sell, pledge, transfer, or
otherwise dispose of any FLAG Common Stock obtained as a result of the Merger
(i) except in compliance with the Securities Act and the rules and regulations
of the SEC thereunder and (ii) in any case, until after results covering 30 days
of post-Merger operations of FLAG have been published. The receipt of the Empire
Affiliate Agreements by FLAG is also a condition to FLAG's obligations to
consummate the Merger. Empire Certificates surrendered for exchange by any
person who is an Affiliate of Empire for purposes of Rule 145(c) under the
Securities Act shall not be exchanged for FLAG Certificates until FLAG has
received such a written agreement from such person. Prior to publication of such
results, FLAG will not transfer on its books any shares of FLAG Common Stock
received by an Affiliate pursuant to the Merger. The stock certificates
representing FLAG Common Stock issued to Affiliates in the Merger may bear a
legend summarizing the foregoing restrictions. See "-- Conditions to
Consummation of the Merger."
DESCRIPTION OF FLAG COMMON STOCK
FLAG's authorized capital stock consists of 20,000,000 shares of $1.00
par value common stock, and 10,000,000 shares of preferred stock. The holders of
the FLAG Common Stock have unlimited voting rights and are entitled to one vote
per share for all purposes. Subject to such preferential rights as may be
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determined by the Board of Directors of FLAG in connection with the future
issuance of shares of FLAG preferred stock, holders of FLAG Common Stock are
entitled to such dividends, if any, as may be declared by the Board of Directors
of FLAG in compliance with the provisions of the GBCC and the regulations of the
appropriate regulatory authorities, and to receive the net assets of the
corporation upon dissolution. The FLAG Common Stock does not have any preemptive
rights with respect to acquiring additional shares of FLAG Common Stock, and the
shares are not subject to any conversion, redemption or sinking fund provisions.
The outstanding shares of FLAG Common Stock are, and the shares to be issued by
FLAG in connection with the Merger Agreement will be, when issued, fully-paid
and nonassessable. The FLAG Board of Directors is divided into three classes, as
nearly equal in number as possible. FLAG Common Stock does not have cumulative
voting rights in the election of FLAG directors.
The Board of Directors is authorized to determine the series,
preferences, limitations, and relative rights, including par value, of any
authorized but unissued shares of FLAG preferred stock. No shares of FLAG
preferred stock are presently outstanding, and although such shares may be
issued in the future, FLAG has no present plans to issue any preferred stock.
The FLAG preferred stock was authorized for future flexibility, and could be
issued in a manner that could have an anti-takeover effect by discouraging a
third party from seeking to acquire FLAG. FLAG knows of no present attempts to
acquire FLAG.
In order to approve certain "business combinations" with certain
"interested shareholders" (10% or more shareholders), or to amend the provisions
in the FLAG Articles of Incorporation relating to such business combinations,
the affirmative vote of two-thirds of the issued and outstanding shares of the
corporation entitled to vote thereon is required, unless (i) at least two-thirds
of the directors of FLAG approve a memorandum of understanding with the
interested shareholder regarding the business combination prior to the date on
which such shareholder became an interested shareholder, or (ii) the business
combination is unanimously approved by certain "continuing directors" of FLAG.
In addition, in order to amend certain provisions of FLAG's Articles of
Incorporation and Bylaws relating to the number, election, term and removal of
FLAG Directors, a two-thirds vote of the issued and outstanding shares of FLAG
is required, unless two-thirds of the directors then serving approve the
amendment.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of Empire Common Stock will be
exchanging their shares of a Georgia corporation governed by the GBCC and
Empire's Articles of Incorporation (the "Empire Articles"), and Bylaws, for
shares of Common Stock of FLAG, a Georgia corporation governed by the GBCC and
FLAG's Articles of Incorporation (the "FLAG Articles"), and Bylaws. Certain
significant differences exist between the rights of Empire shareholders and
those of FLAG shareholders. The differences deemed material by Empire and FLAG
are summarized below. The following discussion is necessarily general; it is not
intended to be a complete statement of all the differences affecting the rights
of shareholders, and their respective entities, and it is qualified in its
entirety by reference to the GBCC as well as to FLAG's Articles and Bylaws and
Empire's Articles and Bylaws.
Authorized Capital Stock
FLAG. The FLAG Articles authorize the issuance of an aggregate of
20,000,000 shares of Common Stock, $1.00 par value, of which 5,174,807 shares
were issued and outstanding as of the June 30, 1998. The FLAG Articles also
authorize the issuance, in one or more series, of not more than 10,000,000
shares of preferred stock ("FLAG Preferred Stock") with preferences, limitations
and relative rights, including par value, as the FLAG Board of Directors from
time to time may determine and set forth in an amendment to the FLAG Articles.
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Shares of FLAG Common Stock have unlimited voting rights and are
entitled to receive the net assets of FLAG upon the dissolution of the
corporation. The FLAG Bylaws provide that each share of FLAG Common Stock is
entitled to one vote per share for all purposes.
FLAG's Board of Directors may authorize the issuance of authorized but
unissued shares of FLAG Common Stock without further action by FLAG's
shareholders, unless such action is required in a particular case by applicable
laws or regulations or by any stock exchange upon which FLAG's capital stock may
be listed. FLAG's shareholders do not have the preemptive right to purchase or
subscribe to any unissued authorized shares of FLAG Common Stock or FLAG
Preferred Stock or any option or warrant for the purchase thereof.
The authority to issue additional shares of FLAG Common Stock provides
FLAG with the flexibility necessary to meet its future needs without the delay
resulting from seeking shareholder approval. The authorized but unissued shares
of FLAG Common Stock will be issuable from time to time for any corporate
purpose, including, without limitation, stock splits, stock dividends, employee
benefit and compensation plans, acquisitions, and public or private sales for
cash as a means of raising capital. Such shares could be used to dilute the
stock ownership of persons seeking to obtain control of FLAG. In addition, the
sale of a substantial number of shares of FLAG Common Stock to persons who have
an understanding with FLAG concerning the voting of such shares, or the
distribution or declaration of a dividend of shares of FLAG Common Stock (or the
right to receive FLAG Common Stock) to FLAG shareholders, may have the effect of
discouraging or increasing the cost of unsolicited attempts to acquire control
of FLAG.
Empire. Empire's authorized capital stock consists of 1,000,000 shares
of Empire Common Stock, $10.00 par value, of which 26,450 shares were issued and
outstanding as of the Empire Record Date. Each share of Empire Common Stock is
entitled to one vote per share for all purposes. Empire's shareholders do not
have the preemptive right to purchase or subscribe to any unissued authorized
shares of Empire Common Stock or any option or warrant for the purchase thereof.
In addition, the Board of Directors of Empire has the ability to increase the
number of issued and outstanding shares of Empire Common Stock without the
approval of the shareholders, within the maximum number of shares authorized by
the Empire Articles.
Amendment of Articles of Incorporation and Bylaws
FLAG. The FLAG Articles and Bylaws are generally silent with respect to
the issue of amending the FLAG Articles, and thus, the GBCC dictates the
requirements for making such an amendment. The GBCC generally provides that
other than in the case of certain routine amendments which may be made by a
corporation's board of directors without shareholder action (such as changing
the corporate name), and other amendments which the GBCC specifically allows
without shareholder action, the corporation's board of directors must recommend
any amendment of the FLAG Articles to the shareholders (unless the board elects
to make no such recommendation because of a conflict of interest or other
special circumstances, and the board communicates the reasons for its election
to the shareholders) and the affirmative vote of a majority of the votes
entitled to be cast on the amendment by each voting group entitled to vote on
the amendment (unless the GBCC, the articles of incorporation, or the board
require a greater vote or a vote by voting groups) is required to amend a
corporation's articles of incorporation. The FLAG Articles provide that the
provisions regarding the approval required for certain business combinations may
only be changed by the affirmative vote of at least two-thirds of the issued and
outstanding shares of the corporation entitled to vote thereon at any regular or
special meeting of the shareholders, and notice of the proposed change must be
contained in the notice of the meeting, unless two-thirds of certain "continuing
directors" approve the proposed amendment. The FLAG Articles also provide that
the provisions regarding the election, term and removal of FLAG Directors may
only be amended or rescinded by the affirmative vote of the holders of at least
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two-thirds of the issued and outstanding shares of FLAG entitled to vote in an
election of directors or at any regular or special meeting of the shareholders,
and notice of any proposed change must be contained in the notice of the
meeting, unless two-thirds of the directors then serving approve the proposed
amendment.
The FLAG Bylaws generally provide that the Bylaws may be made, amended
or repealed by the FLAG Board of Directors unless the FLAG Articles or the GBCC
reserve the power to amend or repeal the Bylaws exclusively to the shareholders
in whole or in part, or the shareholders, in amending or repealing a particular
Bylaw, provide expressly that the FLAG Board of Directors may not amend or
repeal that Bylaw. Neither the FLAG Articles nor Bylaws expressly permit the
FLAG shareholders to make, alter or rescind any Bylaws. Any amendment of the
provisions in the FLAG Bylaws relating to the number of directors of FLAG
requires the affirmative vote of two-thirds of all directors then in office or
the affirmative vote of the holders of two-thirds of the issued and outstanding
shares of FLAG entitled to vote at any regular or special meeting of the
shareholders called for that purpose. Unless two-thirds of the directors then
serving approve, the provisions in the FLAG Bylaws relating to the removal of
FLAG directors by the FLAG shareholders may only be amended or rescinded by the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of FLAG entitled to vote in an election of directors or at
any regular or special meeting of the shareholders, and notice of any proposed
change must be contained in the notice of the meeting.
Empire. The Empire Articles and Bylaws are generally silent with
respect to the issue of amending the Empire Articles, and thus, the GBCC
dictates the requirements for making such an amendment. The GBCC generally
provides that other than in the case of certain routine amendments which may be
made by a corporation's board of directors without shareholder action (such as
changing the corporate name), and other amendments which the GBCC specifically
allows without shareholder action, the corporation's board of directors must
recommend the amendment to the shareholders (unless the board elects to make no
such recommendation because of a conflict of interest or other special
circumstances, and the board communicates the reasons for its election to the
shareholders) and the affirmative vote of a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment
(unless the GBCC, the articles of incorporation, or the board require a greater
vote or a vote by voting groups) is required to amend a corporation's articles
of incorporation.
In general, Empire's Bylaws may be altered, amended, or repealed by the
Empire Board of Directors, subject to the ratification and approval of such
amendments at the annual meeting of Empire shareholders by majority vote of the
shares entitled to elect directors. The Empire Bylaws provide that the Empire
shareholders have the power to alter, amend or repeal any bylaws adopted by the
Board of Directors of Empire, and new Bylaws may be adopted by the Empire
shareholders. In addition, the shareholders may prescribe that any bylaw or
bylaws adopted by them shall not be altered, amended, or repealed by the Empire
Board of Directors. Action taken by the shareholders with respect to the Empire
Bylaws must be taken by an affirmative vote of a majority of all shares entitled
to elect directors, and action by the Board of Directors with respect to the
Empire Bylaws must be taken by an affirmative vote of a majority of all
directors then holding office.
Classified Board of Directors and Absence of Cumulative Voting
FLAG. FLAG's Bylaws generally provide that the number of directors
constituting the FLAG Board of Directors shall be between ten and twenty-five,
with the exact number to be fixed from time to time by the Board of Directors.
The FLAG Board of Directors is classified. The FLAG Articles and Bylaws provide
that FLAG's Board of Directors is divided into three classes, with each class to
be as nearly equal in number as possible. The directors in each class serve
three-year terms of office. The effect of FLAG having a classified Board of
Directors is that only approximately one-third of the members of the Board of
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Directors are elected each year, which effectively requires two annual meetings
for FLAG's shareholders to change a majority of the members of the Board of
Directors. The FLAG Bylaws provide that in the event of a vacancy on the FLAG
Board of Directors, including any vacancy created by reason of an increase in
the number of directors, such vacancy may be filled by the shareholders of FLAG,
the FLAG Board of Directors, or, if the directors remaining in office constitute
fewer than a quorum of the Board of Directors, by affirmative vote of a majority
of the remaining directors. FLAG shareholders do not have cumulative voting
rights with respect to the election of directors. All elections for directors
are decided by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present.
Empire. Unlike the FLAG Board of Directors, the Empire Board is not
classified. The number of directors is determined by the Board of Directors or
the Empire shareholders from time to time, but in no event will the Board of
Directors have less than three directors nor more than twenty-five directors.
The Empire Bylaws provide that the directors will be elected by the affirmative
vote of a majority of the shares represented at the annual meeting of Empire
shareholders.
Removal of Directors
FLAG. Under the FLAG Articles and Bylaws, any one or more directors of
FLAG may be removed from office, but only for cause (defined as final conviction
of a felony, request or demand for removal by any bank regulatory authority
having jurisdiction over FLAG, or breach of fiduciary duty involving personal
profit). Such removal must be effected by the affirmative vote of the holders of
a majority of the outstanding shares of FLAG.
Empire. Under Empire's Bylaws, the entire Board of Directors or any
individual director may be removed from office with or without cause by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of directors. In addition, the Board of Directors may remove a
director from office if such director is adjudicated an incompetent by a court,
if he is convicted of a felony, or if he fails to attend regular meetings of the
Board of Directors for three consecutive meetings without having been excused by
the Board of Directors.
Indemnification
FLAG. The FLAG Articles and Bylaws generally provide that any director
who is deemed eligible will be indemnified against liability and other expenses
incurred in a proceeding which is initiated against such person by reason of his
serving as a director, to the fullest extent authorized by the GBCC; provided,
however, that FLAG will not indemnify any director for any liability or expenses
incurred by such director (i) for any appropriation, in violation of his duties,
of any business opportunity of FLAG; (ii) for any acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Section 14-2-832 of the GBCC or successor
provisions; or (iv) for any transaction from which the director derives an
improper personal benefit. FLAG's Articles and Bylaws provide for the
advancement of expenses to its directors at the outset of a proceeding, upon the
receipt from such director of the written affirmation and repayment promise
required by Section 14-2-856 of the GBCC, the purchase of insurance by FLAG
against any liability of the director arising from his duties and actions as a
director, the survival of such indemnification to the director's heirs,
executors and administrators, and the limitation of a director's liability to
the corporation itself. The indemnification provisions state that they are
non-exclusive, and shall not impair any other rights to which those seeking
indemnification or advancement of expenses may be entitled. The FLAG Bylaws also
provide for similar indemnification of the officers of FLAG. The FLAG Bylaws
provide that, shareholders are entitled to notification of any indemnification
granted to the directors.
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Empire. The Empire Bylaws provide that Empire shall indemnify its
directors, officers, trustees, employees and agents for reasonable expenses
incurred in connection with any proceeding to which such person is made a party
due to his or her role as a current or former director, officer, trustee,
employee or agent of Empire; provided, however, that Empire will not indemnify
any such person for the expenses relating to any proceeding in which the person
is adjudged to have been guilty of or liable for gross negligence, willful
misconduct, or criminal acts in the performance of his duties to Empire. In
addition, no such person will be indemnified by Empire in relation to a
proceeding which has been the subject of a compromise settlement, except with
the approval of (i) a court of competent jurisdiction, (ii) the holders of
record of a majority of the outstanding shares of capital stock of Empire, or
(iii) a majority of the members of the Board of Directors then holding office,
excluding the votes of any directors who are parties to the same or
substantially the same proceeding. Furthermore, Section 14-2-856 of the GBCC
prevents the indemnification of directors who are found liable to Empire (or
subjected to injunctive relief in favor of Empire) for: (i) any appropriation,
in violation of his duties, of any business opportunity of Empire; (ii) any acts
or omissions which involve intentional misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the GBCC or
successor provisions; or (iv) any transaction from which the director derives an
improper personal benefit. Empire's Bylaws provide for the advancement of
expenses to such persons at the outset of a proceeding, upon the receipt from
such person of a promise of repayment, the purchase of insurance by Empire
against any liability of such person arising from his duties and actions as a
director, and the survival of such indemnification to the person's heirs,
executors and administrators. The indemnification provisions state that they are
non-exclusive, and shall not impair any other rights to which those seeking
indemnification or advancement of expenses may be entitled.
Special Meetings of Shareholders
FLAG. FLAG's Bylaws provide that special meetings of the shareholders
may be called at any time by a majority of the entire Board of Directors of
FLAG, the Chairman of the Board, the President, or, upon delivery to FLAG's
Secretary of a signed and dated written request setting out the purpose or
purposes for the meeting, the holders of a majority of the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting.
Empire. The Empire Bylaws provide that special meetings of the
shareholders may be called at any time by the President, Chairman of the Board
or the Board of Directors of Empire. Empire is required to call a special
meeting when requested in writing by the holders of not less than 25% of all the
shares entitled to vote in an election of directors.
Actions by Shareholders Without a Meeting
FLAG. With respect to whether action required or permitted to be taken
by FLAG shareholders must be effected at a duly called meeting of shareholders
or whether such action may be effected by written consent of the shareholders,
the FLAG Bylaws basically mirror Section 14-2-704 of the GBCC, which provides
that, unless otherwise provided in the articles of incorporation, action
required or permitted by the GBCC to be taken at an annual or special meeting
may be taken without a meeting if the action is taken by all the shareholders
entitled to vote on the action, or, if provided in the articles of
incorporation, by persons who would be entitled to vote at a meeting shares
having voting power to cast not less than the minimum number (or numbers, in the
case of voting by groups) of votes that would be necessary to authorize or take
the action at a meeting at which all shareholders entitled to vote were present
and voted. Since FLAG's Articles do not provide for the action by shareholders
of FLAG without a meeting, any such action must be taken by the unanimous
written consent of all shareholders entitled to vote on the action.
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The provisions of the GBCC do not affect the special voting
requirements contained in the FLAG Articles of Incorporation or Bylaws for the
approval of a business combination or the amendment of such provision. The
approval of a business combination or of an amendment to the provision which
sets forth the voting requirements of such combinations requires the affirmative
vote of the holders of two-thirds of all shares of FLAG Common Stock outstanding
and entitled to vote, unless (i) two-thirds of the directors of FLAG approve a
memorandum of understanding with the interested shareholder prior to the date
when such interested shareholder first became an interested shareholder, or (ii)
the business combination is unanimously approved by the continuing directors of
FLAG.
Empire. Under Section 14-2-706 of the GBCC, an action which is required
to be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action.
Mergers, Consolidations, and Sales of Assets
FLAG. The FLAG Articles generally require the affirmative vote of the
holders of at least two-thirds of all the issued and outstanding shares (other
than shares held by an "interested shareholder") of FLAG Common Stock entitled
to vote to approve a "business combination" with an interested shareholder
(basically, a 10% or more shareholder of FLAG), unless (i) two-thirds of the
directors of FLAG approve a memorandum of understanding with the interested
shareholder regarding the business combination prior to the date such
shareholder became an interested shareholder, or (ii) the business combination
is unanimously approved by certain "continuing directors" of FLAG. In addition,
FLAG's Bylaws expressly provide that the terms and requirements of Sections
14-2-1110 through 14-2-1113 of the GBCC will be applicable to FLAG and to any
business combination approved or recommended by the Board of Directors of FLAG.
As a result, Section 14-2-1111 requires that the business combination be (i)
unanimously approved by the continuing directors, provided that the continuing
directors constitute at least three members of the board of directors at the
time of such approval, or (ii) recommended by at least two-thirds of the
continuing directors and approved by a majority of the votes entitled to be cast
by the holders voting shares of the corporation (other than the voting shares
beneficially owned by the interested shareholder who is a party to the business
combination). These voting requirements are required in addition to any vote
otherwise required by law or the Articles of Incorporation of FLAG. Further,
Section 14-2-1112 states that the voting requirements in Section 14-2-1111 do
not apply as long as all of the shareholders of FLAG receive a fair price in
return for their stock as a result of the business combination. However, the
voting requirements contained within the FLAG Articles of Incorporation would
continue to apply to any such business combinations.
The provisions of the FLAG Articles of Incorporation and Bylaws
relating to business combinations and Sections 14-2-1110 through 14-2-1113 of
the GBCC are designed as anti-takeover measures, and for the protection of the
minority shareholders of FLAG against some of the inequities which arise in
certain hostile takeover attempts.
Empire. Because the Empire Bylaws do not specifically adopt the anti-
takeover provisions of the GBCC, the requirements of Sections 14-2-1110 through
14-2-1113 of the GBCC do not apply to Empire.
Shareholders' Rights to Examine Books and Records
FLAG. The FLAG Bylaws state that the Board of Directors of FLAG has the
power to determine which accounts and books of FLAG, if any, will be open to the
inspection of shareholders, except such books and records which are required by
law to be held open for inspection. The GBCC provides that a shareholder is
entitled to inspect and copy certain books and records (such as the
corporation's articles of incorporation or bylaws) upon written demand at least
five days before the date on which he wishes to inspect such records. A
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shareholder is entitled to inspect certain other documents (such as minutes of
the meetings of the board of directors, accounting records and the record of
shareholders of the corporation) provided that such inspection must occur during
regular business hours at a reasonable location determined by FLAG, and any such
demand for inspection will only be permitted if the following conditions are
met: (i) the demand for inspection is made in good faith, or made for a proper
purpose (a purpose reasonably relevant to such person's legitimate interest as a
shareholder); (ii) the shareholder describes with particularity his or her
purpose for the inspection and the documents which he wishes to inspect; (iii)
the records requested for inspection by the shareholder are directly connected
with his or her stated purpose; and, (iv) the records are to be used solely for
the shareholder's stated purpose. The FLAG Bylaws also state that the Board has
the power to prescribe reasonable rules and regulations not in conflict with
applicable law for the inspection of corporate books or accounts.
Empire. The Empire Bylaws contain substantially similar terms as the
FLAG Bylaws with respect to the rights of shareholders of Empire to inspect
corporate records. The Empire Board of Directors has the power to designate
which documents will be open for inspection, and the manner in which
shareholders may inspect such documents, subject to the requirements of the
GBCC.
Dividends
FLAG. The FLAG Bylaws provide that dividends upon the capital stock of
FLAG may be declared by the FLAG Board of Directors, as long as the Board of
Directors complies with the requirements of the GBCC and the applicable rules
and regulations of any relevant regulatory authorities. Such dividends may be
paid in cash, property, or shares of FLAG's capital stock. Section 14-2-640 of
the GBCC provides, generally, that no distribution, including dividends, may be
made by a corporation if, after giving the distribution effect: (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business; or (ii) the corporation's total assets would be less than
the sum of its total liabilities plus any amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
Empire. The Empire Bylaws provide that dividends may be declared by the
Empire Board of Directors at any regular or special meeting and paid in cash or
property only out of (i) the unreserved and unrestricted earned surplus of
Empire, or (ii) the unreserved and unrestricted net earnings of the current
fiscal year computed to the date of declaration of the dividend or the next
preceding fiscal year. Dividends may be paid in Empire Common Stock out of
treasury shares. In addition, dividends may be paid in Empire Common Stock from
the authorized but unissued shares of Empire Common Stock provided that (i) the
shares are issued at not less than par value, and (ii) retained earnings at
least equal to the aggregate par value of the shares to be issued are
transferred to capital stock at the time the dividend is paid. Empire's
authority to declare dividends is further restricted by Section 14-2-640 of the
GBCC as discussed above.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
FLAG Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "FLAG." The following
table sets forth the high and low sale prices per share of FLAG Common Stock on
the Nasdaq National Market and the dividends paid per share of FLAG Common Stock
for the indicated periods. Effective June 3, 1998, FLAG declared a 3-for-2 stock
split. The amounts below have been adjusted to reflect the stock split.
<TABLE>
<CAPTION>
Sale Price Per
Share of FLAG
Common Stock Dividends Declared
-------------------------- Per Share of FLAG
High Low Common Stock
----------- ----------- -------------------------
1996
<S> <C> <C> <C>
First Quarter............................ $ 9.67 $ 8.33 $0.042
Second Quarter........................... 9.00 8.00 0.034
Third Quarter............................ 8.50 6.33 0.034
Fourth Quarter........................... 7.83 7.17 0.034
1997
First Quarter............................ $ 8.67 $ 6.83 $0.046
Second Quarter........................... 9.75 7.50 0.034
Third Quarter............................ 11.00 9.33 0.034
Fourth Quarter........................... 14.33 11.00 0.034
1998
First Quarter............................ $ 14.33 $ 11.92 $0.046
Second Quarter........................... 19.38 12.67 0.060
Third Quarter............................ 19.38 16.00 0.060
Fourth Quarter (through ________, 1998)
</TABLE>
On May 29, 1998, the last day prior to the public announcement of the
proposed merger between FLAG and Empire, the last reported sale price per share
of FLAG Common Stock on the Nasdaq National Market was $15.33, as adjusted for
3-for-2 stock split effective June 3, 1998, and the resulting equivalent pro
forma price per share of Empire Common Stock (based on the 42.5 Exchange Ratio)
was $651.53. On ___________, 1998, the latest practicable date prior to the
mailing of this Proxy Statement, the last reported sale price per share of FLAG
Common Stock on the Nasdaq National Market was $_____, and the resulting
equivalent pro forma price per share of Empire Common Stock was $_______. The
equivalent per share price of a share of Empire Common Stock at each specified
date represents the last reported sale price of a share of FLAG Common Stock on
such date multiplied by the Exchange Ratio.
There is no established public trading market for the Empire Common
Stock, and no reliable information is available as to trades of such shares or
the prices at which such shares have traded. Empire pays dividends quarterly.
The last dividend paid by Empire was $.85 per share, paid on June 10, 1998.
To the knowledge of Empire the most recent trade of Empire Common Stock
prior to May 29, 1998, the last day prior to the public announcement of the
proposed merger between FLAG and Empire, was the sale of 400 shares on April 17,
1998 at $271.26 per share.
The foregoing information regarding Empire Common Stock is provided for
informational purposes only and, due to the absence of an active market for
Empire's shares, should not be viewed as indicative of the actual or market
value of Empire Common Stock.
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The holders of FLAG Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. FLAG has paid regular quarterly cash dividends on its Common Stock
since 1987. Although FLAG currently intends to continue to pay quarterly cash
dividends on FLAG Common Stock, there can be no assurance that FLAG's dividend
policy will remain unchanged after consummation of the Merger. The declaration
and payment of dividends thereafter will depend upon business conditions,
operating results, capital and reserve requirements, and the Board of Directors'
consideration of other relevant factors. For information with respect to the
provisions of the Merger Agreement relating to FLAG's and Empire's abilities to
pay dividends on their respective common stock during the pendency of the
Merger, see "DESCRIPTION OF MERGER -- Conduct of the Business Pending the
Merger."
FLAG is a legal entity separate and distinct from its subsidiaries and
its revenues depend in significant part on the payment of dividends from its
subsidiary depository institutions. FLAG's bank subsidiaries and subsidiary
thrift institution are subject to certain legal restrictions on the amount of
dividends they are permitted to pay.
BUSINESS OF EMPIRE
General
Empire is a bank holding company headquartered in Homerville, Georgia.
Empire's wholly-owned subsidiary, Empire Bank, operates two banking offices
located in Homerville and Waycross, Georgia. As of June 30, 1998, Empire had
total consolidated assets of approximately $69.8 million, total consolidated
deposits of approximately $58.8 million, and total consolidated shareholders'
equity of approximately $7.2million. Through its banking subsidiary, Empire
offers a broad range of banking and banking-related services. E.B.C. Financial
Services, Inc., a Georgia corporation and a wholly-owned subsidiary of Empire,
provides various insurance products.
Management Stock Ownership
The following table presents information about each of the directors
and executive officers of Empire and all executive officers and directors as a
group. Unless otherwise indicated, each person has sole voting and investment
powers over the indicated shares. Information relating to beneficial ownership
of the Empire Common Stock is based upon "beneficial ownership" concepts set
forth in rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which includes
the power to vote or to direct the voting of such security, or "investment
power," which includes the power to dispose or to direct the disposition of such
security. Under the rules, more than one person may be deemed to be a beneficial
owner of the same securities.
Number of Shares Percent
Beneficially Owned at Of
Name Empire Record Date Class (%)
---- ------------------ ---------
(a) Directors
Leonard H. Bateman 250 (1) .9
William C. Boyle, Jr. 100 .4
38
<PAGE>
Trevor W. Fortner 100 .4
John E. Hughes 310 1.2
Roger E. James 564 2.1
Allen V. Kennedy II 625 (2) 2.4
Roger W. Merritt 136 (3) .5
Harry M. Peagler, III 1,220 (4) 2.3
James T. Stovall, III 2,406 (5) 9.1
Deborah H. Strickland 100 .4
(b) Executive Officers
Daniel G. Morris 10 .0
(c) Executive Officers and
Directors As a Group 5,207 19.7
- --------------------
(1) Consists of (i) 130 shares owned by Mr. Bateman and (ii) 120 shares owned by
Mr. Bateman's spouse as to which beneficial ownership is shared.
(2) Consists of (i) 427 shares owned by Mr. Kennedy and (ii) 198 shares owned by
Mr. Kennedy's spouse as to which beneficial ownership is shared.
(3) Consists of (i) 126 shares owned by Mr. Merritt and (ii) 10 shares owned by
Mr. Merritt's spouse as to which beneficial ownership is shared.
(4) Consists of (i) 600 shares owned by Mr. Peagler, (ii) 106 shares owned by
Mr. Peagler's spouse as to which beneficial ownership is shared and (iii) 514
shares owned by Mr. Peagler's children as to which beneficial ownership is
shared.
(5) Consists of (i) 100 shares owned by Mr. Stovall and (ii) 2,306 shares owned
by Mr. Stovall's spouse as to which beneficial ownership is shared.
39
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Corporate Profile
- -----------------
Empire, a one-bank holding company for Empire Bank (collectively referred to in
this section as "Empire"), is located in Homerville, Clinch County, a community
approximately 240 miles southeast of downtown Atlanta. Empire opened a branch
location in July 1996, in Waycross, Ware County, Georgia, a community 30 miles
east of Homerville.
Empire is community oriented, with an emphasis on retail banking, and offers
such customary banking services as consumer and commercial checking accounts,
NOW accounts, savings accounts, certificates of deposit, lines of credit,
MasterCard and VISA accounts, and money transfers. In addition, Empire finances
timber, commercial and consumer transactions, makes secured and unsecured loans,
including residential mortgage loans, and provides a variety of other banking
services.
Empire's primary service area is in Clinch and Ware County, Georgia and
surrounding counties. The service area has experienced minimal growth for the
past several years. The area's economic base is dependent upon cyclical factors,
such as agriculture and real estate activities.
The following discussion focuses on significant changes in the financial
condition and results of operations of Empire during the past three years. The
discussion and analysis is intended to supplement and highlight information
contained in the accompanying consolidated financial statements and the selected
financial data presented elsewhere in this report.
Financial Highlights
- --------------------
Net earnings increased 182% during 1997 as compared to 1996 totaling just over $
693,000. Net earnings for 1996 decreased 55% to $246,000 compared to 1995
earnings. Pretax earnings for 1996 decreased by approximately $249,000,
primarily due to increases in operating costs relating to the new branch
location in Waycross, Georgia.
The returns on average assets and on average stockholders' equity were 1.05% and
10.64%, respectively, in 1997 compared to .42% and 4.01%, respectively, in 1996.
Those averages were low due to the start up operating costs related to the
Waycross location.
Total assets at December 31, 1997 were $70.0 million compared to $60.6 million
at the end of 1996 an increase of approximately 16%. Total loans were
approximately $45.5 million at December 31, 1997, an increase of over 14% from
the 1996 balance, and total deposits at December 31, 1997, were $59 million as
compared to $51 million in 1996, an increase of 16%. Empire continues to fund
the majority of its assets with deposits acquired in its local marketplace.
Net Interest Income
- -------------------
Net interest income (the difference between interest earned on assets and
interest paid on deposits and liabilities) is the largest component and most
important source of Empire's earnings. Empire actively manages this income
source to provide the largest possible amount of income while balancing interest
rate, credit and liquidity risks. Net interest income for 1997 increased by 15%
from 1996 and decreased by 2% in 1996 as compared to 1995. The increased volume
of earning assets was the primary reason for the increase in 1997.
40
<PAGE>
Interest income increased 17% in 1997 and 8% in 1996. The increase in 1997 was
primarily a result of an increase in interest and fees on loans of approximately
$645,000 or 17%, and an increase in interest on investment securities of
approximately $117,000 or 18%.
Average earning assets in 1997 increased 13% when compared to 1996 due to
increases in average loans of over $5.6 million and average investment
securities of $1.6 million. Increases in average earning assets of 12% were also
experienced between 1996 and 1995 due to increases in average loans of $2.7
million and a $.7 million increase in average investment securities. The average
earning asset mix remained consistent during 1997 with loans at 74%, investment
securities at 21% and other earning assets at 5% of the total. In 1996, loans
accounted for 73%, investment securities 21% and other earning assets 6%. The
mix of earning assets is monitored on a continuing basis in order to react to
favorable interest rate movements and to maximize the return on earning assets.
Table 1 presents net interest income, yields and rates on average balances for
1997, 1996 and 1995.
41
<PAGE>
Table 1 - CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 3,261 $ 175 5.37% $ 3,344 $ 165 4.93% $ 1,103 $ 62 5.62%
Loans 44,684 4,344 9.72 % 39,041 3,699 9.47% 36,308 3,486 9.60%
Investment securities
non-taxable 3,170 140 4.42 % 3,176 140 4.41% 4,548 203 4.46%
Investment securities
taxable 9,678 600 6.20 % 8,047 483 6.00% 5,934 410 6.91%
------- ------ ------- ------ ----- ----
Total interest-earning
assets 60,793 5,259 8.65 % 53,608 4,487 8.37% 47,893 4,161 8.69%
Non-interest-earning
assets 5,128 4,303 3,077
------- ------- -------
Total assets $ 65,921 $ 57,911 $ 50,970
======= ====== ======
Interest bearing liabilities:
Deposits:
Demand $ 4,950 $ 204 4.12 % $ 5,501 $ 192 3.49% $ 5,530 $ 191 3.45%
Savings 2,289 63 2.75 % 2,136 58 2.72% 2,157 59 2.74%
Time 34,989 2,116 6.05 % 28,785 1,747 6.07% 25,312 1,479 5.84%
Other borrowings 3,756 260 6.92 % 3,385 220 6.50% 2,037 113 5.55%
------- ------ ------- ------ ------- -------
Total interest-bearing
liabilities 45,984 2,643 5.76 % 39,807 2,217 5.57% 35,036 1,842 5.26%
----- ----- -----
Non-interest bearing
liabilities
Deposits 13,134 11,709 9,876
Other non-interest
bearing liabilities 290 254 255
-------- -------- --------
Total liabilities 59,408 51,770 45,167
Equity 6,513 6,141 5,803
------- ------- -------
Total liabilities and
stockholders' equity $ 65,921 $ 57,911 $ 50,970
======= ====== ======
Net interest-earning assets $ 14,809 $ 13,801 $ 12,857
====== ====== ======
Net interest income/interest
rate spreads $2,616 2.90% $2,270 2.80% $2,319 3.43%
===== ===== =====
Net interest margin 4.30% 4.23% 4.84%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 132.20% 134.67%
136.70%
</TABLE>
42
<PAGE>
Consolidated Average Balances, Interest and Rates
- -------------------------------------------------
The banking industry uses two key ratios to measure relative profitability of
net interest income. The net interest rate spread measures the difference
between the average yield on earning assets and the average rate paid on
interest bearing sources of funds. The interest rate spread eliminates the
impact of noninterest bearing deposits and gives a direct perspective on the
effect of market interest rate movements. The net interest margin is defined as
net interest income as a percentage of average total earning assets and takes
into account the positive impact of investing noninterest bearing funding
sources.
The 1997 net interest spread increased 7 basis points to 4.30% from the 1996
spread of 4.23% as the yield on both interest earning assets and liabilities
increased. The decrease in 1996 was 61 basis points from the 4.84% reflected in
1995. Table 2 shows the change in net interest income for the past two years due
to changes in volumes and rates.
Table 2 - Analysis of the Changes in Net Interest Income
(dollars in thousands)
<TABLE>
<CAPTION>
Rate/Volume Variance
Years Ended December 31,
1997/1996 1996/1995
Change Attributable To Change Attributable To
---------------------- ----------------------
Total Total
Increase/ Increase/
Volume Rate Decrease Volume Rate Decrease
------ ---- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ (4) $14 $ 10 $110 $ (7) $103
Loans, including fees 547 98 645 258 (45) 213
Investment securities:
Nontaxable - - - (60) (3) (63)
Taxable 101 16 117 116 (43) 73
--- -- --- --- ---- ---
Total net change in
income on interest-
earning assets 644 128 772 424 (98) 326
--- --- --- --- ---- ---
Interest-bearing liabilities:
Deposits:
Demand (14) 26 12 (1) 2 1
Savings 4 1 5 (1) - (1)
Time 375 (6) 369 209 59 268
Other borrowings 25 15 40 85 22 107
---- -- ---- -- ----- ---
Total net change in
expense on interest-
bearing liabilities 390 36 426 292 83 375
--- -- --- --- -- ---
Net change in net
interest income $254 $92 $346 $132 $(181) $ (49)
=== == === === ===== ====
</TABLE>
43
<PAGE>
Loans
- -----
Average loans increased over 14% in 1997 with much of the increase concentrated
in the commercial loan and real estate categories. These categories account for
33.80% and 41.24%, respectively, of the total loan portfolio. Total gross loans
outstanding at year end increased 14% over the previous year end levels. The
growth in the portfolio resulted from Empire's ongoing efforts to increase the
loan portfolio through the origination of quality loans especially at the
Waycross location.
Table 3 breaks down the composition of the loan portfolio for each of the past
five years while Table 4 shows the amount of loans outstanding for selected
categories as of December 31, 1997, with maturities based on the remaining
scheduled repayments of principal.
<PAGE>
Table 3 - Loan Portfolio Composition
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural $ 15,530 33.80% $ 13,337 33.19% $ 13,653 36.74% $ 11,635 35.48% $ 10,664 35.56%
Real estate-mortgage
and construction 18,948 41.24% 15,669 39.00% 13,389 36.03% 11,876 36.21% 11,793 39.32%
State, county and
municipal 2,553 5.56% 3,006 7.48% 2,755 7.41% 2,212 6.74% 1,500 5.00%
Installment loans to
individuals 8,912 19.40% $ 8,168 20.33% 7,366 19.82% 7,073 21.57% 6,033 20.12%
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total loans 45,943 100.00% 40,180 100.00% 37,163 100.00% 32,796 100.00% 29,900 100.00%
Less: Allowance
for loan losses 481 395 535 292 320
-------- ------- --------- --------- --------
$ 45,462 $ 39,785 $ 36,628 $ 32,504 $ 29,670
====== ====== ====== ====== ======
</TABLE>
Table 4 - Loan Portfolio Maturity
(dollars in thousands)
<TABLE>
<CAPTION>
Maturity Rate Structure
-------- --------------
Over One
One Year Due Predetermined Floating or
Year or Through After Interest Adjustable
Less Five Years Five Years Total Rate Rate
---- ---------- ---------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 8,797 $ 4,459 $ 2,274 $ 15,530 $ 7,199 $ 8,331
Real estate - construction 444 600 0 1,044 781 263
------- ------ -------- ------- -------
$ 9,241 $ 5,059 $ 2,274 $ 16,574 $ 7,980 $ 8,594
===== ===== ===== ====== ===== =====
</TABLE>
44
<PAGE>
Investment Securities
- ---------------------
The composition of Empire's investment securities portfolio reflects Empire's
investment strategy of maximizing portfolio yields commensurate with risk and
liquidity considerations. The primary objectives of Empire's investment strategy
are to maintain an appropriate level of liquidity and provide a tool to assist
in controlling Empire's interest rate position while at the same time producing
adequate levels of interest income. Management of the maturity of the portfolio
is necessary to provide liquidity and to control interest rate risk. During 1997
and 1996, gross investment securities sales were $1.4 million and $1.1 million.
Maturities and paydowns were $5.2 million and $4.8 million during 1997 and 1996,
representing 46% and 50 %, respectively, of the average total portfolio for each
year. Net realized gains associated with the sales were minimal, accounting for
.1% and .9% of noninterest income during 1997 and 1996, respectively. Gross
unrealized gains in the total portfolio amounted to approximately $20,000 at
year end 1997 and gross unrealized losses amounted to approximately $1,000.
Total average investment securities increased 14% during 1997. Average
investment securities during 1996 increased 7% from the 1995 average levels.
Total investment securities increased $1.5 million, or approximately 13%, during
1997.
Table 5 reflects the carrying amount of the investment securities portfolio for
the past three years.
Table 5 - Carrying Value of Securities
(dollars in thousands)
1997 1996 1995
---- ---- ----
U.S. Treasury and agencies $ 9,981 $ 8,466 $ 6,536
State, county and municipal 2,815 2,819 3,054
------- ------- -----
Total $12,796 $11,285 $ 9,590
====== ====== =====
Table 6 presents the expected maturity of the total investment securities
portfolio (using carrying value) by maturity date and average yields at December
31, 1997. It should be noted that the composition and maturity/repricing
distribution of investment securities available for sale is subject to change
depending on rate sensitivity, capital needs, and liquidity needs.
Table 6 - Expected Maturity of Investment Securities
(dollars in thousands)
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within
One Year Five Years Ten Years Totals
-------- ---------- --------- ------
Amount Yield Amount Yield Amount Yield Amount
------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and agencies-afs $ 4,356 5.66% $ 5,426 6.40% $ - - $ 9,782
U.S. Treasuries and agencies-htm 199 5.99% - - - - 199
State, county and municipal - -1,233 4.71% 1,582 5.15% 2,815
------- ----- ----- -----
Total $ 4,555 $ 6,659 $ 1,582 $12,796
===== ===== ===== ======
</TABLE>
45
<PAGE>
Deposits
- --------
As reflected in Table 1, total average interest bearing liabilities increased
16% during 1997. The largest dollar increase in average interest bearing
deposits was in the time deposit category, rising over $6.2 million or 22% from
1996. Average interest bearing demand deposits decreased by $550,000 or 10%.
Average noninterest bearing demand deposits increased over $1,425,000 or
approximately 12% during 1997 after increasing 19% during 1996. The maturities
of time deposits of $100,000 or more issued by Empire at December 31, 1997 are
summarized in Table 7. Management is of the opinion that its time deposits of
$100,000 or more are customer-relationship oriented and represent a reasonably
stable source of funds.
Table 7 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Within 3 months $ 2,547
After 3 through 6 months 3,447
After 6 through 12 months 4,564
After 12 months 1,587
--------
$ 12,145
Liquidity Management
- --------------------
The objective of liquidity management is to ensure that sufficient funding is
available, at reasonable cost, to meet the ongoing operational cash needs of
Empire and to take advantage of income producing opportunities as they arise.
While the desired level of liquidity will vary depending upon a variety of
factors, it is the primary goal of Empire to maintain a high level of liquidity
in all economic environments. Liquidity is defined as the ability of a company
to convert assets into cash or cash equivalents without significant loss and to
raise additional funds by increasing liabilities. Liquidity management involves
maintaining Empire's ability to meet the day to day cash flow requirements of
its customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs. Without proper liquidity
management, Empire would not be able to perform the primary function of a
financial intermediary and would, therefore, not be able to meet the needs of
the communities it serves. Daily monitoring of the sources and uses of funds is
necessary to maintain an acceptable cash position that meets both requirements.
In a banking environment, both assets and liabilities are considered sources of
liquidity funding and both are monitored on a daily basis.
As disclosed in Empire's Consolidated Statement of Cash Flows included elsewhere
herein, net cash provided by operating activities increased by approximately
$263,000. Net cash used in investing activities of $7.7 million consisted
primarily of net loans originated of $5.9 million along with securities
purchased of $8.1 million, offset by securities sales and maturities of $6.6
million. This resulted from management's continued efforts to invest new funds
from deposits into loans and investment securities. The $8.7 million of net cash
provided by financing activities consisted primarily of the $8.7 million
increase in demand, savings and time deposits.
Management considers Empire's liquidity position at the end of 1997 to be
sufficient to meet its foreseeable cash flow requirements. Reference is made to
the Consolidated Statements of Cash Flows appearing in the Consolidated
Financial Statements for a three-year analysis of the changes in cash and cash
equivalents resulting from operating, investing and financing activities.
46
<PAGE>
Interest Rate Sensitivity Management
- ------------------------------------
The absolute level and volatility of interest rates can have a significant
impact on Empire's profitability. The objective of interest rate risk management
is to identify and manage the sensitivity of net interest income to changing
interest rates, in order to achieve Empire's overall financial goals. Based on
economic conditions, asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and manages within
these ranges.
Empire uses income simulation modeling as a primary tool in measuring interest
rate risk and managing interest rate sensitivity. Simulation modeling considers
not only the impact of changing market rates of interest on future net interest
income, but also such other potential causes of variability as earning asset
volume, mix, and general market conditions.
Interest rate sensitivity is a function of the repricing characteristics of
Empire's portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest bearing assets and liabilities are
subject to change in interest rates either at replacement, repricing or maturity
during the life of the instruments. Interest rate sensitivity management focuses
on the maturity structure of assets and liabilities and their repricing
characteristics during periods of changes in market interest rates. Effective
interest rate sensitivity management seeks to ensure that both assets and
liabilities respond to changes in interest rates within an acceptable time
frame, thereby minimizing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volumes of assets and liabilities in Empire's current portfolio that are subject
to repricing at various time horizons: immediate through three months, four to
twelve months, one to five years and on a cumulative basis. The differences are
known as interest sensitivity gaps. Table 8 shows interest sensitivity gaps for
these different intervals as of December 31, 1997.
Table 8 - Interest Rate Sensitivity Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
Over Over
Immediate Three One
Through Months Through Over
Three through Five Five
Months One Year Years Years Total
------ -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits and
federal funds sold $ 4,495 $ - $ - $ - $ 4,495
Investment securities:
Taxable - 4,555 5,426 - 9,981
Nontaxable - - 1,233 1,582 2,815
Loans 18,989 6,733 8,622 11,599 45,943
------ ----- ----- ------ ------
Total interest earning assets 23,484 11,288 15,281 13,181 63,234
Interest bearing liabilities:
Deposits:
Interest bearing demand 4,379 - - - 4,379
Savings 2,149 - - - 2,149
Time 7,590 22,772 8,060 - 38,422
Federal Home Loan Bank borrowings 154 462 2,017 1,028 3,661
-------- -------- ----- ----- -----
Total interest bearing
liabilities 14,272 23,234 10,077 1,028 48,611
Interest sensitivity gap 9,212 (11,946) 5,204 12,153 $14,623
-------- ---------- ----- ------ ======
Cumulative interest sensitivity gap $ 9,212 $ (2,734) $ 2,470 $14,623
======== ========= ======= ======
</TABLE>
47
<PAGE>
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remains the same, thus impacting net interest
income. This characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of short-term assets tied
to Empire's prime lending rate are different from those of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create changes in prepayment levels of
assets and liabilities, which are not reflected in the interest rate sensitivity
analysis report. These prepayments may have significant effects on Empire's net
interest margin. Because of these factors an interest sensitivity gap report may
not provide a complete assessment of Empire's exposure to changes in interest
rates.
Table 8 indicates Empire is in a liability sensitive or negative gap position
after twelve months. This liability sensitive position would generally indicate
that Empire's net interest income would decrease should interest rates rise and
would increase should interest rates fall. Due to the factors cited previously,
current simulation results indicate only minimal sensitivity to parallel shifts
in interest rates. Management also evaluates the condition of the economy, the
pattern of market interest rates and other economic data to determine the
appropriate mix and repricing characteristics of assets and liabilities required
to produce an optimal net interest margin.
Capital Resources
- -----------------
Stockholders' equity at December 31, 1997 increased 10% from December 31, 1996.
Net earnings after dividends for 1997 accounted for the majority of the increase
in stockholders' equity.
Dividends of $3.20 per share, were declared on Empire's common stock in 1997 and
1996. Empire has increased retained earnings by maintaining a relatively low
dividend payout ratio in order to keep pace with the rate of asset growth.
Average stockholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average stockholders'
equity to average assets for 1997 was 9.88% compared to 10.60% in 1996. The
decrease in the ratio is the result of asset growth. Table 9 summarizes these
and other key ratios of Empire for each of the last three years.
Table 9 - Key Ratios
1997 1996 1995
---- ---- ----
Return on average assets 1.05% .42% 1.08%
Return on average equity 10.64% 4.01% 9.44%
Dividend payout ratio 12.00% 34.00% 15.00%
Average equity to average assets 9.88% 10.60% 11.39%
The Board of Governors of the Federal Reserve System has issued guidelines for
the implementation of risk-based capital requirements by U.S. banks and bank
holding companies. These risk-based capital guidelines take into consideration
risk factors, as defined by regulators, associated with various categories of
assets, both on and off balance sheet. Under the guidelines, capital strength is
measured in two tiers which are used in conjunction with risk adjusted assets to
determine the risk based capital ratios. The guidelines require an 8% total
risk-based capital ratio, of which 4% must be Tier I capital.
48
<PAGE>
Empire's Tier I capital, which consists of stockholders' equity net of
unrealized gains and losses on securities available for sale and intangible
assets, amounted to $6.6 million at December 31, 1997. Tier II capital includes
supplemental capital components such as qualifying allowance for loan losses.
Tier I capital plus Tier II capital components is referred to as Total
Risk-based Capital and was $7.1 million at December 31, 1997. The percentage
ratios, as calculated under the guidelines, were 13.7% and 14.6% for Tier I and
Total Risk-based Capital, respectively, at December 31, 1997.
A minimum leverage ratio is required in addition to the risk-based capital
standards and is defined as Tier 1 capital divided by average assets adjusted
for the unrealized gain/loss on the investment securities investment portfolio
and intangible assets. Although a minimum leverage ratio of 3% has been
established, the Federal Reserve Board will require bank holding companies to
maintain a leverage ratio greater than 3% if it is experiencing or anticipating
significant growth or is operating with less than well-diversified risks in the
opinion of the Federal Reserve Board. The Federal Reserve Board uses the
leverage ratio in tandem with the risk-based capital ratios to assess capital
adequacy of banks and bank holding companies. Empire's leverage ratios at
December 31, 1997 and 1996 were 10.4% and 10.8%, respectively. Risk-based and
leverage capital positions as of December 31, 1997 and 1996 are presented in
Table 10.
Table 10 - Analysis of Capital Adequacy
(dollars in thousands)
1997 1996
Risk-based capital ratios:
Tier I capital to risk-adjusted assets 14.0% 14.6%
Tier II capital to risk-adjusted assets 1.0% .9%
----- ------
Total capital to risk-adjusted assets 15.0% 15.5%
==== ====
Leverage ratio 10.7% 11.1%
==== ====
Tier I Capital $ 6,811 $ 6,195
Tier II Capital 482 393
-------- -------
Total Capital $ 7,293 $ 6,588
======= ======
Total risk-adjusted assets $48,617 $42,506
====== ======
All three of the capital ratios of Empire Bank currently exceed the minimum
ratios required in 1997 as defined by federal regulators and are deemed to be
well capitalized. Empire monitors these ratios to ensure that Empire Bank
remains within regulatory guidelines. Increased regulatory activity in the
financial industry as a whole will continue to impact the structure of the
industry, however, management does not anticipate any negative impact on the
capital resources or operations of Empire.
Provision and Allowance for Loan Losses
- ---------------------------------------
Empire manages asset quality and controls risk through diversification of the
loan portfolio and the application of policies designed to foster sound
underwriting and loan monitoring practices. Empire's loan administration
function is charged with monitoring asset quality, establishing credit policies
and procedures, and enforcing the consistent application of these policies and
procedures.
The provision for loan losses is the annual cost of providing an adequate
allowance for anticipated potential future losses on loans. The amount each year
is dependent upon many factors including loan growth, net charge-offs, changes
in the composition of the loan portfolio, delinquencies, management's assessment
of loan portfolio quality, the value of collateral and economic factors and
trends.
49
<PAGE>
During recent years, Empire has strengthened its review process of the larger
loans in its portfolio and has imposed stricter underwriting standards in order
to minimize the impact an economic downturn might have on credit quality. Loan
review procedures, including such techniques as loan grading and on-site
reviews, are regularly utilized in order to ensure that potential problem loans
are identified early in order to lessen any potentially negative impact such
problem loans may have on Empire's earnings. Management's involvement continues
throughout the process and includes participation in the workout process and
recovery activity. These formalized procedures are monitored internally by the
loan review committee. Such review procedures are quantified in quarterly
reports to senior management and are used in determining whether such loans
represent potential loss to Empire. Management monitors the entire loan
portfolio in an attempt to identify problem loans so that risks in the portfolio
can be identified on a timely basis and an appropriate allowance maintained.
The provision for loan losses decreased 60% in 1997 compared to a 2% decrease in
1996. The increased provisions for 1997 and 1996 were for the required reserves
related to the credit loss for two large lending relationships. The allowance
for loan losses as a percentage of gross loans outstanding at year-end totaled
1.0% for both 1997 and 1996.
Empire does not allocate the allowance for loan losses to the various loan
categories. The entire allowance is available to absorb losses from any and all
loans. Table 11 sets forth information with respect to Empire's allowance for
loan losses for each of the last five years.
Table 11 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $ 395 $ 535 $ 292 320 $ 306
Charge-offs:
Commercial 143 737 457 173 -
Real estate - - - - -
Installment loans to individuals 52 60 55 13 75
---- ----- ---- ---- ----
Total charge-offs 195 797 512 186 75
---- --- --- --- ----
Recoveries:
Commercial - - 74 - -
Real estate - - - - -
Installment loans to individuals 30 26 38 27 33
------ ----- ---- ----- -----
Total recoveries 30 26 112 27 33
------ ----- --- ----- -----
Net charge-offs 164 771 400 159 42
Provisions charged to earnings 251 631 643 131 56
----- --- --- --- ----
Balance at end of year $ 481 $ 395 $ 535 $ 292 $ 320
===== === === === ===
Ratio of net charge-offs to average loans
outstanding during the period .32% 1.97% 1.10% .51% .14%
=== ==== ==== === ===
</TABLE>
50
<PAGE>
Asset Quality
- -------------
Nonperforming assets, comprised of nonaccrual loans, loans 90 days or more past
due and other real estate owned totaled approximately $.7 million at December
31, 1997. At December 31, 1996, nonperforming assets amounted to $.7 million.
There were no related party loans, which were considered nonperforming at
December 31, 1997 or 1996. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is charged to interest income on
loans. Loans made by Empire to facilitate the sale of other real estate are made
on terms comparable to loans of similar risk. An adequate investment by the
buyer is required prior to the removal of other real estate from nonperforming
assets.
There were no commitments to lend additional funds on nonaccrual loans at
December 31, 1997. Table 12 summarizes Empire's risk elements for each of the
last five years.
Table 12 - Risk Elements
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loans 90 days past due $ 491 $ 379 $ 481 $ 13 $ 292
Loans on nonaccrual 165 416 659 355 189189
Other real estate and other repossessed assets 84 84 - - - 0
----- ----- --------- ------ ----------
Total nonperforming assets $ 740 $ 745 $1,140 $ 368 $ 481
=== === ===== === ===
Total nonperforming assets as a
percentage of loans 1.62% 1.87% 3.11% 1.13% 1.62%
==== ==== ===== ==== ====
</TABLE>
There may be additional loans within Empire's portfolio that become classified
as conditions dictate; however, management was not aware of any such loans that
are material in amount at December 31, 1997. At December 31, 1997, management
was unaware of any known trends, events or uncertainties that will have or that
are reasonably likely to have a material effect on Empire's liquidity, capital
resources or operations.
Noninterest Income
- ------------------
Noninterest income consists primarily of revenues generated from service charges
and fees on deposit accounts. Noninterest income increased 25% during 1997 as
compared to 1996 primarily due to new accounts. Total noninterest income for
1996 showed an increase of 24% compared to 1995.
Noninterest Expense
- -------------------
Noninterest expense for 1997 increased 17% following an increase of 20% in 1996.
Total salaries and employee benefits increased 12% during 1997 and 16% in 1996
due largely to employee additions required to support Empire's branch growth.
Net occupancy expense increased 34% in 1997 following an increase of 29% in
1996. The 1997 increase in occupancy expense was due to expenses related to
branch start-up costs, branch renovations, including depreciation and
maintenance expenses.
51
<PAGE>
Other noninterest expenses increased by approximately $103,000 or 18% compared
to a 20% increase in 1996. The costs have increased primarily as the result of
the Waycross branch and its growth. Management continues to evaluate other
noninterest expense details in efforts to further decrease the cost of providing
expanded banking services to a growing customer base.
Income Taxes
- ------------
Income tax expenses for 1997 amounted to $93,000 or 12% of pretax income
compared to $24,000 or 9% of 1996 pretax income. As a percentage of pretax
accounting income, tax expense for 1997 was less than expected primarily as the
result of Empire's reduction of a portion of its valuation allowance. For 1996,
Empire recognized a tax asset related to a federal net operating loss that was
generated during 1996.
Impact of Inflation and Changing Prices
- ---------------------------------------
A bank's asset and liability structure is substantially different from that of
an industrial company in that primarily all assets and liabilities of a bank are
monetary in nature. Management believes the impact of inflation on financial
results depends on Empire's ability to react to changes in interest rates and,
by such reaction, reduce the inflationary impact on performance. Interest rates
do not necessarily move in the same direction, or at the same magnitude, as the
prices of other goods and services. As discussed previously, management seeks to
manage the relationship between interest-sensitive assets and liabilities in
order to protect against wide interest rate fluctuations, including those
resulting from inflation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations For Each of the Six Months Ended June 30, 1998 and 1997
Financial Condition
- -------------------
Total assets at June 30, 1998 and December 31, 1997 were approximately $70
million. Deposits decreased approximately $.5 million, or less than 1% from
December 31, 1997, while net loans increased approximately $2.9 million, or 7%.
The allowance for loan losses at June 30, 1998 totaled $.5 million, representing
1.1% of total loans compared to the December 31, 1997 total of $.48 million,
representing 1.1% of total loans. Securities available for sale increased 3%
from December 31, 1997. The increase in net loans was funded primarily with cash
and fed funds sold on hand at December 31, 1997.
The total of nonperforming assets, which includes nonaccrual loans, repossessed
collateral and loans for which payments are more than 90 days past due,
decreased from $.7 million at December 31, 1997 to $.4 million at June 30, 1998.
There were no related party loans which were considered nonperforming at June
30, 1998.
Empire Bank was most recently examined by its primary regulatory authority in
March 1997. There were no recommendations by the regulatory authority that in
management's opinion will have material effects on Empire's liquidity, capital
resources or operations.
52
<PAGE>
Results of Operations
- ---------------------
Net interest income increased $32,000, or 2%, in the first six months of 1998
compared to the same period for 1997. Interest income for the first six months
of 1998 was $2.8 million, representing an increase of $.2 million, or 8%, over
the same period in 1997. Interest expense for the first six months of 1998
increased approximately $213,000, or 17%, compared to the same period in 1997.
This increase in interest income and interest expense during the first six
months of 1998 compared to the same period in 1997 is primarily attributable to
the increase in the volume of both loans and deposits.
The provision for loan losses for the first six months of 1998 decreased
$136,000 compared to the same period for 1997. It is management's belief that
the allowance for loan losses is adequate to absorb probable losses in the loan
portfolio.
Noninterest income decreased 3% to approximately $267,000 for the six-month
period ended June 30, 1998, as compared to the same period in 1997.
Noninterest expenses for the first six months of 1998 and 1997 amounted to
$1,055,000 in both years.
Capital Resources
- -----------------
Empire and Empire Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory- and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines,
Empire and Empire Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Empire Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Empire Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined) to risk-weighted assets and of Tier 1 capital (as defined)
to average assets. As of June 30, 1998, Empire Bank met all capital adequacy
requirements to which it is subject.
The following tables present Empire's consolidated regulatory capital position
at June 30, 1998:
Risk-Based Capital Ratios
-------------------------
Tier 1 Capital 14.20%
Tier 1 Capital minimum requirement 4.00%
------
Excess 10.20%
Total Capital 15.14%
Total Capital minimum requirement 8.00%
Excess 7.14%
Leverage Ratio
--------------
Tier 1 Capital to adjusted total assets 10.52%
Minimum leverage requirement 3.00%
Excess 7.52%
53
<PAGE>
Certain Transactions and Business Relationships
- -----------------------------------------------
Several of Empire's directors, executive officers and their affiliates,
including corporations and firms of which they are directors or officers or in
which they and/or their families have an ownership interest, are customers of
Empire and Empire Bank. These persons, corporations and firms have had
transactions in the ordinary course of business with Empire and Empire Bank
including borrowings, all of which, in the opinion of Empire management, were on
substantially the same terms including interest rates and collateral as those
prevailing at the time for comparable transactions with unaffiliated persons and
did not involve more than the normal risk of collectibility or present other
unfavorable features. Empire and Empire Bank expect to have such transactions on
similar terms with its directors, executive officers, and their affiliates in
the future. The aggregate amount of loans outstanding by Empire Bank to
directors, executive officers, and related parties of Empire or Empire Bank as
of June 30, 1998, was approximately $2,481,546, which represented approximately
34.4% of consolidated shareholders' equity on that date.
Voting Securities and Principal Shareholders of Empire
- ------------------------------------------------------
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
26,450 outstanding shares of Empire Common Stock on the Empire Record Date.
Unless otherwise indicated, each person has sole voting and investment powers
over the indicated shares. Information relating to beneficial ownership of the
Empire Common Stock is based upon "beneficial ownership" concepts set forth in
rules promulgated under the Exchange Act. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Number of Shares Percent
Beneficially Owned At Of
Name and Address Empire Record Date Class (%)
- ---------------- ------------------ ---------
Habersham Bancorp 7,200 (1) 27.22
Highway 441 North
P. O. Box 1980
Cornelia, Georgia 30531
Helen Kennedy 1,907 7.2
703 W. Dame Avenue
Homerville, Georgia 31634
Philip Manley 4,795 (2) 18.1
308 W. Dame Avenue
Homerville, Georgia 31634
James T. Stovall, III 2,406 (3) 9.1
P. O. Box 22
Manor, Georgia 31550
54
<PAGE>
(1) Pursuant to an Option Agreement dated as of March 11, 1998 by and among
Habersham Bancorp, a bank holding company located in Cornelia, Georgia
("Habersham"), and certain shareholders of Empire (including Philip Manley),
Habersham has an irrevocable option to purchase 7,200 shares or approximately
27% of Empire Common Stock.
(2) The listed shares are owned jointly by Mr. Manley and his spouse. The listed
shares are under option to Habersham Bancorp. (See Note 1 above.)
(3) Consists of (i) 100 shares owned by Mr. Stovall and (ii) 2,306 shares owned
by Mr. Stovall's spouse as to which beneficial ownership is shared.
Year 2000 Issues
- ----------------
Empire currently has computer systems, software products or other
business systems, or those of suppliers or customers that might not accept input
of, store, manipulate and output dates in the years 1999, 2000 or thereafter
without error or interruption. Empire has conducted reviews of their business
systems, including their computer systems, to attempt to identify ways in which
their systems could be affected by problems resulting from incorrectly
processing date information. Empire is also requesting assurances from all
software vendors that they have dealt with or plans to possibly purchase
software from that the software will correctly process all date information at
all times. Additionally, Empire is querying their customers and suppliers as to
their progress in identifying and addressing problems that their computer
systems will face in processing date information as the year 2000 approaches and
is reached. There can be no assurances, however, that Empire will identify all
date-handling problems with their business systems or those of their customers
and suppliers in advance of their occurrence, or that Empire will be able to
successfully remedy problems that are discovered. The expenses of Empire's
efforts to identify and address such problems, or the expenses or liabilities to
which Empire may become subject as result of such problems, could have a
material adverse effect on Empire's results of operations and financial
condition.
BUSINESS OF FLAG
General
FLAG is a bank holding company headquartered in LaGrange, Georgia. FLAG
is the sole shareholder of the following depository institutions: Citizens,
Milan and First Federal. Citizens and Milan are state banks organized under the
laws of the State of Georgia, with ten banking offices located in the cities of
Unadilla, Vienna, Byromville, Montezuma, Oglethorpe, Cordele, Pinehurst, Milan
and McRae. First Federal is a federal savings bank, with five offices in
LaGrange, Georgia, which serve markets located in western Georgia. As of June
30, 1998, FLAG had total consolidated assets of approximately $442,878,940,
total consolidated deposits of approximately $339,245,243, and total
consolidated shareholders' equity of approximately $38,582,093. FLAG offers a
full array of deposit accounts and retail and commercial banking services,
engages in small business lending, residential and commercial real estate
lending, mortgage banking services, brokerage services and performs real estate
appraisal services through its subsidiaries, First Federal, Citizens and Milan,
as well as First Federal's wholly-owned subsidiary, Piedmont.
As a routine part of its business, FLAG evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy Statement,
discussions and, in some cases, negotiations and due diligence activities
looking toward or culminating in the execution of preliminary or definitive
documents respecting potential acquisitions may occur or be in progress. These
transactions may involve FLAG acquiring such financial institutions in exchange
for cash or capital stock, and depending upon the terms of these transactions,
55
<PAGE>
they may have a dilutive effect upon the FLAG Common Stock to be issued to
holders of Empire Common Stock in the Merger.
Directors and Executive Officers
The directors of FLAG as the surviving corporation of the Merger will
be:
Dr. A. Glenn Bailey Leonard H. Bateman
H. Speer Burdette, III Patti S. Davis
Fred A. Durand, III John S Holle
James W. Johnson Kelly R. Linch
J. Preston Martin J. Daniel Speight, Jr.
John W. Stewart, Jr. Robert W. Walters
The executive officers of FLAG as the surviving corporation of the
Merger will be:
John S. Holle Chairman of the Board
J. Daniel Speight, Jr. President and Chief Executive Officer
Patti S. Davis Chief Financial Officer, Senior Vice President
and Assistant Secretary
Ellison C. Rudd Senior Vice President, Treasurer and Secretary
J. Preston Martin Senior Vice President
Charles O. Hinely Chief Operating Officer and Senior Vice President
Additional persons may be elected as directors or executive officers following
the Merger. Upon completion of the Merger of Brown with and into Citizens,
Dennis D. Allen, President and Chief Executive Officer of Brown, will be elected
as a member of FLAG's Board of Directors. See "SUMMARY - Recent Developments."
The following section sets forth certain information regarding each of
the persons who, after the consummation of the Merger, will be a director or
executive officer of FLAG, as the surviving corporation. Except as otherwise
indicated, each of the named persons has been engaged in his or her present
principal occupation for more than five years.
Dr. A. Glenn Bailey. Dr. Bailey is a physician and surgeon in LaGrange
and is a director, and from 1980 to 1989 was President, of Clark-Holder Clinic,
a LaGrange medical clinic. He has been a director of First Federal since 1982
and a director of FLAG since 1994. Following the Merger, Dr. Bailey will
continue to serve as a member of the Boards of Directors of both FLAG and First
Federal. Dr. Bailey is 63 years old.
Leonard H. Bateman. Mr. Bateman has served as President and Chief
Executive Officer of Empire and Empire Bank since 1986. Following consummation
of the Merger, Mr. Bateman will serve as a member of the Board of Directors of
FLAG and as President and a director of Empire Bank. Mr. Bateman is 50 years
old.
H. Speer Burdette, III. Mr. Burdette is an owner, director and Vice
President/Treasurer of J.K. Boatwright & Co., P.C., an accounting firm located
in LaGrange. He has been a director of First Federal since 1993 and a director
of FLAG since 1994. Following the Merger, Mr. Burdette will continue to serve as
a member of the Boards of Directors of both FLAG and First Federal. Mr. Burdette
is 45 years old.
Patti S. Davis. Ms. Davis served as Executive Vice President and Chief
Financial Officer of Middle Georgia since 1994 until Middle Georgia merged with
FLAG in March 1998. Ms. Davis has been Senior Vice President and Chief Financial
Officer of Citizens since 1990. Following the consummation of the merger of
Middle Georgia and FLAG, Ms. Davis has served as a Senior Vice President and as
a member of the Board of Directors of FLAG and, since July 1998, has served as
Chief Financial Officer of FLAG. In addition, Ms. Davis continues to act as
Senior Vice President and Chief Financial Officer and a director of Citizens.
56
<PAGE>
Following the Merger, Ms. Davis will continue to act in these capacities. Ms.
Davis and J. Daniel Speight, Jr. are cousins. Ms. Davis is 41 years old.
Fred A. Durand, III. Mr. Durand is President, Chief Executive
Officer and a director of Durand-Wayland, Inc., a manufacturer of produce
sorting and spray equipment. He has been a director of First Federal since 1990
and director of FLAG since 1994. Following the Merger, Mr. Durand will continue
to serve as a member of the Boards of Directors of both FLAG and First Federal.
Mr. Durand is 56 years old.
Charles O. Hinely. Mr. Hinely has served as Senior Vice President and
Chief Operating Officer of FLAG since December 1997. Mr. Hinely has 30 years of
banking and financial industry related experience. He has worked for Citizens
and Southern National Bank and was a principle of Bank Management Resources,
Inc. (BMR Financial Group) and LSI Partners, Inc. Following the Merger, Mr.
Hinely will continue to serve as Senior Vice President and Chief Operating
Officer of FLAG. Mr. Hinely is 51 years old.
John S. Holle. Mr. Holle served as Chairman of the Board, President,
Chief Executive Officer and as a director of FLAG since 1993, and he has been
President, Chief Executive Officer and a director of First Federal since 1985
and Chairman of the Board of First Federal since 1990. Following the merger of
FLAG and Middle Georgia, Mr. Holle has served as Chairman of the Board of FLAG
and President, Chief Executive Officer and a member of the Board of Directors of
First Federal and as a director of Citizens. Mr. Holle also has been Chairman of
the Board and President of First Federal's wholly-owned subsidiary, Piedmont,
since 1986. Following the Merger, Mr. Holle will continue to be the Chairman of
the Board of FLAG and will continue to serve as a member of the Board of
Directors of FLAG. In addition, Mr. Holle will continue to act as President,
Chief Executive Officer and a member of the Board of Directors of First Federal
and as a director of Citizens following the Merger. Mr. Holle is 47 years old.
James W. Johnson. Mr. Johnson is the president of McCannie Motor and
Tractor Company, Inc., a retail seller of tractors and implement equipment, and
served as a director of Middle Georgia and Citizens since 1982 until the merger
of FLAG and Middle Georgia. Following the merger of FLAG and Middle Georgia, Mr.
Johnson has served as a member of the Board of Directors of FLAG and continues
to serve as a director of Citizens. Following the Merger, Mr. Johnson will
continue in these capacities. Mr. Johnson is 56 years old.
Kelly R. Linch. Mr. Linch is owner of Linch's, Inc., a retail appliance
and electronics store in LaGrange. He has been a director of First Federal since
1986 and a director of FLAG since 1994. Following the Merger, Mr. Linch will
continue to serve as a member of the Boards of Directors of both FLAG and First
Federal. Mr. Linch also is a director of Key Distributors of Georgia, Inc. Mr.
Linch is 55 years old.
J. Preston Martin. Mr. Martin served as the President and Chief
Executive Officer of Three Rivers and as President of Milan from 1986 until May
1998 when Three Rivers merged with and into FLAG. Mr. Martin currently serves as
Senior Vice President, on the Boards of Directors of FLAG, Citizens and Milan
and as President of Milan. Following the Merger, Mr. Martin will continue to act
in these capacities. Mr. Martin is 44 years old.
Ellison C. Rudd. Mr. Rudd served as Executive Vice President, Chief
Financial Officer and Treasurer of FLAG since 1994. Mr. Rudd has also been
Executive Vice President of First Federal since 1993 and Chief Financial Officer
and Treasurer of First Federal since 1989 when he joined First Federal as a Vice
President. Following the merger of FLAG and Middle Georgia and until July 1998,
Mr. Rudd served as Senior Vice President and Chief Financial Officer of FLAG.
Mr. Rudd currently serves as Senior Vice President, Secretary and Treasurer of
FLAG. Following the Merger, Mr. Rudd will continue to act in these capacities.
In addition, Mr. Rudd will continue to act as Chief Financial Officer, Treasurer
and Executive Vice President of First Federal. Mr. Rudd is 53 years old.
57
<PAGE>
J. Daniel Speight, Jr. Mr. Speight served as Chief Executive Officer
and as a director of Middle Georgia since 1989 and has been President and Chief
Executive Officer of Citizens since 1984. Following the merger of FLAG and
Middle Georgia, Mr. Speight has served as the President and Chief Executive
Officer of FLAG, and as a member of the Board of Directors of FLAG. In addition,
Mr. Speight serves as President and Chief Executive Officer and a director of
Citizens and as a director of First Federal. Following the Merger, Mr. Speight
will continue to act in these capacities and will serve as a director of Empire
Bank. Mr. Speight is 41 years old.
John W. Stewart, Jr. Mr. Stewart is an owner, Chairman of the Board
and President of Stewart Wholesale Hardware Company, a wholesale grocery and
hardware business in LaGrange. He has been a director of First Federal since
1982 and a director of FLAG since 1994. Following the Merger, Mr. Stewart will
continue to serve as a member of the Boards of Directors of both FLAG and First
Federal. Mr. Stewart is 63 years old.
Robert W. Walters. Mr. Walters retired in March 1996 as owner and
director of The Mill Store, Inc., a retail and contract floor covering business
in LaGrange. He has been a director of First Federal since 1982 and a director
of FLAG since 1994. Following the Merger, Mr. Walters will continue to serve as
a member of the Boards of Directors of both FLAG and First Federal. Mr. Walters
is 65 years old.
Management Stock Ownership
The following table presents information about each of the directors
and executive officers of FLAG and all executive officers and directors as a
group. Unless otherwise indicated, each person has sole voting and investment
powers over the indicated shares. Information relating to beneficial ownership
of the FLAG Common Stock is based upon "beneficial owner" concepts set forth in
rules promulgated under the Exchange Act. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Amount and
Nature of Beneficial Percent
Name Ownership of Class (%)
---- --------- ------------
(a) Directors
Dr. A. Glenn Bailey 92,577 (1) 1.78
H. Speer Burdette, III 24,576 (2) .47
Patti S. Davis 145,868 (3) 2.81
Fred A. Durand, III 27,657 (4) .53
John S. Holle 87,991.182 (5) 1.68
James W. Johnson 145,103 (6) 2.80
Kelly R. Linch 58,677 (7) 1.13
Preston Martin 288,000 (8) 5.57
J. Daniel Speight, Jr. 261,588 (9) 4.99
John W. Stewart, Jr. 29,838.391 (10) .58
Robert W. Walters 140,115.669 (11) 2.70
58
<PAGE>
(b) Executive Officers
Charles O. Hinely 0 0
Ellison C. Rudd 34,522.1356 (12) .67
(c) All Directors and Executive
Officers as a group
(13 persons) 1,336,463.377 24.6
- -------------------
(1) Consists of (i) 36,555 shares held by Dr. Bailey, (ii) 35,055 shares
held by Dr. Bailey's spouse as to which beneficial ownership is shared,
(iii) 975 shares held by Chattahoochee Land Investment as to which
beneficial ownership is shared, (iv) 1,125 shares held by a broker for
the benefit or Chattahoochee Land Investment as to which beneficial
ownership is shared, and (v) 18,867 shares of immediately exercisable
options.
(2) Consists of (i) 2,076 shares held by Mr. Burdette, (ii) 3,633 shares
held in Individual Retirement Accounts for the benefit of Mr. Burdette,
and (iii) 18,867 shares of immediately exercisable options.
(3) Consists of (i) 108,439 shares held by Ms. Davis, (ii) 4,063 shares
held in an Individual Retirement Account for the benefit of Ms. Davis,
(iii) 7,866 shares held by Speight Futures, Inc. as to which beneficial
ownership is shared and (iv) 25,500 shares of immediately exercisable
options. Ms. Davis is also an executive officer of FLAG.
(4) Consists of (i) 8,625 shares held by a broker for the benefit of Mr.
Durand, (ii) 165 shares held by a broker for the benefit of Mr.
Durand's spouse as to which beneficial ownership is shared, and (iii)
18,875 shares of immediately exercisable options.
(5) Consists of (i) 15,000 shares held by Mr. Holle, (ii) 238.392 shares
issued to Mr. Holle pursuant to FLAG's dividend reinvestment plan,
(iii) 27,702.7901 shares issued pursuant to First Federal's profit
sharing plan and (iv) 45,000 shares of immediately exercisable options.
Mr. Holle is also an executive officer of FLAG.
(6) Consists of (i) 58,377 shares held by Mr. Johnson, (ii) 2,716 shares
held by Mr. Johnson's spouse as to which beneficial ownership is
shared, and (iii) 84,010 held by McCrannie Motor and Tractor Company,
Inc. Profit Sharing Plan for the benefit of Mr. Johnson.
(7) Consists of (i) 33,750 shares held by Mr. Linch, (ii) 6,060 shares held
by a broker for the benefit of Mr. Linch, and (iii) 18,867 shares of
immediately exercisable options.
(8) Consists of (i) 192,000 shares held by Mr. Martin, and (ii) 96,000
shares held by a broker for the benefit of Mr. Martin. Mr. Martin is
also an executive officer of FLAG.
(9) Consists of (i) 99,997 shares held by Mr. Speight, (ii) 49,998 shares
held by a broker for the benefit of Mr. Speight, (iii) 2,362 shares
held by Mr. Speight as trustee for Patricia Ruth Davis, (iv) 589 shares
held by Mr. Speight as trustee for Anna Davis, (v) 1,677 shares held by
a broker for the benefit of Mr. Speight as custodian for Alex Speight,
(vi) 1,677 shares held by a broker for the benefit of Mr. Speight as
custodian for J. Daniel Speight, III, (vii) 7,371 shares held in an
Individual Retirement Account for the benefit of Mr. Speight, (viii)
34,917 shares held by Sp8Co., Inc. as to which beneficial ownership is
shared, and (ix) 63,000 shares of immediately exercisable options. Mr.
Speight is also an executive officer of FLAG.
59
<PAGE>
(10) Consists of (i) 9,486 shares held by Mr. Stewart, (ii) 15 shares held
by Mr. Stewart as custodian for Tristran Daugherty, (iii) 1,469.901
shares issued to Mr. Stewart pursuant to FLAG's dividend reinvestment
plan, (iv) .490 shares issued to Mr. Stewart as custodian for Tristran
Daugherty pursuant to FLAG'S dividend reinvestment plan, and (v) 18,867
shares of immediately exercisable options.
(11) Consists of (i) 37,125 shares held by Mr. Walters, (ii) 41,700 shares
held jointly by Mr. Walters and his spouse, (iii) 42,000 shares held by
Mr. Walters' spouse as to which beneficial ownership is shared, (iv)
375 shares held by Mr. Walters as custodian for Myles D. Oliver, (v)
48.669 shares issued to Mr. Walter's as custodian for Myles D. Oliver
pursuant to FLAG's dividend reinvestment plan, and (vi) 18,867 shares
of immediately exercisable options.
(12) Consists of (i) 10,000 shares held by Mr. Rudd, (ii) 4,000 shares held
by a broker for the benefit of Mr. Rudd, (iii) 14,897.1356 shares
issued pursuant to First Federal's profit sharing plan, and (iv) 5,625
shares of immediately exercisable options.
Additional information about FLAG and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement. See "AVAILABLE
INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE." Voting Securities and
Principal Shareholders of FLAG
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
5,174,807 outstanding shares of FLAG Common Stock as of June 30, 1998. Unless
otherwise indicated, each person has sole voting and investment powers over the
indicated shares. Information relating to beneficial ownership of the FLAG
Common Stock is based upon "beneficial owner" concepts set forth in rules
promulgated under the Exchange Act of 1934. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities.
Amount and
Nature of Beneficial Percent of
Name and Address Ownership Class (%)
---------------- --------- ---------
Donovan B. Bell, Jr. 289,440 5.59
2316 Peacock Drive
Dublin, Georgia 31021
Wendell S. Dunaway 259,732(1) 5.01
P.O. Box 1007
Hawkinsville, Georgia 31036
J. Preston Martin 288,000(2) 5.57
P.O. Box 38
Mt. Zion Street
Milan, Georgia 31091
- --------------------
60
<PAGE>
(1) Consists of (i) 258,835 shares owned by Mr. Dunaway, and (ii) 897 shares
owned by Dunaway Brothers, as to which beneficial ownership is shared.
(2) Consists of 288,000 shares held by a broker for the benefit of Mr. Martin
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
as of June 30, 1998 (the "Pro Forma Balance Sheet"), and the unaudited pro forma
consolidated statements of earnings for the six months ended June 30, 1998, and
for each of the three years in the period ended December 31, 1997 (collectively,
the "Pro Forma Earnings Statements"), combine the historical financial
statements of FLAG with Empire after giving effect to the Merger using the
pooling of interests method of accounting. Pro forma adjustments to the Pro
Forma Balance Sheet are computed as if the Merger occurred at June 30, 1998,
while the pro forma adjustments to the Pro Forma Earnings Statements are
computed as if the Merger were consummated on January 1, 1995, the earliest
period presented. The following financial statements do not reflect any
anticipated cost savings which may be realized by FLAG after consummation of the
Merger.
The pro forma information does not purport to represent what FLAG's and
Empire's combined results of operations actually would have been if the Merger
had occurred on January 1, 1995.
61
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Other
Pro Forma Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisition Adjustments Combined
---- ------ ----------- -------- ----------- ----------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 11,724 $ 1,911 $ 13,635 $ 1,680 $ 15,315
Federal funds sold 10,070 3,200 13,270 110 13,380
Interest-bearing deposits 3,508 - 3,508 - 3,508
Securities available for sale, at fair value 66,712 10,036 76,749 1,756 78,505
Securities held to maturity 2,720 2,814 5,533 - 5,533
Other investments 5,755 - 5,755 - 5,755
Loans held for sale 6,306 - 6,306 - 6,306
Loans, net 306,527 48,397 354,924 22,213 377,137
Premises and equipment, net 12,512 1,494 14,007 1,338 15,345
Other assets 17,044 1,968 19,012 1,562 20,574
-------- ------- -------- ------ --------
Total assets $442,879 $69,820 $512,699 $28,659 $541,358
======= ====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 26,509 $12,302 $ 38,811 $ 2,400 $ 41,211
Interest bearing 312,736 46,524 359,260 23,526 382,786
------- ------ ------- ------ -------
Total deposits 339,245 58,826 398,071 25,926 423,997
Other borrowings 55,830 3,405 59,235 500 59,735
Accrued expenses and other liabilities 9,222 371 9,593 560 10,153
--------- -------- --------- ---------- --------
Total liabilities $404,297 $62,602 $466,899 $26,986 $493,885
------- ------ ------- ------ -------
Stockholders' Equity
Common stock 5,175 270 854 6,299 175 88 6,562
Additional paid-in capital 8,817 1,619 (1,146) 9,290 1,180 (88) 10,382
Retained earnings 24,381 5,610 29,991 327 30,318
Unrealized gains (loss) on
securities available for sale, net of tax 209 11 220 (9) 211
-------- -------- -------- --------- --------
38,582 7,510 45,800 1,673 47,473
Less Cost of 550 shares of treasury stock - (292) 292 - - -
--------
Total stockholders' equity 38,582 7,218 45,908 1,673 47,473
-------- ------- -------- ------- --------
Total stockholders'
equity and liabilities $442,879 $69,820 $512,699 $28,659 $541,358
======= ====== ======= ====== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
62
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Six Months Ended June 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisition Adjustments Combined
---- ------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $17,674 $2,805 $20,479 $1,472 $ 21,951
Interest expense 8,678 1,451 10,129 679 10,808
-------- ----- ------ ----- ------
Net interest income 8,996 1,354 10,350 793 11,143
Provision for loan losses 444 35 479 30 509
-------- ------- ------- ------ --------
Net interest income after
provision for loan losses 8,552 1,319 9,871 763 10,634
Noninterest income:
Fees and service charges 1,826 221 2,047 101 2,148
Net realized gains on
the sale of assets 1,023 7 1,030 7 1,037
Other operating income 869 39 908 37 945
-------- ------ ------- ------ ------
Total noninterest income 3,718 267 3,985 145 4,130
Noninterest expense:
Salaries and employee benefits 4,355 570 4,925 325 5,250
Net occupancy and equipment expenses 1,548 186 1,734 128 1,862
Other operating expenses 3,323 299 3,622 247 3,869
------- ----- ------- ------ ------
Total noninterest expense 9,226 1,055 10,281 700 10,981
Income before income taxes 3,044 531 3,575 208 3,783
Income tax expense 929 114 1,043 64 1,107
-------- ------ ------- ------- -------
Net income $ 2,115 $ 417 $ 2,532 $ 144 $ 2,676
======= ====== ======= ====== =======
Net income per common
share outstanding $ .41 $15.90 $ .40 $ .41
========= ===== ========= ==========
Weighted average outstanding shares 5,172 26 6,289 6,551
======= ======= ======= ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
63
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
Other
<TABLE>
<CAPTION>
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisition Adjustments Combined
---- ------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $30,643 $5,259 $35,902 $2,828 $38,730
Interest expense 14,646 2,644 17,290 1,334 18,624
------ ----- ------ ------ ------
Net interest income 15,997 2,615 18,612 1,494 20,106
Provision for loan losses 765 251 1,016 580 1,596
-------- ------ ------- ------ -------
Net interest income after
provision for loan losses 15,232 2,364 17,596 914 18,510
Noninterest income:
Fees and service charges 3,568 449 4,017 215 4,232
Net realized gains on
the sale of assets 910 - 910 - 910
Other operating income 854 92 946 56 1,002
------- ------- -------- ------- -----
Total noninterest income 5,332 541 5,873 271 6,144
Noninterest expense:
Salaries and employee benefits 7,256 1,043 8,299 614 8,913
Net occupancy and equipment expenses 2,779 391 3,170 181 3,351
Other operating expenses 4,985 685 5,670 589 6,259
-------- ------- ------- ------ -------
Total noninterest expense 15,020 2,119 17,139 1,384 18,523
Income (loss) before income taxes 5,544 786 6,330 (199) 6,131
Income tax expense (benefit) 1,795 93 1,888 (68) 1,820
------- ------- ------- ---------- ------
Net income (loss) $ 3,749 $ 693 $ 4,442 $ (131) $ 4,311
======= ====== ======= ========= ======
Net income per common
share outstanding $ .73 $26.85 $ .71 $ .66
========= ===== ========= ========
Weighted average outstanding shares 5,167 26 6,264 6,556
======= ======= ======= ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
64
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1996
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisition Adjustments Combined
---- ------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $27,951 $4,487 $32,438 $2,170 $34,608
Interest expense 13,194 2,217 15,411 962 16,373
------ ----- ------ ------ ------
Net interest income 14,757 2,270 17,027 1,208 18,235
Provision for loan losses 3,744 631 4,375 100 4,475
------- ------- ------- ------ -------
Net interest income after
provision for loan losses 11,013 1,639 12,652 1,108 13,760
Noninterest income:
Fees and service charges 3,301 381 3,682 120 3,802
Net realized gains on
the sale of assets 748 4 752 - 752
Other operating income 588 49 637 25 662
------- ------- -------- ------ -------
Total noninterest income 4,367 434 5,071 145 5,216
Noninterest expense:
Salaries and employee benefits 6,172 930 7,102 451 7,553
Net occupancy and equipment expenses 2,228 292 2,520 141 2,661
Other operating expenses 5,618 582 6,200 413 6,613
------- ------ ------- ------- -------
Total noninterest expense 14,018 1,804 15,822 1,005 16,827
Income before income taxes 1,632 269 1,901 248 2,149
Income tax expense 347 23 370 82 452
-------- ------- -------- ------ -------
Net income $ 1,285 $ 246 $ 1,531 $ 166 $ 1,697
======= ====== ======= ====== ======
Net income per common
share outstanding $ .25 $ 9.50 $ .25 $ .26
========= ====== ========= ========
Weighted average outstanding shares 5,124 26 6,225 6,488
======= ======= ======= ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
65
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Other
Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Empire Adjustments Combined Acquisition Adjustments Combined
---- ------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $27,311 $4,161 $31,472 $1,166 $32,638
Interest expense 13,378 1,843 15,221 541 15,762
------ ------- ------ ------ ------
Net interest income 13,933 2,318 16,251 625 16,876
Provision for loan losses 775 643 1,418 72 1,490
--------- ------- ------- ------ -------
Net interest income after
provision for loan losses 13,158 1,675 14,833 553 15,386
Noninterest income:
Fees and service charges 2,971 331 3,302 68 3,370
Net realized gains (losses) on
the sale of assets 350 (17) 333 5 338
Other operating income 385 38 423 16 439
-------- ------ -------- -------- -------
Total noninterest income 3,706 352 4,058 89 4,147
Noninterest expense:
Salaries and employee benefits 5,749 799 6,548 277 6,825
Net occupancy and equipment expenses 1,825 226 2,051 76 2,127
Other operating expenses 4,112 484 4,596 318 4,914
------- ------ -------- ------- -------
Total noninterest expense 11,686 1,509 13,195 671 13,866
Income before income taxes 5,178 518 5,696 (29) 5,667
Income tax expense (benefit) 1,707 (30) 1,677 (15) 1,662
------- ------ ------- ---------- -------
Net income $ 3,471 $ 548 $ 4,019 $ (14) $ 4,005
======= ====== ======= ========= =======
Net income per common
share outstanding $ .68 $21.09 $ .65 $ .62
========= ===== ========= =========
Weighted average outstanding shares 5,088 26 6,200 6,463
======= ======= ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
66
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Pro Forma Financial Statements
(1) The unaudited pro forma consolidated balance sheet as of June 30, 1998 and
consolidated statements of earnings for the six months ended June 30, 1998
and for the years ended December 31, 1997, 1996 and 1995 have been prepared
based on the historical consolidated balance sheets and statements of
earnings, which give effect to the Merger of Empire with and into FLAG
accounted for as a pooling of interests, based on the exchange of 42.5
shares of FLAG Common Stock for each outstanding share of Empire Common
Stock.
(2) In the opinion of management of the respective companies included above,
all adjustments considered necessary for a fair presentation of the
financial position and results for the period presented have been included.
Adjustments, if any, are normal and recurring nature.
67
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders of FLAG intended to be presented at the 1999
annual meeting of shareholders must be received by FLAG at its principal
executive offices on or before the date that is 120 calendar days in advance of
the date of FLAG's 1998 proxy statement released to security holders in order to
be included in FLAG's proxy statement and proxy relating to the 1999 annual
meeting of shareholders. As of the date of the mailing of this Proxy Statement,
FLAG's 1998 proxy statement has not been completed. The specific date by which
proposals of shareholders of FLAG intended to be represented at the 1999 annual
meeting of shareholders must be received by FLAG in order to be included in
FLAG's 1999 proxy statement will be set forth in FLAG's 1998 proxy statement.
EXPERTS
The restated consolidated financial statements of FLAG and subsidiaries
as of December 31, 997 and 1996, and for each of the years in the three year
period ended December 31, 1997, incorporated by reference herein and in the
Registration Statement, have been audited by Porter Keadle Moore, LLP,
independent certified public accountants, which are included in the FLAG Annual
Report to Shareholders which is incorporated by reference in FLAG's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997. The financial
statements audited by Porter Keadle Moore, LLP have been incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
The consolidated financial statements of FLAG and subsidiary as of
December 31, 1996 and each of the years in the two-year period ended December
31, 1996, included in the restated consolidated financial statements of FLAG,
incorporated herein and in the Registration Statement by reference, have been
audited by Robinson, Grimes and Company, P.C. independent certified public
accountants. The financial statements audited by Robinson, Grimes and Company
P.C., have been incorporated herein by reference in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
The consolidated financial statements of Middle Georgia Bankshares,
Inc. as of December 31, 1997 and 1996 and for each of the years in the three
year period ended December 31, 1997, included in the restated consolidated
financial statements of FLAG, incorporated herein and in the Registration
Statement by reference, have been audited by Porter Keadle Moore, LLP,
independent certified public accountants. The financial statements audited by
Porter Keadle Moore, LLP have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Three Rivers Bancshares, Inc.
as of December 31, 1997 and 1996 and for each of the years in the three year
68
<PAGE>
period ended December 31, 1997, included in the restated consolidated financial
statements of FLAG, incorporated herein and in the Registration Statement by
reference, have been audited by Thigpen, Jones, Seaton & Co., P.C., independent
certified public accountants. The financial statements audited by Thigpen,
Jones, Seaton & Co., P.C. have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Empire as of December 31, 1997
and 1996, and for each of the years in the three year period ended December 31,
1997, are contained herein and in the Registration Statement in reliance upon
the report of Porter Keadle Moore, LLP, independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The legality of the shares of FLAG Common Stock to be issued in the
Merger and certain tax consequences of the Merger will be passed upon by Powell,
Goldstein, Frazer & Murphy LLP, Atlanta, Georgia.
OTHER MATTERS
Management of Empire does not know of any matters to be brought before
the Special Meeting other than those described above. If any other matters
properly come before the Special Meeting, the persons designated as Proxies will
vote on such matters in accordance with their best judgment.
69
<PAGE>
INDEX TO EMPIRE FINANCIAL DATA
Page
Consolidated Balance Sheets as of June 30, 1998 and 1997 (Unaudited)........F-2
Consolidated Statements of Earnings for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)...............................F-3
Consolidated Statements of Comprehensive Income.............................F-4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (Unaudited).....................................F-5
Notes to Consolidated Financial Statements (Unaudited)......................F-6
Report of Independent Certified Public Accountants..........................F-7
Consolidated Balance Sheets as of December 31, 1997
and 1996...............................................................F-8
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995.......................................F-9
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995..................F-10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995......................................F-11
Notes to Consolidated Financial Statements.................................F-12
F-1
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1998 and 1997
(Unaudited)
Assets
1998 1997
---- ----
Cash and due from banks $ 1,911,248 3,749,044
Federal funds sold 3,200,000 525,000
----------- -----------
Cash and cash equivalents 5,111,248 4,274,044
Securities available for sale 10,036,496 9,055,908
Securities held to maturity 2,813,579 3,221,976
Loans, net 48,396,518 44,267,298
Premises and equipment 1,494,140 1,495,825
Other assets 1,967,690 2,045,684
----------- -----------
$ 69,819,671 64,360,735
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 12,302,370 11,453,640
Interest-bearing demand 6,805,144 6,400,587
Savings 2,299,295 2,599,629
Time 37,419,853 33,499,312
------------ ----------
Total deposits 58,826,662 53,953,168
Accounts payable and accrued liabilities 370,500 202,092
Federal Home Loan Bank advances 3,404,651 3,682,675
----------- -----------
Total liabilities 62,601,813 57,837,935
---------- ----------
Stockholders' equity:
Common stock, par value $10,
authorized 1,000,000 shares;
issued 27,000 shares 270,000 270,000
Additional paid-in capital 1,619,272 1,587,288
Retained earnings 5,609,591 4,930,607
Unrealized gain on securities
available for sale, net of tax 11,148 2,725
----------- --------------
7,510,011 6,790,620
Less treasury stock at cost, 550 and
1,148 shares, respectively (292,153) (267,820)
------------- -------------
Total stockholders' equity 7,217,858 6,522,800
----------- -----------
$ 69,819,671 64,360,735
========== ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Interest income:
Interest and fees on loans $ 2,300,862 2,113,713
Interest on federal funds sold 108,119 90,121
Interest on investment securities:
Taxable 326,579 287,992
Tax-exempt 69,717 69,795
----------- -----------
Total interest income 2,805,277 2,561,621
--------- ---------
Interest expense:
Demand 110,825 102,229
Savings 29,887 31,287
Time 1,187,364 978,563
Other borrowings 122,692 126,658
---------- ----------
Total interest expense 1,450,768 1,238,737
--------- ---------
Net interest income 1,354,509 1,322,884
Provision for loan losses 35,000 171,000
----------- -----------
Net interest income after
provision for loan losses 1,319,509 1,151,884
--------- ---------
Other income:
Service charges on deposits 220,505 208,766
Gain on sales of securities 6,927 19
Other 39,321 64,494
----------- -----------
Total other income 266,753 273,279
---------- ----------
Other expenses:
Salaries and employee benefits 569,627 592,716
Occupancy 185,779 178,205
Other operating 298,955 284,868
---------- ----------
Total other expenses 1,054,361 1,055,788
--------- ---------
Earnings before income taxes 531,901 369,375
Income taxes 114,000 13,500
---------- -----------
Net earnings $ 417,901 355,875
========== ==========
Net earnings per share $ 15.90 12.89
============ ============
Dividends per share $ 1.60 1.60
============= =============
Weighted average number of
shares outstanding 26,279 25,842
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net earnings $417,901 $355,875
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period, net
of tax of $(3,529) and $1,245, respectively (5,759) 2,031
Less: Reclassification adjustment for gains included in
net earnings, net of tax of $16 and $1,529 (26) (2,494)
-------- -------
Other comprehensive income (5,785) (463)
-------- -------
Comprehensive income $412,116 355,412
======= ========
</TABLE>
F-4
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 417,901 355,875
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion 97,250 113,573
Provision for loan losses 35,000 171,000
Gain on sales of investment securities (6,927) (19)
Change in:
Interest receivable and other assets (240,003) (367,263)
Interest payable and other liabilities 38,496 35,109
------------ -------------
Net cash provided by operating activities 341,717 308,275
----------- ------------
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 200,000 -
Proceeds from sales of securities available for sale 4,730,344 4,201,640
Purchase of securities available for sale (4,970,037) (5,203,358)
Net change in loans (2,969,776) (4,652,905)
Purchase of premises and equipment (42,528) (78,868)
------------ ------------
Net cash used in investing activities (3,051,997) (5,733,491)
---------- ----------
Cash flows from financing activities:
Net change in demand, savings and time deposits (468,047) 3,331,793
Proceeds from (payments on) FHLB advances (255,914) 80,882
Purchases of treasury stock (152,178) (39,349)
Sales of treasury stock 282,096 49,064
Dividends paid (44,567) (41,343)
------------ -------------
Net cash provided by (used in) financing activities (638,610) 3,381,047
----------- ------------
Net change in cash and cash equivalents (3,348,890) (2,044,169)
Cash and cash equivalents at beginning of year 8,460,138 6,318,213
----------- -----------
Cash and cash equivalents at end of year $ 5,111,248 4,274,044
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EMPIRE BANK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements include the accounts of Empire Bank
Corp., Inc. and its wholly-owned subsidiary, Empire Banking Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to present a fair
statement of the results of operations and financial position for the periods
covered herein. All such adjustments are of a normal recurring nature.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Empire Bank Corp.
Homerville, Georgia
We have audited the accompanying consolidated balance sheets of Empire Bank
Corp. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Bank Corp.
and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
April 17, 1998, except note 14, as to
which the date is June 1, 1998
F-7
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks $ 3,965,138 2,808,213
Federal funds sold 4,495,000 3,510,000
----------- -----------
Cash and cash equivalents 8,460,138 6,318,213
Securities available for sale 9,781,283 8,059,327
Securities held to maturity 3,015,022 3,225,993
Loans, net 45,461,742 39,785,393
Premises and equipment, net 1,556,012 1,521,357
Accrued interest receivable and other assets 1,727,688 1,678,422
----------- -----------
$ 70,001,885 60,588,705
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 14,344,267 13,252,619
Interest-bearing demand 4,379,328 4,981,229
Savings 2,149,060 2,079,311
Time 38,422,053 30,308,217
---------- ----------
Total deposits 59,294,708 50,621,376
Federal Home Loan Bank borrowings 3,660,565 3,601,793
Accrued interest payable and other liabilities 215,081 170,260
------------ ------------
Total liabilities 63,170,354 54,393,429
---------- ----------
Commitments
Stockholders' equity:
Common stock, $10 par value; 1,000,000 shares
authorized; 27,000 shares issued 270,000 270,000
Additional paid-in capital 1,587,288 1,577,771
Retained earnings 5,236,257 4,625,592
Treasury stock, at cost - 1,168 and 1,188 shares (282,450) (277,536)
Unrealized gains (losses) on securities
available for sale, net of tax 20,436 (551)
------------- --------------
Total stockholders' equity 6,831,531 6,195,276
----------- -----------
$ 70,001,885 60,588,705
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,344,284 3,698,850 3,485,630
Interest on investment securities:
U.S. treasuries and government agencies 554,652 445,351 389,247
State, county and municipal 139,551 140,268 203,376
Other securities 45,946 37,361 20,603
Interest on federal funds sold 174,888 164,866 62,425
---------- ---------- -----------
Total interest income 5,259,321 4,486,696 4,161,281
--------- --------- ---------
Interest expense on deposits:
Demand 204,427 192,083 191,416
Savings 62,570 58,027 58,683
Time 2,116,307 1,747,196 1,479,338
Interest expense on FHLB borrowings 260,285 219,912 113,155
---------- --------- ---------
Total interest expense 2,643,589 2,217,218 1,842,592
--------- --------- ---------
Net interest income 2,615,732 2,269,478 2,318,689
Provision for loan losses 251,188 631,000 643,451
---------- ---------- ----------
Net interest income after provision
for loan losses 2,364,544 1,638,478 1,675,238
--------- --------- ---------
Other income:
Service charges on deposit accounts 449,242 380,748 330,501
Securities gains (losses) 42 4,023 (17,153)
Miscellaneous 91,610 49,393 38,381
----------- ----------- -----------
Total other income 540,894 434,164 351,729
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 1,042,581 930,054 799,179
Occupancy 391,437 291,785 225,634
Other operating 684,918 581,700 484,311
---------- ---------- ----------
Total other expenses 2,118,936 1,803,539 1,509,124
--------- --------- ---------
Earnings before income taxes 786,502 269,103 517,843
Income tax (expense) benefit (93,155) (22,931) 30,187
------------ ------------ -----------
Net earnings $ 693,347 246,172 548,030
========== ========== ==========
Net earnings per share $ 26.85 9.50 21.09
============ ============= ============
Weighted average number of shares $ 25,822 25,900 25,987
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses)
on Securities
Additional Available
Common Paid-in Retained Treasury for Sale,
Stock Capital Earnings Stock Net of Tax Total
----- ------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 270,000 1,430,000 3,996,830 (87,845) (91,507) 5,517,478
Net earnings - - 548,030 - - 548,030
Dividends ($3.20 share) - - (83,158) - - (83,158)
Change in unrealized gains
(losses) on securities available
for sale, net of tax - - - - 106,325 106,325
---------- ----------- ----------- ------------- ------- -------
Balance, December 31, 1995 270,000 1,430,000 4,461,702 (87,845) 14,818 6,088,675
Purchase of treasury stock - - - (272,680) - (272,680)
Sale of treasury stock - 147,771 - 82,989 - 230,760
Net earnings - - 246,172 - - 246,172
Dividends ($3.20 per share) - - (82,282) - - (82,282)
Change in unrealized gains
(losses) on securities available
for sale, net of tax - - - - (15,369) (15,369)
----------- ----------- ----------- ----------- -------- --------
Balance, December 31, 1996 270,000 1,577,771 4,625,592 (277,536) (551) 6,195,276
Purchase of treasury stock - - - (44,462) - (44,462)
Sale of treasury stock - 9,517 - 39,548 - 49,065
Net earnings - - 693,347 - - 693,347
Dividends ($3.20 per share) - - (82,682) - - (82,682)
Change in unrealized gains
(losses) on securities available
for sale, net of tax - - - - 20,987 20,987
---------- ----------- ----------- ----------- ------ ------
Balance, December 31, 1997 $ 270,000 1,587,288 5,236,257 (282,450) 20,436 6,831,531
======= ========= ========= ======= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 693,347 246,172 548,030
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 242,422 179,958 92,024
Provision for loan losses 251,188 631,000 643,451
Provision for deferred income taxes (33,147) 23,333 (137,799)
Loss on disposal of fixed assets - - 10,267
Loss (Gain) on sale of investment securities (42) (4,023) 17,153
Change in:
Interest receivable 30,330 (1,186) (275,722)
Interest payable 33,272 7,786 33,302
Other assets (79,596) (177,278) (296,012)
Other liabilities 33,883 3,685 (7,707)
----------- ------------ ------------
Net cash provided by operating activities 1,171,657 909,447 642,401
--------- ---------- ----------
Cash flows from investing activities:
Purchases of securities available for sale (8,059,037) (7,277,295) (5,631,478)
Purchases of securities held to maturity - (407,039) (1,223,042)
Proceeds from sales of securities available for sale 1,351,000 1,089,167 3,798,551
Proceeds from calls and maturities of securities
available for sale 5,000,000 4,491,342 1,915,378
Proceeds from calls and maturities of securities
held to maturity 200,000 340,000 2,227,246
Net change in loans (5,927,537) (3,788,245) (4,768,066)
Purchases of premises and equipment (248,183) (861,954) (202,351)
---------- --------- ---------
Net cash used by investing activities (7,683,757) (6,414,024) (3,883,762)
--------- --------- ---------
Cash flows from financing activities:
Net change in deposits 8,673,332 8,098,691 1,676,431
Net proceeds from other borrowings 58,772 879,346 1,688,626
Dividends paid (82,682) (82,282) (83,158)
Purchase of treasury stock (44,462) (272,680) -
Proceeds from sale of treasury stock 49,065 230,760 -
----------- ---------- -----------
Net cash provided by financing activities 8,654,025 8,853,835 3,281,899
--------- --------- ---------
Net increase in cash and cash equivalents 2,141,925 3,349,258 (40,538)
Cash and cash equivalents at beginning of year 6,318,213 2,968,955 2,928,417
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,460,138 6,318,213 2,968,955
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the yearfor:
Interest $ 2,610,317 2,209,432 1,809,290
Income taxes $ 151,000 20,000 135,886
Non-cash investing and financing activities:
Change in unrealized gains (losses) on investment
securities available for sale, net of tax $ 20,987 15,369 (106,325)
Securities transferred, at amortized costs, to
securities available for sale - - 1,911,052
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
----------------------------------------------
Empire Bank Corp. (the "Company"), is a one-bank holding company whose
business is conducted by its wholly-owned bank subsidiary, Empire
Banking Company (the "Bank"). The Company is regulated by the Federal
Reserve Bank and is subject to periodic examinations.
The Bank was incorporated in 1945 and was granted a State of Georgia
commercial banking charter. It is regulated by the State of Georgia
Department of Banking and Finance and the Federal Deposit Insurance
Corporation and undergoes periodic examinations by these agencies. The
Bank provides a full range of commercial and consumer services in Clinch
and Ware counties in south Georgia.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the
banking industry. In preparing financial statements in conformity with
GAAP, management is required to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results
could differ significantly from those estimates. Material estimates
common to the banking industry that are particularly susceptible to
significant change in the near term include, but are not limited to, the
determination of the allowance for loan losses and the valuation of the
allowance related to the deferred tax assets.
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment Securities
---------------------
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading securities are
bought and held principally for sale in the near term. Held to maturity
securities are those securities for which the Company has the ability
and intent to hold the securities until maturity. All other securities
not included in trading or held to maturity are classified as available
for sale. At December 31, 1997 and 1996, the Company had no trading
securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
F-12
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Unearned interest on discounted loans is
recognized as income over the term of the loans using a method which
approximates a level yield. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal
amount outstanding.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection
of interest is doubtful.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" amended for SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure" in regards to accounting for impaired loans. A loan is
impaired when, based on current information and events, it is probable
that all amounts due according to the contractual terms of the loan
agreement will not be collected. Impaired loans are measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price, or at
the fair value of the collateral of the loan if the loan is collateral
dependent.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. The allowance represents an amount which, in
management's judgement, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgement in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality and review of
specific problem loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on
judgements different than those of management.
Premises and Equipment
----------------------
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. Costs incurred for maintenance and
repairs are expensed currently. The range of estimated useful lives are:
Buildings and improvements 20 - 31 years
Furniture and equipment 5 - 10 years
Computer and software equipment 3 - 10 years
F-13
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Income Taxes
------------
The Company accounts for income taxes under the liability method. This
method requires the recognition of deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Additionally, this method requires the
recognition of future tax benefits, such as net operating loss
carryforwards, to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such asset is required. A valuation allowance is provided for the
portion of the deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In
assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected
future taxable income, and tax planning strategies.
Profit Sharing Plan
-------------------
The Bank has established a simplified employee pension plan for the
employees who meet the requirements as established by the Internal
Revenue Code. The Bank's contribution to the plan for 1997, 1996 and
1995 was approximately $44,000, $43,000 and $38,000, respectively.
Net Earnings Per Share
----------------------
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to
simplify previous earnings per share standards and to make domestic and
international practices more compatible. Earnings per common share are
based on the weighted average number of common shares outstanding during
the period while the effects of potential common shares outstanding
during the period are included in diluted earnings per share. All
earnings per common share amounts have been restated to conform to the
provisions of SFAS No. 128. Net earnings per share is calculated as net
earnings divided by average number of shares outstanding.
Reclassifications
-----------------
Certain 1996 amounts have been reclassified to conform with 1997
presentation.
(2) Investment Securities
Investment securities at December 31, 1997 and 1996 are as follows:
Securities Available for Sale:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
U.S. Treasuries and
U.S. Government agencies $ 9,750,319 36,258 5,294 9,781,283
========= ====== ===== =========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and
U.S. Government agencies $ 8,060,162 10.570 11,405 8,059,327
========= ====== ====== =========
</TABLE>
F-14
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
Securities Held to Maturity:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies $ 199,536 - 36 199,500
State, county and municipal 2,815,486 87,891 948 2,902,429
--------- ------ --- ---------
Total $ 3,015,022 87,891 984 3,101,929
========= ====== === =========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
U.S. Treasuries and
U.S. Government agencies $ 406,810 - 3,874 402,936
State, county and municipal 2,819,183 47,782 38,540 2,828,425
--------- ------ ------ ---------
Total $ 3,225,993 47,782 42,414 3,231,361
========= ====== ====== =========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have
the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Held Securities Available
To Maturity for Sale
December 31, 1997 December 31, 1997
----------------- -----------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies:
Within 1 year $ 199,536 199,500 4,356,781 4,355,025
1 to 5 years - - 5,393,538 5,426,258
----------- ----------- ---------- ---------
$ 199,536 199,500 9,750,319 9,781,283
---------- ---------- --------- ---------
State, county and municipal:
1 to 5 years $ 1,233,898 1,256,382 - -
5 to 10 years 1,581,588 1,646,047 - -
--------- --------- ---------- ---------
$ 2,815,486 2,902,429 - -
--------- --------- ---------- ----------
Total securities:
Within 1 year $ 199,536 199,500 4,356,781 4,355,025
1 to 5 years 1,233,898 1,256,382 5,393,538 5,426,258
5 to 10 years 1,581,588 1,646,047 - -
--------- --------- ---------- ----------
$ 3,015,022 3,101,429 9,750,319 9,781,283
========= ========= ========= =========
</TABLE>
F-15
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
Proceeds from sales of securities available for sale during 1997, 1996
and 1995 were $1,351,000, $1,089,167 and $3,798,551, respectively. Gross
gains of $42, $4,023 and $15,563 were realized on 1997, 1996 and 1995
sales, respectively, along with gross losses of $32,716 on 1995 sales,
were realized.
Securities with an approximate carrying value of $4,695,000 and
$3,800,000 at December 31, 1997 and 1996, respectively, were pledged to
secure public deposits as required by law.
(3) Loans
Major classifications of loans at December 31, 1997 and 1996 are
summarized as follows:
1997 1996
---- ----
Commercial, financial and agricultural $ 15,530,146 13,337,091
Real estate - mortgage and construction 18,948,392 15,668,890
State, county and municipal 2,552,920 3,006,426
Consumer loans 8,911,711 8,167,558
----------- -----------
45,943,169 40,179,965
Less: Allowance for loan losses 481,427 394,572
----------- ------------
$ 45,461,742 39,785,393
========== ==========
The Company grants loans and extensions of credit to individuals and a
variety of businesses and corporations located in its general trade area
of Clinch County and Ware County, Georgia and adjoining counties.
Although the Company has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
Changes in the allowance for loan losses were as follows:
1997 1996 1995
---- ---- ----
Balance, beginning of year $ 394,572 534,906 292,491
Provisions charged to operations 251,188 631,000 643,451
Loans charged off (194,902) (797,265) (511,608)
Recoveries 30,569 25,931 110,572
-------- --------- -------
Balance, end of year $ 481,427 394,572 534,906
======= ======= =======
(4) Premises and Equipment
Major classifications of premises and equipment are summarized as
follows:
1997 1996
---- ----
Land $ 189,288 189,288
Buildings 1,244,926 1,136,642
Furniture and equipment 1,163,082 1,098,812
--------- ---------
2,597,296 2,424,742
Less: Accumulated depreciation 1,041,284 903,385
--------- ----------
$ 1,556,012 1,521,357
========= =========
Depreciation expense was approximately $213,000, $133,000 and $102,000
in 1997, 1996 and 1995, respectively.
F-16
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(5) Time Deposits
At December 31, 1997 the scheduled maturities of time deposits are as
follows:
1998 $ 30,363,966
1999 5,136,774
2000 2,911,101
2001 10,212
-------------
$ 38,422,053
At December 31, 1997 and 1996, the Company had individual time deposits
over $100,000 of approximately $9,445,000 and $8,990,000, respectively.
(6) Federal Home Loan Bank Borrowings
The Bank is party to an agreement with the Federal Home Loan Bank
("FHLB") whereby the FHLB provides the Bank with credit facilities under
varying terms. Any amounts advanced by the FHLB are secured under a
blanket security lien covered by all of the Bank's 1-4 family, first
mortgage loans. At December 31, 1997 and 1996 the Bank has long-term
notes payable amounting to $3,660,565 and $3,601,793, respectively, most
with quarterly level principal payments, plus interest at rates varying
from 5.67% to 8.13% through 2007.
Maturities of the notes payable for future years is as follows:
1998 $ 616,254
1999 616,254
2000 616,254
2001 441,536
2002 342,786
Thereafter 1,027,481
---------
$ 3,660,565
(7) Income Taxes
The components of income tax expense in the consolidated statements of
earnings are as follows:
1997 1996 1995
---- ---- ----
Current $ 126,302 (402) 107,612
Deferred 23,353 (93,667) (57,799)
Change in valuation allowance (56,500) 117,000 (80,000)
-------- ------- --------
Total income tax expense (benefit) $ 93,155 22,931 (30,187)
======== ======= ========
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to earnings
before income taxes are principally the result of tax-exempt interest
income and non-deductible interest expense.
F-17
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) Income Taxes, continued
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset. The net deferred tax asset is a component of other assets at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred income tax assets:
Unrealized losses on investment securities
available for sale $ - 284
Allowance for loan losses 41,248 47,125
Alternative minimum tax credits 142,381 23,503
State and Federal net operating loss carry forward and credits 120,798 238,000
Other - 14,379
------------ ----------
Total gross deferred income tax assets 304,427 323,291
Less valuation allowance (90,500) (147,000)
-------- -------
Net deferred income tax assets 213,927 176,291
------- -------
Deferred income tax liabilities:
Unrealized gains on investment securities
available for sale (10,528) -
Premises and equipment (143,228) (138,455)
------- -------
Total gross deferred income tax liabilities (153,756) (138,455)
------- -------
Net deferred income tax asset $ 60,171 37,836
======== =========
</TABLE>
The valuation allowance has been decreased by $56,500 during 1997 as a
result of management's assessment of the Company's estimated future
state taxable income and related usage of their state net operating loss
carryforwards and credits. The valuation allowance of $90,500 at
December 31, 1997 is required due to the uncertainty regarding the
future utilization of a portion of the Company's net operating losses
and state tax credits. These remaining benefits will be recognized for
financial reporting purposes when the realization of such benefits is
more likely than not.
At December 31, 1997, the Company has remaining loss carryforwards of
approximately $2,000,000 for state income tax purposes, which begin to
expire in 2000. The use of these carryforwards is limited to future
state and federal taxable earnings of the Company.
(8) Commitments
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contractual amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-18
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(8) Commitments, continued
In most cases, the Company does require collateral or other security to
support financial instruments with credit risk.
Contractual Amount
------------------
1997 1996
---- ----
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 3,695,000 2,587,000
Standby letters of credit $ 249,000 179,000
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company, upon extension of credit is based on management's credit
evaluation. Collateral held varies, but may include unimproved and
improved real estate, certificates of deposit, or personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
(9) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under certain adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of December 31, 1997 that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
F-19
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(9) Regulatory Matters, continued
The consolidated and bank only actual capital amounts and ratios for
1997 and 1996 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 7,292,522 15.0% $ 3,893,040 8.0% N/A N/A
Empire Banking Company $ 7,128,545 14.6% $ 3,893,040 8.0% $ 4,866,300 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 6,811,095 14.0% $ 1,946,520 4.0% N/A N/A
Empire Banking Company $ 6,647,118 13.7% $ 1,946,520 4.0% $ 2,919,780 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 6,811,095 10.7% $ 2,549,612 4.0% N/A N/A
Empire Banking Company $ 6,647,118 10.4% $ 2,549,612 4.0% $ 3,187,016 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 6,588,400 15.5% $ 3,400,465 8.0% N/A N/A
Empire Banking Company $ 6,430,364 15.2% $ 3,395,579 8.0% $ 4,244,474 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 6,195,827 14.6% $ 1,697,487 4.0% N/A N/A
Empire Banking Company $ 6,035,791 14.2% $ 1,697,789 4.0% $ 2,546,684 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 6,195,827 11.1% $ 2,232,730 4.0% N/A N/A
Empire Banking Company $ 6,035,791 10.8% $ 2,237,777 4.0% $ 2,797,221 5.0%
</TABLE>
(10) Related Party Transactions
In the normal course of business, executive officers and directors of
the Company, including certain business organizations and individuals
associated with them, maintain a variety of banking relationships with
the Bank. Loans to executive officers and directors are made on terms
comparable to those available to other Bank customers. The following is
a summary of activity for related party loans for 1997:
Beginning balance $ 1,946,000
Loans advanced 2,121,000
Repayments (2,110,000)
---------
Ending balance $ 1,957,000
=========
F-20
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) Capital Stock Transactions
The Company redeemed 180 and 1,132 shares of its common stock at an
average price $247.01 and $240.88 per share in 1997 and 1996. The
Company sold 200 and 957 shares of treasury stock for an average price
of $245.32 and $241.13 per share in 1997 and 1996.
(12) Other Operating Expenses
Components of other operating expenses which are greater then 1% of
interest income and other income are as follows:
1997 1996 1995
---- ---- ----
Insurance $ 145,598 119,647 104,738
Professional fees 62,485 39,548 34,916
Loss on disposition of other assets 67,453 - -
Postage 62,248 50,301 46,126
F-21
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Empire Bank Corp. (Parent Company Only) Financial Information
Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
Cash $ 162,592 158,996
Investment in bank subsidiary 6,667,554 6,035,240
Other assets 1,385 1,040
------------ -----------
$ 6,831,531 6,195,276
========= =========
Stockholders' Equity
Stockholders' equity $ 6,831,531 6,195,276
========= =========
Statements of Earnings
For the Years Ended December 31, 1997,1996 and 1995
1997 1996 1995
---- ---- ----
Dividends received from bank subsidiary $ 82,690 82,282 83,158
Other expenses 1,015 1,182 1,199
------- --------- --------
Earnings before income taxes and equity in
undistributed earnings of bank subsidiary 81,675 81,100 87,959
Income tax benefit 345 402 408
------- --------- --------
Earnings before equity in undistributed
earnings of bank subsidiary 82,020 81,502 82,367
Equity in undistributed earnings of bank
subsidiary 611,327 164,670 465,663
------- --------- --------
Net earnings $ 693,347 246,172 548,030
======= ========= ========
F-22
<PAGE>
EMPIRE BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Empire Bank Corp. (Parent Company Only) Financial Information, continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 693,347 246,172 548,030
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary (611,327) (164,670) (465,663)
Change in other assets (345) 1,598 (1,408)
-------- ---------- -----------
Net cash provided by operating activities 81,675 83,100 80,959
-------- ---------- ----------
Cash flows from investing activities - investment in subsidiary - (800,000) -
------- ---------- ----------
Cash flows from financing activities:
Dividends paid (82,682) (82,282) (83,158)
Purchase of treasury stock (44,462) (272,680) -
Proceeds from sale of treasury stock 49,065 230,760 -
------- ---------- ------
Net cash used by financing activities (78,079) (124,202) (83,158)
------- ---------- ----------
Increase (decrease) in cash 3,596 (841,102) (2,199)
Cash at beginning of year 158,996 1,000,098 1,002,297
------- --------- ---------
Cash at end of year $ 162,592 158,996 1,000,098
======= ========== =========
Change in unrealized gains (losses) on investment securities
available for sale of subsidiary, net of tax $ 20,987 15,369 (106,325)
</TABLE>
(14) Subsequent Event
On June 1, 1998, the Company executed a letter of intent to merge with
and into FLAG Financial Corporation ("FLAG"). Under the terms of the
letter of intent, each share of the Company's common stock will be
exchanged for 42.5 shares of FLAG common stock. The merger is subject to
approval of regulatory authorities and shareholders.
F-23
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN FLAG FINANCIAL CORPORATION
AND EMPIRE BANK CORP.
Dated as of July 30, 1998
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS..........................................................V
AGREEMENT AND PLAN OF MERGER..............................................1
ARTICLE 1. TRANSACTIONS AND TERMS OF THE MERGER....................2
1.1 Merger...........................................................2
1.2 Time and Place of Closing........................................2
Effective Time.........................................................2
ARTICLE 2. TERMS OF MERGER.........................................2
2.1 Articles of Incorporation........................................2
2.2 Bylaws...........................................................2
2.3 Directors and Officers...........................................3
ARTICLE 3. MANNER OF CONVERTING SHARES.............................3
3.1 Conversion of Shares.............................................3
3.2 Anti-Dilution Provisions.........................................3
3.3 Shares Held by EMPIRE or FLAG....................................3
3.4 Dissenting Shareholders..........................................4
3.5 Fractional Shares................................................4
ARTICLE 4. EXCHANGE OF SHARES......................................4
4.1 Exchange Procedures..............................................4
4.2 Rights of Former Shareholders of EMPIRE..........................5
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF EMPIRE................6
5.1 Organization, Standing, and Power................................6
5.2 Authority of EMPIRE; No Breach By Agreement......................6
5.3 Capital Stock....................................................7
5.4 EMPIRE Subsidiaries..............................................7
5.5 Financial Statements.............................................8
i
<PAGE>
5.6 Absence of Undisclosed Liabilities...............................9
5.7 Absence of Certain Changes or Events.............................9
5.8 Tax Matters......................................................9
5.9 Allowance for Possible Loan Losses..............................10
5.10 Assets.......................................................11
5.11 Intellectual Property........................................11
5.12 Environmental Matters........................................12
5.13 Compliance with Laws.........................................13
5.14 Labor Relations..............................................13
5.15 Employee Benefit Plans.......................................14
5.16 Material Contracts...........................................16
5.17 Legal Proceedings............................................16
5.18 Reports......................................................17
5.19 Statements True and Correct..................................17
5.20 Accounting, Tax and Regulatory Matters.......................17
5.21 Charter Provisions...........................................17
5.22 Board Recommendation.........................................18
5.23 Y-2K.........................................................18
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF FLAG.................18
6.1 Organization, Standing, and Power...............................18
6.2 Authority of FLAG; No Breach By Agreement.......................18
6.3 Capital Stock...................................................19
6.4 FLAG Subsidiaries...............................................20
6.5 SEC Filings, Financial Statements...............................21
6.6 Absence of Undisclosed Liabilities..............................21
6.7 Absence of Certain Changes or Events............................21
6.8 Tax Matters.....................................................22
6.9 Allowance for Possible Loan Losses..............................23
6.10 Assets.......................................................23
6.11 Intellectual Property........................................24
6.12 Environmental Matters........................................24
6.13 Compliance with Laws.........................................25
6.14 Labor Relations..............................................26
6.15 Employee Benefit Plans.......................................26
6.16 Material Contracts...........................................28
6.17 Legal Proceedings............................................28
6.18 Reports......................................................29
6.19 Statements True and Correct..................................29
6.20 Accounting, Tax and Regulatory Matters.......................29
6.21 Charter Provisions...........................................30
6.22 Board Recommendation.........................................30
6.23 Y2K..........................................................30
ii
<PAGE>
ARTICLE 7. CONDUCT OF BUSINESS PENDING CONSUMMATION...............30
7.1 Affirmative Covenants of EMPIRE.................................30
7.2 Negative Covenants of EMPIRE....................................30
7.3 Affirmative Covenants of FLAG...................................32
7.4 Negative Covenants of FLAG......................................33
7.5 Adverse Changes in Condition....................................33
7.6 Reports.........................................................33
ARTICLE 8. ADDITIONAL AGREEMENTS..................................33
8.1 Registration Statement..........................................33
8.2 Nasdaq Listing..................................................34
8.3 Shareholder Approval............................................34
8.4 Applications....................................................34
8.5 Filings with State Offices......................................34
8.6 Agreement as to Efforts to Consummate...........................34
8.7 Investigation and Confidentiality...............................35
8.8 Press Releases..................................................35
8.9 Certain Actions.................................................35
8.10 Accounting and Tax Treatment.................................36
8.11 Charter Provisions...........................................36
8.12 Agreements of Affiliates.....................................36
8.13 Employee Benefits and Contracts..............................37
8.14 Indemnification..............................................37
ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE......38
9.1 Conditions to Obligations of Each Party.........................38
9.2 Conditions to Obligations of FLAG...............................40
9.3 Conditions to Obligations of EMPIRE.............................41
ARTICLE 10. TERMINATION............................................42
10.1 Termination..................................................42
10.2 Effect of Termination........................................43
10.3 Non-Survival of Representations and Covenants................43
ARTICLE 11. MISCELLANEOUS..........................................43
11.1 Definitions..................................................43
11.2 Expenses.....................................................51
11.3 Brokers and Finders..........................................52
11.4 Entire Agreement.............................................52
iii
<PAGE>
11.5 Amendments...................................................52
11.6 Waivers......................................................52
11.7 Assignment...................................................53
11.8 Notices......................................................53
11.9 Governing Law................................................54
11.10 Counterparts.................................................54
11.11 Captions, Articles and Sections..............................54
11.12 Interpretations..............................................54
11.13 Enforcement of Agreement.....................................54
11.14 Severability.................................................54
SIGNATURES TO AGREEMENT AND PLAN OF MERGER
iv
<PAGE>
LIST OF EXHIBITS
Exhibit
Number Description
- ------- -----------
1. Form of Agreement of Affiliates of EMPIRE BANK CORP. (SS 8.12, SS 9.2(f)).
2. Matters as to which Kilpatrick Stockton LLP will opine. (SS 9.2(d)).
3. Form of Claims Letter (SS 9.2(g)).
4. Matters as to which Powell, Goldstein, Frazer & Murphy LLP will opine.
(SS 9.3(d)).
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of July 30, 1998, by and between FLAG FINANCIAL CORPORATION ("FLAG"), a
Georgia corporation located in LaGrange, Georgia, and EMPIRE BANK CORP.
("EMPIRE"), a Georgia corporation located in Homerville, Georgia. Preamble
Preamble
--------
The respective Boards of Directors of EMPIRE and FLAG are of the opinion
that the transactions described herein are in the best interests of the Parties
to this Agreement and their respective shareholders. This Agreement provides for
the acquisition of EMPIRE by FLAG, pursuant to the merger of EMPIRE with and
into FLAG. At the effective time of such merger, the outstanding shares of the
capital stock of EMPIRE shall be converted into the right to receive shares of
the common stock of FLAG (except as provided herein). As a result, shareholders
of EMPIRE shall become shareholders of FLAG, and FLAG shall conduct the business
and operations of EMPIRE. The transactions described in this Agreement are
subject to (a) approval of the shareholders of EMPIRE, (b) approval of the
Georgia Department of Banking and Finance, (c) approval of the Board of
Governors of the Federal Reserve, and (d) satisfaction of certain other
conditions described in this Agreement. It is the intention of the Parties to
this Agreement that the merger, for federal income tax purposes, shall qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code, and, for accounting purposes, shall qualify for treatment as a
pooling of interests.
Certain terms used in this Agreement are defined in Section 11.1 hereof.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the Parties agree
as follows:
1
<PAGE>
ARTICLE 1.
TRANSACTIONS AND TERMS OF THE MERGER
------------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, EMPIRE will merge with and into FLAG in accordance with the
provisions of Section 14-2-1101 of the GBCC and with the effect provided in
Section 14-2-1106 of the GBCC (the "Merger"). FLAG shall be the Surviving
Corporation resulting from the Merger and shall continue to be governed by the
Laws of the State of Georgia. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of EMPIRE and FLAG, as set forth herein.
1.2 Time and Place of Closing. The closing of the transactions contemplated
hereby (the "Closing") will take place at 9:00 A.M. on the date that the
Effective Time occurs (or the immediately preceding day if the Effective Time is
earlier than 9:00 A.M.), or at such other time as the Parties, acting through
their authorized officers, may mutually agree. The Closing shall be held at such
location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Certificate of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Georgia (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the fifth business day following
the last to occur of (i) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the earliest date on which the shareholders of EMPIRE have approved this
Agreement to the extent such approval is required by applicable Law; provided,
however, that the date of the Effective Time shall not extend past the
termination date set forth in SS 10.1(e) hereof.
ARTICLE 2.
TERMS OF MERGER
---------------
2.1 Articles of Incorporation. The Articles of Incorporation of FLAG in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until duly amended or repealed.
2.2 Bylaws. The Bylaws of FLAG in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until duly amended or
repealed.
2
<PAGE>
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation shall be (i) the directors
of FLAG immediately prior to the Effective Time and (ii) Leonard H. Bateman,
together with such additional persons as may thereafter be elected. Such persons
shall serve as the directors of the Surviving Corporation from and after the
Effective Time in accordance with the Bylaws of the Surviving Corporation.
(b) The executive officers of the Surviving Corporation shall be (i) the
executive officers of the Surviving Corporation immediately prior to the
Effective Time and (ii) such additional persons as may thereafter be elected.
Such persons shall serve as the executive officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE 3.
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of EMPIRE, or the shareholders of the foregoing, the shares of EMPIRE shall be
converted as follows:
(a) Each share of capital stock of FLAG issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of EMPIRE Common Stock (excluding shares held by any EMPIRE
Entity or any FLAG Entity, in each case other than in a fiduciary capacity or as
a result of debts previously contracted, and excluding shares held by
shareholders who perfect their statutory dissenter' rights as provided in
Section 3.4) issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive 42.50 shares of FLAG Common Stock (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event FLAG changes the number of
shares of FLAG Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) and prior to the
Effective Time, the Exchange Ratio shall be proportionately adjusted.
3.3 Shares Held by EMPIRE or FLAG. Each of the shares of EMPIRE Common
Stock held by any EMPIRE Entity or by any FLAG Entity, in each case other than
in a fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3
<PAGE>
3.4 Dissenting Shares. Any holder of shares of EMPIRE Common Stock who
perfects his dissenters/ rights in accordance with and as contemplated by
Article 13, Part 2 of Title 14 of the GBCC, shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the GBCC and surrendered to FLAG the certificates or certificates
representing the shares for which payment is being made. In the event that after
the Effective Time, a dissenting shareholder of EMPIRE fails to perfect, or
effectively withdraws or loses, his right to appraisal of and payment for his
shares, FLAG shall issue and deliver the consideration to which such holder of
shares of EMPIRE Common Stock is entitled under this Article 3 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of EMPIRE Common Stock held by him. If and to the extent
required by applicable Law, EMPIRE will establish (or cause to be established)
an escrow account with an amount sufficient to satisfy the maximum aggregate
payment that may be required to be paid to dissenting shareholders. Upon
satisfaction of all claims of dissenting shareholders, the remaining escrowed
amount, reduced by payment of the fees and expenses of the escrow agent, will be
returned to FLAG.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of EMPIRE Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of FLAG Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of FLAG Common Stock multiplied
by the market value of one share of FLAG Common Stock at the Effective Time. The
market value of one share of FLAG Common Stock at the Effective Time shall be
the last sale price of such common stock on the Nasdaq National Market (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by FLAG) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares.
ARTICLE 4.
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. Promptly after the Effective Time, FLAG shall
cause the exchange agent selected by FLAG (the "Exchange Agent") to mail to each
holder of record of a certificate or certificates which represented shares of
EMPIRE Common Stock immediately prior to the Effective Time (the "Certificates")
appropriate transmittal materials and instructions (which shall specify that
delivery shall be effected, and risk of loss and title to such Certificates
shall pass, only upon proper delivery of such Certificates to the Exchange
Agent). The Certificate or Certificates of EMPIRE Common Stock so delivered
shall be duly endorsed as the Exchange Agent may require. In the event of a
transfer of ownership of shares of EMPIRE Common Stock represented by
Certificates that are not registered in the transfer records of EMPIRE, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
4
<PAGE>
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such
bond, security or indemnity as FLAG and the Exchange Agent may reasonably
require, and (iii) any other documents necessary to evidence and effect the bona
fide exchange thereof, the Exchange Agent shall issue to such holder the
consideration into which the shares represented by such lost, stolen, mislaid or
destroyed Certificate shall have been converted. The Exchange Agent may
establish such other reasonable and customary rules and procedures in connection
with its duties as it may deem appropriate. After the Effective Time, each
holder of shares of EMPIRE Common Stock (other than shares to be canceled
pursuant to Section 3.3 or as to which statutory dissenter' rights have been
perfected as provided in Section 3.4) issued and outstanding at the Effective
Time shall surrender the Certificate or Certificates representing such shares to
the Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. FLAG shall not be obligated to
deliver the consideration to which any former holder of EMPIRE Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
Certificate or Certificates for exchange as provided in this Section 4.1. Any
other provision of this Agreement notwithstanding, neither FLAG nor the Exchange
Agent shall be liable to a holder of EMPIRE Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar Law. Approval of this Agreement by the
shareholders of EMPIRE shall constitute ratification of the appointment of the
Exchange Agent.
4.2 Rights of Former Shareholders of EMPIRE. At the Effective Time, the
stock transfer books of EMPIRE shall be closed as to holders of EMPIRE Common
Stock immediately prior to the Effective Time and no transfer of EMPIRE Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1, each
Certificate theretofore representing shares of EMPIRE Common Stock (other than
shares to be canceled pursuant to Sections 3.3 and 3.4) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Section 3.1 in exchange therefor, subject, however, to
FLAG's obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which have been declared or made by
EMPIRE in respect of such shares of EMPIRE Common Stock in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time. To the
extent permitted by Law, former shareholders of record of EMPIRE shall be
entitled to vote after the Effective Time at any meeting of FLAG shareholders
the number of whole shares of FLAG Common Stock into which their respective
shares of EMPIRE Common Stock are converted, regardless of whether such holders
have exchanged their Certificates for certificates representing FLAG Common
Stock in accordance with the provisions of this Agreement. Whenever a dividend
or other distribution is declared by FLAG on the FLAG Common Stock, the record
date for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of FLAG Common Stock issuable
pursuant to this Agreement, but no dividend or other distribution payable to the
holders of record of FLAG Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any Certificate until such
holder surrenders such Certificate for exchange as provided in Section 4.1.
5
<PAGE>
However, upon surrender of such Certificate, both the FLAG Common Stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered dividends and cash payments payable
hereunder (without interest) shall be delivered and paid with respect to each
share represented by such Certificate. No interest shall be payable with respect
to any cash to be paid under Section 3.1 of this Agreement except to the extent
required in connection with the exercise of dissenters' rights.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF EMPIRE
----------------------------------------
EMPIRE hereby represents and warrants to FLAG as follows:
5.1 Organization, Standing, and Power. EMPIRE is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. EMPIRE is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, an EMPIRE Material Adverse Effect. The minute book and other
organizational documents for EMPIRE have been made available to FLAG for its
review and, except as disclosed in Section 5.1 of the EMPIRE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.2 Authority of EMPIRE; No Breach By Agreement
(a) EMPIRE has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of EMPIRE, subject to the
approval of this Agreement by the holders of a majority of the outstanding
voting stock of EMPIRE, which is the only shareholder vote required for approval
of this Agreement, and consummation of the Merger by EMPIRE. Subject to such
requisite shareholder approval, this Agreement represents a legal, valid, and
binding obligation of EMPIRE, enforceable against EMPIRE in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
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(b) Neither the execution and delivery of this Agreement by EMPIRE, nor the
consummation by EMPIRE of the transactions contemplated hereby, nor compliance
by EMPIRE with any of the provisions hereof, will (i) conflict with or result in
a breach of any provision of EMPIRE's Articles of Incorporation or Bylaws, or
the Charter, Articles of Incorporation, or Bylaws of any EMPIRE Subsidiary or
any resolution adopted by the board of directors or the shareholders of any
EMPIRE Entity, or (ii) except as disclosed in Section 5.2 of the EMPIRE
Disclosure Memorandum, constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
EMPIRE Entity under, any Contract or Permit of any EMPIRE Entity, where such
Default or Lien, or any failure to obtain such Consent, is reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect, or
(iii) subject to receipt of the requisite Consents referred to in
Section 9.1(b), constitute or result in a Default under or require any Consent
pursuant to, any Law or Order applicable to any EMPIRE Entity or any of their
respective material Assets (including any FLAG Entity or any EMPIRE Entity
becoming subject to or liable for the payment of any Tax or any of the Assets
owned by any FLAG Entity or any EMPIRE Entity being reassessed or revalued by
any Taxing authority).
(c) Other than in connection or compliance with the provisions of
applicable federal banking laws, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents, filings,
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect, no
notice to, filing with, or Consent of, any public body or authority is necessary
for the consummation by EMPIRE of the Merger and the other transactions
contemplated in this Agreement.
5.3 Capital Stock
(a) As of the date of this Agreement, the authorized capital stock of
EMPIRE consists of 1,000,000 shares of EMPIRE Common Stock, of which 26,450
shares are issued and outstanding. All of the issued and outstanding shares of
capital stock of EMPIRE are duly and validly issued and outstanding and are
fully paid and nonassessable under the GBCC. None of the outstanding shares of
capital stock of EMPIRE has been issued in violation of any preemptive rights of
the current or past shareholders of EMPIRE.
(b) Except as set forth in Section 5.3(a), or as disclosed in
Section 5.3(b) of the EMPIRE Disclosure Memorandum, there are no shares of
capital stock or other equity securities of EMPIRE outstanding and no
outstanding Equity Rights relating to the capital stock of EMPIRE.
5.4 EMPIRE Subsidiaries. EMPIRE has disclosed in Section 5.4 of the EMPIRE
Disclosure Memorandum all of the EMPIRE Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the number of shares
owned and percentage ownership interest represented by such share ownership) and
all of the EMPIRE Subsidiaries that are general or limited partnerships, limited
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liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which the character of its
Assets or the nature or conduct of its business requires it to be qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 5.4 of the EMPIRE Disclosure
Memorandum, EMPIRE or one of its wholly-owned Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity interests) of
each EMPIRE Subsidiary. No capital stock (or other equity interest) of any
EMPIRE Subsidiary is or may become required to be issued (other than to another
EMPIRE Entity) by reason of any Equity Rights, and there are no Contracts by
which any EMPIRE Subsidiary is bound to issue (other than to another EMPIRE
Entity) additional shares of its capital stock (or other equity interests) or
Equity Rights or by which any EMPIRE Entity is or may be bound to transfer any
shares of the capital stock (or other equity interests) of any EMPIRE Subsidiary
(other than to another EMPIRE Entity). There are no Contracts relating to the
rights of any EMPIRE Entity to vote or to dispose of any shares of the capital
stock (or other equity interests) of any EMPIRE Subsidiary. All of the shares of
capital stock (or other equity interests) of each EMPIRE Subsidiary held by an
EMPIRE Entity are fully paid and (except pursuant to 12 U.S.C. Section 55 in the
case of national banks and comparable, applicable State Law, if any, in the case
of State depository institutions) nonassessable and are owned by the EMPIRE
Entity free and clear of any Lien. Except as disclosed in Section 5.4 of the
EMPIRE Disclosure Memorandum, each EMPIRE Subsidiary is either a bank, savings
association or a corporation, and is duly organized, validly existing, and in
good standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each EMPIRE Subsidiary is duly qualified or licensed to transact business as a
foreign corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect. Each EMPIRE Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder. The minute book and other organizational
documents for each EMPIRE Subsidiary have been made available to FLAG for its
review, and, except as disclosed in Section 5.4 of the EMPIRE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.5 Financial Statements. Each of the EMPIRE Financial Statements
(including, in each case, any related notes) was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements), and fairly
presented in all material respects the consolidated financial position of EMPIRE
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
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5.6 Absence of Undisclosed Liabilities. No EMPIRE Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of EMPIRE as of
December 31, 1997 or March 31, 1998, included in the EMPIRE Financial Statements
or reflected in the notes thereto. No EMPIRE Entity has incurred or paid any
Liability since March 31, 1998, except for such Liabilities incurred or paid (i)
in the ordinary course of business consistent with past business practice and
which are not reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
5.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the EMPIRE Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the EMPIRE Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect, and (ii) EMPIRE Entities have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of EMPIRE provided in Article 7.
5.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any EMPIRE
Entities have been timely filed or requests for extensions have been timely
filed, granted, and, to the Knowledge of EMPIRE, have not expired for such
periods, except to the extent that all such failures to file, taken together,
are not reasonably likely to have an EMPIRE Material Adverse Effect, and all Tax
Returns filed are complete and accurate in all material respects. All Taxes
shown on filed Tax Returns have been paid. There is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, except as reserved against in the
EMPIRE Financial Statements delivered prior to the date of this Agreement or as
disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of EMPIRE Entities, except for any such Liens which are
not reasonably likely to have an EMPIRE Material Adverse Effect or with respect
to which the Taxes are not yet due and payable.
(b) None of the EMPIRE Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the EMPIRE
Entities for the period or periods through and including the date of the
respective EMPIRE Financial Statements that has been made and is reflected on
such EMPIRE Financial Statements is sufficient to cover all such Taxes.
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(d) Deferred Taxes of EMPIRE Entities have been provided for in accordance
with GAAP.
(e) Except as disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities is a party to any Tax allocation or sharing
agreement and none of EMPIRE Entities has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was EMPIRE) or has any Liability for Taxes of any Person (other
than EMPIRE and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign Law) as a transferee or
successor or by Contract or otherwise.
(f) Each of the EMPIRE Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities has made any payments, is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments that would be disallowed as a deduction under Sections 28OG or 162(m)
of the Internal Revenue Code.
(h) Exclusive of the Merger, there has not been an ownership change, as
defined in Internal Revenue Code Section 382(g), of EMPIRE Entities that
occurred during or after any Taxable Period in which EMPIRE Entities incurred a
net operating loss that carries over to any Taxable Period ending after December
31, 1997.
(i) No EMPIRE Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
(j) All material elections with respect to Taxes affecting EMPIRE Entities
have been or will be timely made.
5.9 Allowance for Possible Loan Losses. The allowance for possible loan or
credit losses (the "Allowance") shown on the consolidated balance sheets of
EMPIRE included in the most recent EMPIRE Financial Statements dated prior to
the date of this Agreement was, and the Allowance shown on the consolidated
balance sheets of EMPIRE included in the EMPIRE Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates thereof,
adequate (within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for all known or reasonably anticipated losses relating
to or inherent in the loan and lease portfolios (including accrued interest
receivables) of EMPIRE Entities and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by EMPIRE
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Entities as of the dates thereof, except where the failure of such Allowance to
be so adequate is not reasonably likely to have an EMPIRE Material Adverse
Effect.
5.10 Assets
(a) Except as disclosed in Section 5.10 of the EMPIRE Disclosure Memorandum
or as disclosed or reserved against in the EMPIRE Financial Statements delivered
prior to the date of this Agreement, EMPIRE Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have an EMPIRE Material Adverse Effect. All tangible properties used in the
businesses of the EMPIRE Entities are usable in the ordinary course of business
consistent with EMPIRE's past practices.
(b) All Assets which are material to EMPIRE's business on a consolidated
basis, held under leases or subleases by any of the EMPIRE Entities, are held
under valid Contracts enforceable against EMPIRE in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and,
assuming the enforceability of such Contract against the third party thereto,
each such Contract is in full force and effect.
(c) EMPIRE Entities currently maintain the insurance policies described in
Section 5.10(c) of the EMPIRE Disclosure Memorandum. None of the EMPIRE Entities
has received written notice from any insurance carrier that (i) any policy of
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no claims for amounts
exceeding in any individual case $25,000 pending under such policies of
insurance and no written notices of claims in excess of such amounts have been
given by any EMPIRE Entity under such policies.
(d) The Assets of the EMPIRE Entities include all material Assets required
to operate the business of the EMPIRE Entities as presently conducted.
5.11 Intellectual Property. Each EMPIRE Entity owns or has a license to use
all of the Intellectual Property used by such EMPIRE Entity in the ordinary
course of its business. Each EMPIRE Entity is the owner of or has a license to
any Intellectual Property sold or licensed to a third party by such EMPIRE
Entity in connection with such EMPIRE Entity's business operations, and such
EMPIRE Entity has the right to convey by sale or license any Intellectual
Property so conveyed. No EMPIRE Entity is in material Default under any of its
Intellectual Property licenses. No proceedings have been instituted, or are
pending or, to the Knowledge of EMPIRE, threatened, which challenge the rights
of any EMPIRE Entity with respect to Intellectual Property used, sold or
licensed by such EMPIRE Entity in the course of its business, nor has any person
claimed or alleged any rights to such Intellectual Property. To the Knowledge of
EMPIRE, the conduct of the business of the EMPIRE Entities does not infringe any
Intellectual Property of any other person. Except as disclosed in Section 5.11
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of the EMPIRE Disclosure Memorandum, no EMPIRE Entity is obligated to pay any
recurring royalties to any Person with respect to any such Intellectual
Property.
5.12 Environmental Matters.
(a) Except as disclosed in Section 5.12 of the EMPIRE Disclosure
Memorandum, to the Knowledge of EMPIRE, each EMPIRE Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of EMPIRE,
threatened, before any court, governmental agency, or authority or other forum
in which any EMPIRE Entity or any of its Operating Properties or Participation
Facilities (or EMPIRE in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the emission, migration, release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by any EMPIRE Entity or
any of its Operating Properties or Participation Facilities or any neighboring
property, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect, nor, to the Knowledge of EMPIRE, is there any reasonable basis
for any Litigation of a type described in this sentence, except such as is not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect.
(c) Except as disclosed in Section 5.12 of the EMPIRE Disclosure
Memorandum, during the period of (i) any EMPIRE Entity's ownership or operation
of any of their respective current Assets, or (ii) any EMPIRE Entity's
participation in the management of any Participation Facility or any Operating
Property, to the Knowledge of EMPIRE, there have been no emissions, migrations,
releases, discharges, spillages, or disposals of Hazardous Material in, on, at,
under, adjacent to, or affecting (or potentially affecting) such properties or
any neighboring properties, except such as are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect. Except as
disclosed in Section 5.12 of the EMPIRE Disclosure Memorandum, prior to the
period of (i) any EMPIRE Entity's ownership or operation of any of their
respective current properties, (ii) any EMPIRE Entity's participation in the
management of any Participation Facility or any Operating Property, to the
Knowledge of EMPIRE, there were no releases, discharges, spillages, or disposals
of Hazardous Material in, on, under, or affecting any such property,
Participation Facility or Operating Property, except such as are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect.
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5.13 Compliance with Laws. Each EMPIRE Entity has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, an EMPIRE
Material Adverse Effect, and, to the Knowledge of EMPIRE, there has occurred no
Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect. Except as disclosed in Section 5.13 of the EMPIRE Disclosure Memorandum,
none of the EMPIRE Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for Defaults which are not
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect; or
(c) since January 1, 1995, has received any written notification or written
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting that
any EMPIRE Entity is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect, or (iii) requiring any EMPIRE
Entity to enter into or consent to the issuance of a cease and desist order,
formal agreement, directive, commitment, or memorandum of understanding, or to
adopt any Board resolution or similar undertaking, which restricts materially
the conduct of its business or in any material manner relates to its capital
adequacy, its credit or reserve policies, its management, or the payment of
dividends. Copies of all material reports, correspondence, notices and other
documents relating to any inspection, audit, monitoring or other form of review
or enforcement action by a Regulatory Authority have been made available to
FLAG.
5.14 Labor Relations. No EMPIRE Entity is the subject of any Litigation
asserting that it or any other EMPIRE Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other EMPIRE Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
EMPIRE Entity party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any EMPIRE Entity, pending or
threatened, or to the Knowledge of EMPIRE, is there any activity involving any
EMPIRE Entity's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
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5.15 Employee Benefit Plans.
(a) EMPIRE has disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, and has delivered or made available to FLAG prior to the execution
of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any EMPIRE Entity or ERISA
Affiliate (as defined in subparagraph (c) below) thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, "EMPIRE Benefit Plans"). Each EMPIRE Benefit Plan
which is an "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as an "EMPIRE ERISA Plan." Each EMPIRE
ERISA Plan which is also a "defined benefit plan" (as defined in Section 4140 of
the Internal Revenue Code) is referred to herein as an "EMPIRE Pension Plan." No
EMPIRE Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(b) All EMPIRE Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect. Each EMPIRE ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
EMPIRE has no Knowledge of any circumstances likely to result in revocation of
any such favorable determination letter. To the Knowledge of EMPIRE, no EMPIRE
Entity has engaged in a transaction with respect to any EMPIRE Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any EMPIRE Entity to a Tax imposed by either Section 4975
of the Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect.
(c) No EMPIRE Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions
set forth for such plan's most recent actuarial valuation. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of any EMPIRE Pension Plan, (ii) no change in the actuarial
assumptions with respect to any EMPIRE Pension Plan, and (iii) no increase in
benefits under any EMPIRE Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any EMPIRE Pension Plan nor any "single
employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any EMPIRE Entity, or the single-employer plan of any
entity which is considered one employer with EMPIRE under Section 4001 of ERISA
or Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or
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not waived) (an "ERISA Affiliate") has an "accumulated funding deficiency"
within the meaning of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, which is reasonably likely to have an EMPIRE Material Adverse Effect. No
EMPIRE Entity has provided, or is required to provide, security to an EMPIRE
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any EMPIRE Entity with respect to any ongoing, frozen, or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have an EMPIRE Material Adverse Effect. No
EMPIRE Entity has incurred any withdrawal Liability with respect to a
multiemployer plan under Subtitle B of Title IV of ERISA (regardless of whether
based on contributions of an ERISA Affiliate), which Liability is reasonably
likely to have an EMPIRE Material Adverse Effect. No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed for any
EMPIRE Pension Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof.
(e) Except as disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, no EMPIRE Entity has any Liability for retiree health and life
benefits under any of the EMPIRE Benefit Plans and there are no restrictions on
the rights of such EMPIRE Entity to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder, which Liability is
reasonably likely to have an EMPIRE Material Adverse Effect.
(f) Except as disclosed in Section 5.15 of the EMPIRE Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any EMPIRE Entity
from any EMPIRE Entity under any EMPIRE Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any EMPIRE Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit, where
such payment, increase, or acceleration is reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any EMPIRE Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the EMPIRE Financial Statements to the extent
required by and in accordance with GAAP.
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5.16 Material Contracts. Except as disclosed in Section 5.16 of the EMPIRE
Disclosure Memorandum or otherwise reflected in the EMPIRE Financial Statements,
none of the EMPIRE Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
EMPIRE Entity or the guarantee by any EMPIRE Entity of any such obligation
(other than Contracts evidencing deposit liabilities, purchases of federal
funds, fully-secured repurchase agreements, Federal Home Loan Bank advances and
trade payables and Contracts relating to borrowings or guarantees made in the
ordinary course of business), (iii) any Contract which prohibits or restricts
any EMPIRE Entity from engaging in any business activities in any geographic
area, line of business or otherwise in competition with any other Person, (iv)
any Contract between or among the EMPIRE Entities, (v) any Contract relating to
the provision of data processing, network communication, or other technical
services to or by any EMPIRE Entity, (vi) any exchange traded or
over-the-counter swap, forward, future, option, cap, floor, or collar financial
Contract, or any other interest rate or foreign currency protection Contract not
included on its balance sheet which is a financial derivative Contract, and
(vii) any other Contract or amendment thereto that would be required to be filed
as an exhibit to a Form 10-K filed by EMPIRE with the SEC (assuming EMPIRE were
subject to the reporting requirements of the 1934 Act) as of the date of this
Agreement (together with all Contracts referred to in Sections 5.10 and 5.15(a),
the "EMPIRE Contracts"). With respect to each EMPIRE Contract and except as
disclosed in Section 5.16 of the EMPIRE Disclosure Memorandum: (i) assuming the
enforceability of such Contract against the third party thereto, each such
Contract is in full force and effect; (ii) no EMPIRE Entity is in Default
thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, an EMPIRE Material Adverse Effect; (iii) no
EMPIRE Entity has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
EMPIRE, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, an EMPIRE Material Adverse
Effect, or has repudiated or waived any material provision thereunder. Except as
disclosed in Section 5.16 of the EMPIRE Disclosure Memorandum, no officer,
director or employee of any EMPIRE Entity is party to any Contract which
restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including any EMPIRE Entity. All of the
indebtedness of any EMPIRE Entity for money borrowed (excluding deposits
obtained in the ordinary course of business) is prepayable at any time by such
EMPIRE Entity without penalty or premium.
5.17 Legal Proceedings. There is no Litigation instituted or pending or, to
the Knowledge of EMPIRE, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any EMPIRE Entity, or against any director,
employee or employee benefit plan (acting in such capacity) of any EMPIRE
Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, an EMPIRE Material
Adverse Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any EMPIRE Entity,
that are reasonably likely to have, individually or in the aggregate, an EMPIRE
Material Adverse Effect. Section 5.17 of the EMPIRE Disclosure Memorandum
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contains a summary of all Litigation as of the date of this Agreement to which
any EMPIRE Entity is a party and which names an EMPIRE Entity as a defendant or
cross-defendant or for which, to the Knowledge of EMPIRE, any EMPIRE Entity has
any potential Liability.
5.18 Reports. Since January 1, 1995, or the date of organization if later,
each EMPIRE Entity has timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities, except for such filings which the failure to
so file is not reasonably likely to have, individually or in the aggregate, an
EMPIRE Material Adverse Effect. As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.19 Statements True and Correct. No statement, certificate, instrument, or
other writing furnished or to be furnished by any EMPIRE Entity to FLAG pursuant
to this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any EMPIRE Entity for inclusion in the
registration statement to be filed by FLAG with the SEC in accordance with
Section 8.1 will, when such registration statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein not misleading. All documents that
any EMPIRE Entity is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law. No documents to be
filed by an EMPIRE Entity with any Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5.20 Accounting, Tax and Regulatory Matters. No EMPIRE Entity has taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying for pooling of
interest accounting treatment and as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
5.21 Charter Provisions. Each EMPIRE Entity has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Charter, Articles of
Incorporation, Bylaws or other governing instruments of any EMPIRE Entity or
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restrict or impair the ability of FLAG or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of any
EMPIRE Entity that may be directly or indirectly acquired or controlled by them.
5.22 Board Recommendation.
The Board of Directors of EMPIRE, at a meeting duly called and held, has by
unanimous vote of those directors present (who constituted all of the directors
then in office) (i) determined that this Agreement and the transactions
contemplated hereby are fair to and in the best interests of the shareholders
and (ii) resolved to recommend that the holders of the shares of EMPIRE Common
Stock approve this Agreement.
5.23 Y-2K. EMPIRE has formed a committee to review policies and directives
issued by Regulatory Authorities with respect to preparedness for year 2000 data
processing and other operations, and intends to implement such committee's
recommendations for ensuring compliance with such policies and directives.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF FLAG
--------------------------------------
FLAG hereby represents and warrants to EMPIRE as follows:
6.1 Organization, Standing, and Power. FLAG is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. FLAG is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a FLAG Material Adverse Effect. The minute book and other
organizational documents for FLAG have been made available to EMPIRE for its
review and, except as disclosed in Section 6.1 of the FLAG Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
6.2 Authority of FLAG; No Breach By Agreement.
(a) FLAG has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of FLAG. This Agreement
represents a legal, valid, and binding obligation of FLAG, enforceable against
FLAG in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
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receivership, conservatorship, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by FLAG, nor the
consummation by FLAG of the transactions contemplated hereby, nor compliance by
FLAG with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of FLAG's Articles of Incorporation or Bylaws, or the
Charter, or Articles of Incorporation or Bylaws of any FLAG Entity, or any
resolution adopted by the Board of Directors or the shareholders of any FLAG
Entity, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any FLAG
Entity under, any Contract or Permit of any FLAG Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, or (iii)
subject to receipt of the requisite Consents referred to in Section 9. 1 (b),
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any FLAG Entity or any of their respective material
Assets (including any FLAG Entity becoming subject to or liable for the payment
of any Tax or any of the Assets owned by any FLAG Entity being reassessed or
revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a FLAG Material Adverse Effect, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
FLAG of the Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of FLAG consists of (i) 20,000,000 shares
of FLAG Common Stock, of which 5,174,807 shares are issued and outstanding as of
the date of this Agreement, and (ii) 10,000,000 shares of FLAG Preferred Stock,
of which no shares are issued and outstanding. All of the issued and outstanding
shares of FLAG Capital Stock are, and all of the shares of FLAG Common Stock to
be issued in exchange for shares of EMPIRE Common Stock upon consummation of the
Merger, when issued in accordance with the terms of this Agreement, will be,
duly and validly issued and outstanding and fully paid and nonassessable under
the GBCC. None of the outstanding shares of FLAG Capital Stock has been, and
none of the shares of FLAG Common Stock to be issued in exchange for shares of
EMPIRE Common Stock upon consummation of the Merger will be, issued in violation
of any preemptive rights of the current or past shareholders of FLAG.
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(b) Except as set forth in Section 6.3(a), or as disclosed in Section 6.3
of the FLAG Disclosure Memorandum, there are no shares of capital stock or other
equity securities of FLAG outstanding and no outstanding Equity Rights relating
to the capital stock of FLAG.
6.4 FLAG Subsidiaries. FLAG has disclosed in Section 6.4 of the FLAG
Disclosure Memorandum all of the FLAG Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the number of shares
owned and percentage ownership interest represented by such share ownership) and
all of the FLAG Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which the character of its
Assets or the nature or conduct of its business requires it to be qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 6.4 of the FLAG Disclosure
Memorandum, FLAG or one of its wholly-owned Subsidiaries owns all of the issued
and outstanding shares of capital stock (or other equity interests) of each FLAG
Subsidiary. No capital stock (or other equity interest) of any FLAG Subsidiary
are or may become required to be issued (other than to another FLAG Entity) by
reason of any Equity Rights, and there are no Contracts by which any FLAG
Subsidiary is bound to issue (other than to another FLAG Entity) additional
shares of its capital stock (or other equity interests) or Equity Rights or by
which any FLAG Entity is or may be bound to transfer any shares of the capital
stock (or other equity interests) of any FLAG Subsidiary (other than to another
FLAG Entity). There are no Contracts relating to the rights of any FLAG Entity
to vote or to dispose of any shares of the capital stock (or other equity
interests) of any FLAG Subsidiary. All of the shares of capital stock (or other
equity interests) of each FLAG Subsidiary held by a FLAG Entity are fully paid
and nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the FLAG
Entity free and clear of any Lien. Each FLAG Subsidiary is either a bank,
savings association or a corporation, and is duly organized, validly existing,
and (as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each FLAG Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Each FLAG Subsidiary that is a depository
institution is an "insured institution" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder. The minute book and other
organizational documents for each FLAG Subsidiary have been made available to
EMPIRE for its review, and, except as disclosed in Section 6.4 of the FLAG
Disclosure Memorandum, are true and complete in all material respects as in
effect as of the date of this Agreement and accurately reflect in all material
respects all amendments thereto and all proceedings of the Board of Directors
and shareholders thereof.
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6.5 SEC Filings, Financial Statements.
(a) FLAG has timely filed and made available to EMPIRE all SEC Documents
required to be filed by FLAG since December 31, 1993 (the "FLAG SEC Reports").
The FLAG SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the Securities Laws and other applicable
Laws and (ii) did not, at the time they were filed (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such FLAG SEC Reports or necessary in
order to make the statements in such FLAG SEC Reports, in light of the
circumstances under which they were made, not misleading. No FLAG Subsidiary is
required to file any SEC Documents.
(b) Each of the FLAG Financial Statements (including, in each case, any
related notes) contained in the FLAG SEC Reports, including any FLAG SEC Reports
filed after the date of this Agreement until the Effective Time, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of FLAG
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
6.6 Absence of Undisclosed Liabilities. No FLAG Entity has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a FLAG
Material Adverse Effect, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of FLAG as of December 31, 1997 and
March 31, 1998, included in the FLAG Financial Statements delivered prior to the
date of this Agreement or reflected in the notes thereto. No FLAG Entity has
incurred or paid any Liability since March 31, 1998, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a FLAG Material Adverse Effect or (ii) in connection with the
transactions contemplated by this Agreement.
6.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the FLAG Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 6.7 of the FLAG Disclosure Memorandum,
(i) there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, and (ii) the FLAG Entities have not taken any action, or failed
to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of FLAG
provided in Article 7.
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6.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any of the FLAG
Entities have been timely filed or requests for extensions have been timely
filed, granted, and have not expired for periods ended on or before December 31,
1997, and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, except to the extent that all such failures to
file, taken together, are not reasonably likely to have a FLAG Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. There is no audit
examination, deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a FLAG Material Adverse Effect, except as reserved against in
the FLAG Financial Statements delivered prior to the date of this Agreement or
as disclosed in Section 6.8 of the FLAG Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of the FLAG Entities, except for any such Liens which are
not reasonably likely to have a FLAG Material Adverse Effect or with respect to
which the Taxes are not vet due and payable.
(b) None of the FLAG Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to veers currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the FLAG
Entities for the period or periods through and including the date of the
respective FLAG Financial Statements that has been made and is reflected on such
FLAG Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the FLAG Entities have been provided for in
accordance with GAAP.
(e) None of the FLAG Entities is a party to any Tax allocation or sharing
agreement and none of the FLAG Entities has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was FLAG) or has any Liability for Taxes of any Person (other
than FLAG and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign, Law) as a transferee or
successor or by Contract or otherwise.
(f) Each of the FLAG Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect. (g) Except as
disclosed in Section 6.8 of the FLAG Disclosure Memorandum, none of the FLAG
Entities has made any payments, is obligated to make any payments, or is a party
to any Contract that could obligate it to make any payments that would be
disallowed as a deduction under Sections 28OG or 162(m) of the Internal Revenue
Code.
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(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the FLAG Entities that occurred during or after any
Taxable Period in which the FLAG Entities incurred a net operating loss that
carries over to any Taxable Period ending after December 31, 1997.
(i) No FLAG Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
(j) All material elections with respect to Taxes affecting the FLAG
Entities have been or will be timely made.
6.9 Allowance for Possible Loan Losses. The Allowance shown on the
consolidated balance sheets of FLAG included in the most recent FLAG Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of FLAG included in the FLAG Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for all known or reasonably
anticipated losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the FLAG Entities and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by the FLAG Entities as of the dates thereof, except where the
failure of such Allowance to be so adequate is not reasonably likely to have a
FLAG Material Adverse Effect.
6.10 Assets.
(a) Except as disclosed in Section 6.10 of the FLAG Disclosure Memorandum
or as disclosed or reserved against in the FLAG Financial Statements delivered
prior to the date of this Agreement, the FLAG Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have a FLAG Material Adverse Effect. All tangible properties used in the
businesses of the FLAG Entities are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
FLAG's past practices.
(b) All Assets which are material to FLAG's business on a consolidated
basis, held under leases or subleases by any of the FLAG Entities, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect.
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(c) The FLAG Entities currently maintain insurance similar in amounts,
scope and coverage to that maintained by other peer banking organizations. None
of the FLAG Entities has received notice from any insurance carrier that (i) any
policy of insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no claims for
amounts exceeding in any individual case $25,000 pending under such policies of
insurance and no notices of claims in excess of such amounts have been given by
any FLAG Entity under such policies.
(d) The Assets of the FLAG Entities include all Assets required to operate
the business of the FLAG Entities as presently conducted.
6.11 Intellectual Property. Each FLAG Entity owns or has a license to use
all of the Intellectual Property used by such FLAG Entity in the course of its
business. Each FLAG Entity is the owner of or has a license to any Intellectual
Property sold or licensed to a third party by such FLAG Entity in connection
with such FLAG Entity's business operations, and such FLAG Entity has the right
to convey by sale or license any Intellectual Property so conveyed. No FLAG
Entity is in Default under any of its Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of FLAG
threatened, which challenge the rights of any FLAG Entity with respect to
Intellectual Property used, sold or licensed by such FLAG Entity in the course
of its business, nor has any person claimed or alleged any rights to such
Intellectual Property. The conduct of the business of the FLAG Entities does not
infringe any Intellectual Property of any other person. Except as disclosed in
Section 6.11 of the FLAG Disclosure Memorandum, no FLAG Entity is obligated to
pay any recurring royalties to any Person with respect to any such Intellectual
Property. Except as disclosed in Section 6.11 of the FLAG Disclosure Memorandum,
no officer, director or employee of any FLAG Entity is party to any Contract
which restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including any FLAG Entity.
6.12 Environmental Matters.
(a) To the Knowledge of FLAG, each FLAG Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect.
(b) To the Knowledge of FLAG, there is no Litigation pending or threatened
before any court, governmental agency, or authority or other forum in which any
FLAG Entity or any of its Operating Properties or Participation Facilities (or
FLAG in respect of such Operating Property or Participation Facility) has been
or, with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the emission, migration, release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any FLAG Entity or any of its Operating
Properties or Participation Facilities or any neighboring property, except for
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such Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, nor is there
any reasonable basis for any Litigation of a type described in this sentence,
except such as is not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect.
(c) During the period of (i) any FLAG Entity's ownership or operation of
any of their respective current properties, (ii) any FLAG Entity's participation
in the management of any Participation Facility or any Operating Property, there
have been no emissions, migrations, releases, discharges, spillages, or
disposals of Hazardous Material in, on, at, under, adjacent to, or affecting (or
potentially affecting) such properties or any neighboring properties, except
such as are not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Prior to the period of (i) any FLAG Entity's
ownership or operation of any of their respective current properties, (ii) any
FLAG Entity's participation in the management of any Participation Facility or
any Operating Property, to the Knowledge of FLAG, there were no releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such property, Participation Facility or Operating Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect.
6.13 Compliance with Laws. Each FLAG Entity has in effect all Permits
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect. Except as disclosed in Section 6.13
of the FLAG Disclosure Memorandum, none of the FLAG Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which are not
reasonably likely to, have, individually or in the aggregate, a FLAG Material
Adverse Effect; or
(c) since January 1, 1995, has received any notification or communication
from any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any FLAG Entity is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, (ii) threatening to revoke any Permits, the revocation of which
is reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, or (iii) requiring any FLAG Entity to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution or
similar undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends. Copies of all material reports,
correspondence, notices and other documents relating to any inspection, audit,
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monitoring or other form of review or enforcement action by a Regulatory
Authority have been made available to EMPIRE.
6.14 Labor Relations. No FLAG Entity is the subject of any Litigation
asserting that it or any other FLAG Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other FLAG Entity to bargain with any
labor organization as to wages or conditions of employment, nor is any FLAG
Entity party to any collective bargaining agreement, nor is there any strike or
other labor dispute involving any FLAG Entity, pending or threatened, or to the
Knowledge of FLAG, is there any activity involving any FLAG Entity's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
6.15 Employee Benefit Plans.
(a) FLAG has disclosed in Section 6.15 of the FLAG Disclosure Memorandum
and has delivered or made available to EMPIRE prior to the execution of this
Agreement copies in each case of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus, or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part
by, or contributed to by any FLAG Entity or ERISA Affiliate thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "FLAG Benefit Plans"). Each FLAG
Benefit Plan which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "FLAG ERISA Plan."
Each FLAG ERISA Plan which is also a "defined benefit plan" (as defined in
Section 4140) of the Internal Revenue Code) is referred to herein as a "FLAG
Pension Plan." No FLAG Pension Plan is or has been a multiemployer plan within
the meaning of Section 3(37) of ERISA.
(b) All FLAG Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect. Each FLAG ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
FLAG is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of Flag, no FLAG Entity
has engaged in a transaction with respect to any FLAG Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject any FLAG Entity to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a FLAG Material Adverse
Effect.
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(c) No FLAG Pension Plan has any "unfunded current liability," as that term
is defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions set
forth for such plan's most recent actuarial valuation. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of a FLAG Pension Plan, (ii) no change in the actuarial
assumptions with respect to any FLAG Pension Plan, and (iii) no increase in
benefits under any FLAG Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any FLAG Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any FLAG Entity, or the single-employer plan
of any ERISA Affiliate has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a FLAG Material Adverse Effect. No FLAG
Entity has provided, or is required to provide, security to a FLAG Pension Plan
or to any single-employer plan of an ERISA Affiliate pursuant to Section 40 1
(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any FLAG Entity with respect to any ongoing, frozen or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a FLAG Material Adverse Effect. No FLAG
Entity has incurred any withdrawal Liability with respect to a multiemployer
plan under Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably likely to
have a FLAG Material Adverse Effect. No notice of a "reportable event," within
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any FLAG Pension Plan or
by any ERISA Affiliate within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 6.15 of the FLAG Disclosure Memorandum,
no FLAG Entity has any Liability for retiree health and life benefits under any
of the FLAG Benefit Plans and there are no restrictions on the rights of such
FLAG Entity to amend or terminate any such retiree health or benefit Plan
without incurring any Liability thereunder, which Liability is reasonably likely
to have a FLAG Material Adverse Effect.
(f) Except as disclosed in Section 6.15 of the FLAG Disclosure Memorandum,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, or otherwise) becoming
due to any director or any employee of any FLAG Entity from any FLAG Entity
under any FLAG Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any FLAG Benefit Plan, or (iii) result in any acceleration of the
time of payment or vesting of any such benefit, where such payment, increase, or
acceleration is reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect.
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(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any FLAG Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the FLAG Financial Statements to the extent
required by and in accordance with GAAP.
6.16 Material Contracts. Except as disclosed in Section 6.16 of the FLAG
Disclosure Memorandum or otherwise reflected in the FLAG Financial Statements,
none of the FLAG Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
FLAG Entity or the guarantee by any FLAG Entity of any such obligation (other
than Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances of
depository institution Subsidiaries, trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any FLAG Entity from engaging in any
business activities in any geographic area, line of business or otherwise in
competition with any other Person, (iv) any Contract between or among FLAG
Entities, (v) any Contract relating to the provision of data processing, network
communication, or other technical services to or by any FLAG Entity, (vi) any
exchange-traded or over-the-counter swap, forward, future, option, cap, floor,
or collar financial Contract, or any other interest rate or foreign currency
protection Contract not included on its balance sheet which is a financial
derivative Contract, or (vii) any other Contract or amendment thereto that would
be required to be filed as an exhibit to a Form 10-K filed by FLAG with the SEC
as of the date of this Agreement that has not been filed as an exhibit to FLAG's
Form 10-K filed for the fiscal year ended December 31, 1997, or in an SEC
Document and identified to Empire (together with all Contracts referred to in
Sections 6.10 and 6.15(a), the "FLAG Contracts"). With respect to each FLAG
Contract and except as disclosed in Section 6.16 of the FLAG Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) no FLAG Entity is
in Default thereunder, other than Defaults which are not reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect; (iii) no
FLAG Entity has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
FLAG, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a FLAG Material Adverse
Effect, or has repudiated or waived any material provision thereunder. All of
the indebtedness of any FLAG Entity for money borrowed is prepayable at any time
by such FLAG Entity without penalty or premium.
6.17 Legal Proceedings. There is no Litigation instituted or pending or, to
the Knowledge of FLAG, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any FLAG Entity, or against any director,
employee or employee benefit plan of any FLAG Entity, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
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arbitrators outstanding against any FLAG Entity, that are reasonably likely to
have, individually or in the aggregate, a FLAG Material Adverse Effect. Section
6.17 of the FLAG Disclosure Memorandum contains a summary of all Litigation as
of the date of this Agreement to which any FLAG Entity is a party and which
names a FLAG Entity as a defendant or cross-defendant or for which any FLAG
Entity has any potential Liability.
6.18 Reports. Since January 1, 1993, each FLAG Entity has timely filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with Regulatory Authorities
(except, in the case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
6.19 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any FLAG Entity to EMPIRE pursuant
to this Agreement or any other document, agreement or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any FLAG Entity for inclusion in the
Registration Statement to be filed by FLAG with the SEC, will, when such
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the documents to be filed by any FLAG
Entity with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
any FLAG Entity thereof is responsible for filing with any Regulatory Authority
in connection with the transactions contemplated hereby will comply as to form
in all material respects with the provisions of applicable Law.
6.20 Accounting, Tax and Regulatory Matters. No FLAG Entity has taken or
agreed to take any action or has any knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying for pooling of
interests accounting treatment and as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.l(b)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
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6.21 Charter Provisions. Each FLAG Entity has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Charter, Articles of Incorporation,
Bylaws or other governing instruments of any FLAG Entity or restrict or impair
the ability of FLAG or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of any FLAG Entity that may
be directly or indirectly acquired or controlled by them.
6.22 Board Recommendations. The Board of Directors of FLAG, at a meeting
duly called and held, has by unanimous vote of those directors present (who
constituted all of the directors then in office) determined that this Agreement
and the transactions contemplated hereby, including the Merger, taken together,
are fair to and in the best interests of the FLAG shareholders.
6.23 Y-2K. Each FLAG Entity is in compliance with all policies and
directives issued by Regulatory Authorities with respect to preparedness for
year 2000 data processing and other operations. Section 6.23 of the FLAG
Disclosure Memorandum sets forth a summary of the steps taken by FLAG to ensure
such compliance. FLAG has entered into an agreement with Phoenix International
Ltd., Inc. ("Phoenix") to license the Phoenix Retail Banking System, and FLAG is
scheduled to convert each of the existing FLAG Entities, as well as the EMPIRE
Subsidiaries, to the Phoenix Retail Banking System prior to March 31, 1999.
Phoenix has represented to FLAG that the Phoenix Retail Banking System is year
2000 compliant.
ARTICLE 7.
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Affirmative Covenants of EMPIRE. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of FLAG shall have been obtained, and except as
otherwise expressly contemplated herein, EMPIRE shall, and shall cause each of
its Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of EMPIRE. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of FLAG shall have been obtained, and except as otherwise
expressly contemplated herein, EMPIRE covenants and agrees that it will not do
or agree or commit to do, or permit any of its Subsidiaries to do or agree or
commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any EMPIRE entity, or
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(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of an EMPIRE Entity to another EMPIRE Entity) in
excess of an aggregate of $100,000 (for EMPIRE Entities on a consolidated basis)
except in the ordinary course of the business of the EMPIRE Subsidiaries
consistent with past practices (which shall include, for the EMPIRE Subsidiaries
that are depository institutions, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home Loan Bank,
and entry into repurchase agreements fully secured by U.S. government or agency
securities), or impose, or suffer the imposition, on any Asset of any EMPIRE
Entity of any Lien or permit any such Lien to exist (other than in connection
with deposits, repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business, the satisfaction
of legal requirements in the exercise of trust powers, and Liens in effect as of
the date hereof that are disclosed in Section 7.2(b) of the EMPIRE Disclosure
Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any EMPIRE Entity, or declare or pay any dividend or make any
other distribution in respect of EMPIRE's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock options
outstanding as of the date hereof and pursuant to the terms thereof in existence
on the date hereof, or as disclosed in Section 7.2(d) of the EMPIRE Disclosure
Memorandum, issue, sell, pledge, encumber, authorize the issuance of, enter into
any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or
otherwise permit to become outstanding, any additional shares of EMPIRE Common
Stock or any other capital stock of any EMPIRE Entity, or any stock appreciation
rights, or any option, warrant, or other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any EMPIRE
Entity or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of EMPIRE Common Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber any Asset having a book value in
excess of $100,000 other than in the ordinary course of business for reasonable
and adequate consideration or any shares of capital stock of any EMPIRE
Subsidiary (unless any such shares of stock are sold or otherwise transferred to
another EMPIRE Entity); or
(f) except for loans made in the ordinary course of its business, make any
material investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other than a
wholly owned EMPIRE Subsidiary, or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the ordinary
course of business, (ii) acquisitions of control by a depository institution
Subsidiary in its fiduciary capacity, or (iii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities otherwise permitted by
this Agreement; or
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(g) grant any increase in compensation or benefits to the employees or
officers of any EMPIRE Entity, except in accordance with past practice
specifically disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum or
as required by Law; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of this
Agreement and disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum;
and enter into or amend any severance agreements with officers of any EMPIRE
Entity; grant any material increase in fees or other increases in compensation
or other benefits to directors of any EMPIRE Entity except in accordance with
past practice disclosed in Section 7.2(g) of the EMPIRE Disclosure Memorandum;
or voluntarily accelerate the vesting of any stock options or other stock-based
compensation or employee benefits or other Equity Rights; or
(h) enter into or amend any employment Contract between any EMPIRE Entity
and any Person having a salary thereunder in excess of $50,000 per year (unless
such amendment is required by Law) that the EMPIRE Entity does not have the
unconditional right to terminate without Liability (other than Liability for
services already rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any EMPIRE Entity or terminate
or withdraw from, or make any material change in or to, any existing employee
benefit plans of any EMPIRE Entity other than any such change that is required
by Law or that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan, or make any distributions from such
employee benefit plans, except as required by Law, the terms of such plans or
consistent with past practice; or
(j) make any significant change in any Tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform to
changes in Tax Laws or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past practice or
except as set forth in Section 7.2(k) of the EMPIRE Disclosure Memorandum,
settle any Litigation involving any Liability of any EMPIRE Entity for material
money damages or restrictions upon the operations of any EMPIRE Entity; or
(l) except in the ordinary course of business, enter into, modify, amend or
terminate any material Contract (including any loan Contract with an unpaid
balance exceeding $50,000) or waive, release, compromise or assign any material
rights or claims.
7.3 Affirmative Covenants of FLAG. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of EMPIRE shall have been obtained, and except as
otherwise expressly contemplated herein, FLAG shall and shall cause each of its
Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
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Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.4 Negative Covenants of FLAG. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of EMPIRE shall have been obtained, and except as
otherwise expressly contemplated herein, FLAG covenants and agrees that it will
not amend the Articles of Incorporation or Bylaws of FLAG in any manner adverse
to the holders of EMPIRE Common Stock, or take any action which will materially
adversely impact the ability of FLAG Entities to consummate the transactions
contemplated by this Agreement.
7.5 Adverse Changes in Condition. Each of FLAG and EMPIRE agrees to give
written notice promptly to the other upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, an EMPIRE Material Adverse Effect or a FLAG Material Adverse Effect,
as applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.6 Reports. Each of FLAG and EMPIRE and their Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other copies
of all such periodic reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material). As
of their respective dates, such reports filed with the SEC will comply in all
material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in accordance with Laws applicable to such reports.
ARTICLE 8.
ADDITIONAL AGREEMENTS
---------------------
8.1 Registration Statement. As soon as practicable after execution of this
Agreement, FLAG shall prepare and file the Registration Statement with the SEC,
and shall use its reasonable efforts to cause the Registration Statement to
become effective under the 1933 Act and take any action required to be taken
under the applicable state Blue Sky or Securities Laws in connection with the
issuance of the shares of FLAG Common Stock upon consummation of the Merger.
EMPIRE shall cooperate in the preparation and filing of the Registration
Statement and shall furnish all information concerning it and the holders of its
capital stock as FLAG may reasonably request in connection with such action.
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FLAG and EMPIRE shall make all necessary filings with respect to the Merger
under the Securities Laws.
8.2 Nasdaq Listing. FLAG shall use its reasonable efforts to list, prior to
the Effective Time, on the Nasdaq National Market the shares of FLAG Common
Stock to be issued to the holders of EMPIRE Common Stock pursuant to the Merger,
and FLAG shall give all notices and make all filings with the NASD required in
connection with the transactions contemplated herein.
8.3 Shareholder Approval. EMPIRE shall call a Shareholders' Meeting, to be
held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as it deems appropriate. In connection
with the Shareholders' Meeting, the Board of Directors of EMPIRE shall recommend
to its shareholders, subject to the conditions in such authorization and
recommendation by the Board of Directors, the approval of the matters submitted
for approval (subject to the Board of Directors of EMPIRE, after having
consulted with and considered the advice of outside counsel, reasonably
determining in good faith that the making of such recommendation, or the failure
to withdraw or modify its recommendation, would constitute a breach of fiduciary
duties of the members of such Board of Directors to EMPIRE's shareholders, under
applicable law), and the Board of Directors and officers of EMPIRE shall use
their reasonable efforts to obtain such shareholders' approval (subject to the
Board of Directors of EMPIRE, after having consulted with and considered the
advice of outside counsel, reasonably determining in good faith that the taking
of such actions would constitute a breach of fiduciary duties of the members of
such Board of Directors to the EMPIRE shareholders, under applicable law).
8.4 Applications. FLAG shall promptly prepare and file, and EMPIRE shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement, including without limitation, the Board of
Governors of the Federal Reserve System and the Georgia Department of Banking
and Finance, seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
8.5 Filings and State Offices. Upon the terms and subject to the conditions
of this Agreement, FLAG shall cause to be filed the Certificate of Merger with
the Secretary of State of the State of Georgia.
8.6 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
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referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.7 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the Party
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby, and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of any other Party.
(b) Each Party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
Party concerning its and its Subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Each Party shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to such Party to preserve the
confidentiality of the information relating to such Party and its Subsidiaries
provided to such Persons and their Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have an EMPIRE Material Adverse Effect or a
FLAG Material Adverse Effect, as applicable.
8.8 Press Releases. Prior to the Effective Time, EMPIRE and FLAG shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.8
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.9 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no EMPIRE Entity nor any Representatives
thereof retained by any EMPIRE Entity shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent the Board of Directors
of EMPIRE, after having consulted with and considered the advice of outside
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counsel, reasonably determines in good faith that the failure to take such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to EMPIRE's shareholders, under applicable Law, no EMPIRE
Entity or Representative thereof shall furnish any non-public information that
it is not legally obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, but EMPIRE may
communicate information about such an Acquisition Proposal to its shareholders
if and to the extent that it is required to do so in order to comply with its
legal obligations. EMPIRE shall promptly advise FLAG following the receipt of
any Acquisition Proposal and the details thereof, and advise FLAG of any
developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof. EMPIRE shall (i) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the foregoing, and (ii) direct and
use its reasonable efforts to cause its Representatives not to engage in any of
the foregoing.
8.10 Accounting and Tax Treatment. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger to, and to take no
action which would cause the Merger not to, qualify for pooling of interests
accounting treatment and as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.11 Charter Provisions. Each Party shall take, and shall cause its
Subsidiaries to take, all necessary action to ensure that the entering into of
this Agreement and the consummation of the Merger and the other transactions
contemplated hereby do not and will not result in the grant of any rights to any
Person under the charter, articles of incorporation, bylaws or other governing
instruments of such Party or any of its Subsidiaries or restrict or impair the
ability of FLAG or any of its Subsidiaries to vote, or otherwise to exercise the
rights of a shareholder with respect to, shares of any EMPIRE Entity that may be
directly or indirectly acquired by them.
8.12 Agreements of Affiliates. EMPIRE has disclosed in Section 8.12 of the
EMPIRE Disclosure Memorandum each Person whom it reasonably believes is an
"affiliate" of EMPIRE for purposes of Rule 145 under the 1933 Act. EMPIRE shall
use its reasonable efforts to cause each such Person to deliver to FLAG not
later than 30 days after the date of this Agreement a written agreement,
substantially in the form of Exhibit 1, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of the EMPIRE Common
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of FLAG Common Stock to be received by such Person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder and until such time as financial results
covering at least 30 days of combined operations of FLAG and EMPIRE have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, except that transfers may be made in compliance
with Staff Accounting Bulletin No. 76 issued by the SEC. Except for transfers
made in compliance with Staff Accounting Bulletin No. 76, shares of FLAG Common
Stock issued to such affiliates of EMPIRE shall not be transferable until such
time as financial results covering at least 30 days of combined operations of
FLAG and EMPIRE have been published within the meaning of Section 201.01 of the
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SEC's Codification of Financial Reporting Policies, regardless of whether each
such affiliate has provided the written agreement referred to in this Section
8.12. FLAG shall be entitled to place restrictive legends upon certificates for
shares of FLAG Common Stock issued to affiliates of EMPIRE pursuant to this
Agreement to enforce the provisions of this Section 8.12. FLAG shall not be
required to maintain the effectiveness of the Registration Statement under the
1933 Act for the purposes of resale of FLAG Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective Time, FLAG
shall either (i) continue to provide to officers and employees of the EMPIRE
Entities employee benefits under EMPIRE's existing employee benefit and welfare
plans or, (ii) if FLAG shall determine to provide to officers and employees of
the EMPIRE Entities employee benefits under other employee benefit plans and
welfare plans, provide generally to officers and employees of the EMPIRE
Entities employee benefits under employee benefit and welfare plans, on terms
and conditions which when taken as a whole are substantially similar to those
currently provided by the FLAG Entities to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) under FLAG's employee benefit plans, (i) service under any qualified
defined benefit plan of EMPIRE shall be treated as service under FLAG's defined
benefit plan, if any, (ii) service under any qualified defined contribution
plans of EMPIRE shall be treated as service under FLAG's qualified defined
contribution plans, and (iii) service under any other employee benefit plans of
EMPIRE shall be treated as service under any similar employee benefit plans
maintained by FLAG. With respect to officers and employees of the EMPIRE
Entities who, at or after the Effective Time, become employees of a FLAG Entity
and who, immediately prior to the Effective Time, are participants in one or
more employee welfare benefit plans maintained by the EMPIRE Entities, FLAG
shall cause each comparable employee welfare benefit plan which is substituted
for an EMPIRE welfare benefit plan to waive any evidence of insurability or
similar provision, to provide credit for such participation prior to such
substitution with regard to the application of any pre-existing condition
limitation, and to provide credit towards satisfaction of any deductible or
out-of-pocket provisions for expenses incurred by such participants during the
period prior to such substitution, if any, that overlaps with the then current
plan year for each such substituted employee welfare benefit plans. FLAG also
shall cause the Surviving Bank and its Subsidiaries to honor in accordance with
their terms all employment, severance, consulting and other compensation
Contracts disclosed in Section 8.13 of the EMPIRE Disclosure Memorandum to FLAG
between any EMPIRE Entity and any current or former director, officer, or
employee thereof, and all provisions for vested benefits or other vested amounts
earned or accrued through the Effective Time under the EMPIRE Benefit Plans.
8.14 Indemnification.
(a) Subject to the conditions set forth in paragraph (b) below, for a
period of six years after the Effective Time, FLAG shall indemnify, defend and
hold harmless each person entitled to indemnification from an EMPIRE Entity
(each, an "Indemnified Party") against all Liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the fullest extent permitted
under Georgia Law and by EMPIRE's Articles of Incorporation and Bylaws as in
effect on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any Litigation. Without limiting the foregoing, in
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any case in which approval by FLAG is required to effectuate any
indemnification, FLAG shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between FLAG and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 8.14, upon learning of any such Liability or Litigation,
shall promptly notify FLAG thereof. In the event of any such Liability or
Litigation (whether arising before or after the Effective Time), (i) FLAG shall
have the right to assume the defense thereof (provided FLAG acknowledges
responsibility for such indemnification) and FLAG shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if FLAG elects not to assume such defense or
counsel for the Indemnified Parties advises that there are substantive issues
which raise conflicts of interest between FLAG and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and FLAG shall pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that FLAG shall be
obligated pursuant to this paragraph (b) to pay for only one firm of counsel for
all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such Litigation, and (iii) FLAG shall not be
liable for any settlement effected without its prior written consent; and
provided further that FLAG shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Shareholder Approval. The shareholders of EMPIRE shall have approved
this Agreement, and the consummation of the transactions contemplated hereby,
including the Merger, as and to the extent required by Law or by the provisions
of any governing instruments. The shareholders of FLAG shall have approved the
issuance of shares of FLAG Common Stock pursuant to the Merger, as and to the
extent required by Law, by the provisions of any governing instruments, or by
the rules of the NASD.
(b) Regulatory Approvals. All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for consummation of
the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
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(including requirements relating to the raising of additional capital or the
disposition of Assets) which in the reasonable judgment of the Board of
Directors of any Party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement that, had
such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(c) Consents and Approvals. Each Party shall have obtained any and all
Consents required for consummation of the Merger (other than those referred to
in Section 9.1 (b)) or for the preventing of any Default under any Contract or
Permit of such Party which, if not obtained or made, is reasonably likely to
have, individually or in the aggregate, an EMPIRE Material Adverse Effect or a
FLAG Material Adverse Effect, as applicable. No Consent so obtained which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of any Party would so materially adversely impact the
economic or business benefits of the transactions contemplated by this Agreement
that, had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(d) Legal Proceedings. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, restricts, makes illegal or, in good faith,
inadvisable, the consummation of the transactions contemplated by this
Agreement.
(e) Registration Statement. The Registration Statement shall be effective
under the 1933 Act, and no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of FLAG Common Stock issuable pursuant to the Merger shall have been
received.
(f) Nasdaq Listing. The shares of FLAG Common Stock issuable pursuant to
the Merger shall have been approved for listing on the Nasdaq National Market.
(g) Tax Matters. Each Party shall have received a written opinion of
counsel from Powell, Goldstein, Frazer & Murphy LLP, in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, (ii) the exchange in the Merger of EMPIRE Common
Stock for FLAG Common Stock will not give rise to gain or loss to the
shareholders of EMPIRE with respect to such exchange (except to the extent of
any cash received), and (iii) neither EMPIRE nor FLAG will recognize gain or
loss as a consequence of the Merger (except for amounts resulting from any
required change in accounting methods and any income and deferred gain
recognized pursuant to Treasury regulations issued under Section 1502 of the
Internal Revenue Code). In rendering such Tax Opinion, such counsel shall be
entitled to rely upon representations of officers of EMPIRE and FLAG reasonably
satisfactory in form and substance to such counsel.
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(h) Employment Matters. Leonard H. Bateman, Rhonda R. Robbins, and Daniel
G. Morris shall have negotiated a mutually satisfactory employment relationship
with FLAG, and the agreements between each of Mr. Bateman, Ms. Robbins, and Mr.
Morris and EMPIRE concerning post termination payments subsequent to a change in
ownership shall have been terminated.
9.2 Conditions to Obligations of FLAG. The obligations of FLAG to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by FLAG pursuant to Section 11.6(a):
(a) Representations and Warranties. For purposes of this Section 9.2(a),
the accuracy of the representations and warranties of EMPIRE set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 5.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties set forth in Sections
5.20 and 5.21 shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of EMPIRE set forth
in this Agreement (including the representations and warranties set forth in
Sections 5.3, 5.20 and 5.21) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, an EMPIRE Material Adverse Effect;
provided that, for purposes of this sentence only, those representations and
warranties which are qualified by references to "material" or "Material Adverse
Effect" or to the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements
and covenants of EMPIRE to be performed and complied with pursuant to this
Agreement and the other agreements contemplated hereby prior to the Effective
Time shall have been duly performed and complied with in all material respects.
(c) Certificates. EMPIRE shall have delivered to FLAG (i) a certificate,
dated as of the Effective Time and signed on its behalf by its chief executive
officer and its secretary, to the effect that to the best of their Knowledge the
conditions set forth in Section 9.1 as relates to EMPIRE and in Section 9.2(a)
and 9.2(b) have been satisfied; provided, however, that the representations,
warranties and covenants to which such certificate relates shall not been deemed
to have survived the Closing, and (ii) certified copies of resolutions duly
adopted by EMPIRE's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as FLAG and its counsel shall
request.
(d) Opinion of Counsel. FLAG shall have received an opinion of Kilpatrick
Stockton L.L.P., counsel to EMPIRE, dated as of the Closing Date, in form
reasonably satisfactory to FLAG, as to the matters set forth in Exhibit 2.
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(e) Pooling Letters. FLAG shall have received an opinion of Porter Keadle
Moore, LLP, dated as of the date of filing of the Registration Statement with
the SEC and as of the Closing Date, addressed to FLAG and in form and substance
reasonably acceptable to FLAG, to the effect that the Merger, for accounting
purposes, shall qualify for treatment as a pooling of interests.
(f) Affiliates Agreements. FLAG shall have received from each affiliate of
EMPIRE the affiliates letter referred to in Section 8.12 and Exhibit 1.
(g) Claims Letters. Each of the directors and officers of EMPIRE shall have
executed and delivered to FLAG letters in substantially the form of Exhibit 3.
9.3 Conditions to Obligations of EMPIRE. The obligations of EMPIRE to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by EMPIRE pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section 9.3(a),
the accuracy of the representations and warranties of FLAG set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 6.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties of FLAG set forth in
Section 6.16 and 6.17 shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of FLAG set
forth in this Agreement (including the representations and warranties set forth
in Sections 6.3, 6.16 and 6.17) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a FLAG Material Adverse
Effect; provided that, for purposes of this sentence only, those representations
and warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements
and covenants of FLAG to be performed and complied with pursuant to this
Agreement and the other agreements contemplated hereby prior to the Effective
Time shall have been duly performed and complied with in all material respects.
(c) Certificates. FLAG shall have delivered to EMPIRE (i) a certificate,
dated as of the Closing Date and signed on its behalf by its chief executive
officer and its chief financial officer, to the effect that to the best of their
knowledge the conditions set forth in Section 9.1 as relates to FLAG and in
Section 9.3(a) and 9.3(b) have been satisfied, provided, however, that the
representations, warranties and covenants to which such certificate relates
shall not been deemed to have survived the Closing, and (ii) certified copies of
resolutions duty adopted by FLAG's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
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execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, all in such reasonable detail as EMPIRE
and its counsel shall request.
(d) Opinion of Counsel. EMPIRE shall have received an opinion of Powell,
Goldstein, Frazer & Murphy LLP, counsel to FLAG, dated as of the Closing Date,
in form reasonably acceptable to EMPIRE, as to the matters set forth in Exhibit
4.
ARTICLE 10.
TERMINATION
-----------
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
EMPIRE, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of FLAG and EMPIRE; or
(b) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written notice to
the breaching Party of such breach and which breach is reasonably likely, in the
opinion of the non-breaching Party, to have, individually or in the aggregate,
an EMPIRE Material Adverse Effect or a FLAG Material Adverse Effect, as
applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any covenant or agreement contained in this Agreement which cannot be
or has not been cured within 30 days after the giving of written notice to the
breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final non-appealable action of
such authority or if any action taken by such authority is not appealed within
the time limit for appeal, or (ii) the shareholders of EMPIRE fail to vote their
approval of the matters relating to this Agreement and the transactions
contemplated hereby at the Shareholders' Meeting where such matters were
presented to such shareholders for approval and voted upon; or
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(e) By either Party in the event that the Merger shall not have been
consummated by December 31, 1998, if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach of this
Agreement by the Party electing to terminate pursuant to this Section 10.1(e).
10.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 10.1, this Agreement shall become void and
have no effect, except that (i) the provisions of this Section 10.2 and Article
11 and Section 8.7(b) shall survive any such termination and abandonment, and
(ii) a termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(e) shall not
relieve the breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Section 8.10.
ARTICLE 11.
MISCELLANEOUS
-------------
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" with respect to a Party shall mean any tender offer
or exchange offer or any proposal for a merger, acquisition of all of the stock
or assets of, or other business combination involving the acquisition of such
Party or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any of its
Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits, the FLAG Disclosure Memorandum and the EMPIRE Disclosure Memorandum
delivered pursuant hereto and incorporated herein by reference.
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"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, or any Affiliate of such Person and wherever located.
"Certificate of Merger" shall mean the Certificate of Merger to be executed
by FLAG and EMPIRE and filed with the Secretary of State of the State of Georgia
relating to the Merger as contemplated by Section 1.1.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement (provided such oral
agreement is, in any one year period, in excess of $5,000 individually, or
$25,000 in the aggregate), arrangement, authorization, commitment, contract,
indenture, instrument, lease, obligation, plan, practice, restriction,
understanding, or undertaking of any kind or character, or other document to
which any Person is a party or that is binding on any Person or its capital
stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, after
failing to cure any such breach, violation, default, contravention or conflict
within any applicable grace or cure period (ii) any occurrence of any event that
with the passage of time or the giving of notice or both would constitute a
breach or violation of, default under, contravention of, or conflict with, any
Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with
or without the passage of time or the giving of notice would give rise to a
right of any Person to exercise any remedy or obtain any relief under, terminate
or revoke, suspend, cancel, or modify or change the current terms of, or
renegotiate, or to accelerate the maturity or performance of, or to increase or
impose any Liability under, any Contract, Law, Order, or Permit.
"EMPIRE Common Stock" shall mean the $1.00 par value common stock of
EMPIRE.
"EMPIRE Disclosure Memorandum" shall mean the written information entitled
"EMPIRE Disclosure Memorandum" delivered prior to execution of this Agreement to
FLAG describing in reasonable detail the matters contained therein and, with
respect to each disclosure made therein, specifically referencing each Section
of this Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be disclosed for
purposes of any other Section not specifically referenced with respect thereto,
unless it is clear from the disclosure of such information that it applies to
other Sections.
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"EMPIRE Entities" shall mean, collectively, EMPIRE and all EMPIRE
Subsidiaries.
"EMPIRE Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of EMPIRE as of June 30,
1998, and as of December 31, 1997 and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for the six months ended June 30, 1998, and for the Fiscal year ended
December 31, 1997, and (ii) the consolidated balance sheets of EMPIRE (including
related notes and schedules, if any) and related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) with respect to periods ended subsequent to June 30, 1998.
"EMPIRE Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business, or results of
operations of EMPIRE and its Subsidiaries, taken as a whole, or (ii) the ability
of EMPIRE to perform its obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this Agreement, provided that
an "EMPIRE Material Adverse Effect" shall not be deemed to include the impact of
(a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, and (c) actions and
omissions of EMPIRE (or any of its Subsidiaries) taken with the prior informed
written Consent of FLAG in contemplation of the transactions contemplated
hereby.
"EMPIRE Subsidiaries" shall mean the Subsidiaries of EMPIRE, which shall
include the EMPIRE Subsidiaries described in Section 5.4 and any corporation,
bank, savings association, or other organization acquired as a Subsidiary of
EMPIRE in the future and held as a Subsidiary by EMPIRE at the Effective Time.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and other federal, state and local agencies with jurisdiction
over, and including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation and
Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and
other Laws relating to emissions, migrations, discharges, releases, or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution use, treatment, storage, disposal,
generation, recycling, transport, or handling of any Hazardous Material.
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"Equity Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exhibits 1 through 4," inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"FLAG Capital Stock" shall mean, collectively, the FLAG Common Stock, the
FLAG Preferred Stock and any other class or series of capital stock of FLAG.
"FLAG Common Stock" shall mean the $1.00 par value common stock of FLAG.
"FLAG Disclosure Memorandum" shall mean the written information entitled
"FLAG Financial Corporation Disclosure Memorandum" delivered prior to execution
of this Agreement to EMPIRE describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto, unless it is clear from the
disclosure of such information that it applies to other Sections.
"FLAG Entities" shall mean, collectively, FLAG and all FLAG Subsidiaries.
"FLAG Financial Statements" shall mean (i) the consolidated balance sheets
(including related notes and schedules, if any) of FLAG as of June 30, 1998 and
as of December 31, 1997 and 1996, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for the six months ended June 30, 1998, and for each of the three fiscal
years ended December 31, 1997, 1996 and 1995, as filed by FLAG in SEC Documents,
and (ii) the consolidated balance sheets of FLAG (including related notes and
schedules, if any) and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) included
in SEC Documents filed with respect to periods ended subsequent to June 30,
1998.
"FLAG Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business, or results of
operations of FLAG and its Subsidiaries, taken as a whole, or (ii) the ability
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of FLAG Entities to perform their obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to savings associations, banks, and their holding
companies, and (c) actions and omissions of FLAG (or any of its Subsidiaries)
taken with the prior informed written Consent of EMPIRE in contemplation of the
transactions contemplated hereby.
"FLAG Preferred Stock" shall mean the shares of preferred stock of FLAG.
"FLAG Subsidiaries" shall mean the Subsidiaries of FLAG, which shall
include the FLAG Subsidiaries described in Section 6.4 and any corporation,
bank, savings association, or other organization acquired as a Subsidiary of
FLAG in the future and held as a Subsidiary by FLAG at the Effective Time.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
constituent, hazardous waste, solid waste, special waste, regulated substance,
or toxic substance (as those terms are listed, defined or regulated by any
applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants,
petroleum, petroleum products, or oil (and specifically shall include asbestos
requiring abatement. removal, or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, and licenses, computer
software (including any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, inventions, and other intellectual
property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a FLAG Entity (including references to
being aware of a particular matter) shall mean those facts that are known or
should reasonably have been known after due inquiry by the chairman, president,
chief financial officer, chief accounting officer, chief operating officer,
chief credit officer, general counsel, any assistant or deputy general counsel,
or any senior, executive or other vice president of such FLAG Entity.
"Knowledge" as used with respect to an EMPIRE Entity (including references to
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being aware of a particular matter) shall mean those facts that are actually
known (with no obligation of inquiry) by the president and chief executive
officer of such EMPIRE Entity.
"Law" shall mean any code, law (including common law), ordinance,
regulation, decision, judicial interpretation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets, Liabilities,
or business, including those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the ordinary course of the banking
business, and (iii) Liens which do not materially impair the use of or title to
the Assets subject to such Lien.
"Litigation" shall mean any action, arbitration, cause of action. claim,
complaint investigation hearing, criminal prosecution, governmental or other
examination or other administrative or other proceeding relating to or affecting
a Party, its business. its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement. but shall not include regular.
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq National Market" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"Operating Property" shall mean any property owned, leased, or operated by
the Party in question or by any of its Subsidiaries and, where required by the
context, includes the owner or operator of such property, but only with respect
to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency, or Regulatory Authority.
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"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management and,
where required by the context, said term means the owner or operator of such
facility or property, but only with respect to such facility or property.
"Party" shall mean either EMPIRE or FLAG, and "Parties" shall mean EMPIRE
and FLAG.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets, or
business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by FLAG under the 1933 Act
with respect to the shares of FLAG Common Stock to be issued to the shareholders
of EMPIRE in connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the SEC, the NASD, the
Federal Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the Office of Thrift Supervision
(including its predecessor, the Federal Home Loan Bank Board), the Federal
Deposit Insurance Corporation, the Georgia Department of Banking and Finance,
and all other federal, state, county, local or other governmental or regulatory
agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over the
Parties and their respective Subsidiaries.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a Person.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
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"Shareholders Meeting" shall mean the meeting of the shareholders of EMPIRE
to be held pursuant to Section 8. 3, including any adjournment or adjournments
thereof.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (provided, there
shall not be included any such entity the equity securities of which are owned
or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves
as a general partner, (iii) in the case of a limited liability company, serves
as a managing member, or (iv) otherwise has the ability to elect a majority of
the directors, trustees or managing members thereof.
"Surviving Corporation" shall mean FLAG as the surviving corporation
resulting from the Merger.
"Tax Return" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group that
includes a Party or its Subsidiaries.
"Tax" or Taxes" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, county, local or foreign government or
subdivision or agency thereof, including any interest, penalties, and additions
imposed thereon or with respect thereto.
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(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
Allowance Section 5.9
Certificates Section 4.1
Closing Section 1.2
Effective Time Section 1.3
EMPIRE Benefit Plans Section 5.15(a)
EMPIRE Contracts Section 5.16
EMPIRE ERISA Plan Section 5.15(a)
EMPIRE Pension Plan Section 5.15(a)
ERISA Affiliate Section 5.15(c)
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(b)
FLAG Benefit Plans Section 6.15(a)
FLAG ERISA Plan Section 6.15(a)
FLAG Pension Plan Section 6.15(a)
FLAG SEC Reports Section 6.5(a)
Indemnified Party Section 8.14(a)
Merger Section 1.1
Tax Opinion Section 9.1(g)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each Party shall
bear and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
(b) If this Agreement is terminated by FLAG pursuant to Sections 10.1(b),
(c) or (d)(ii), EMPIRE shall pay to FLAG an amount equal to the lesser of
$100,000 or FLAG's actual out of pocket expenses incurred in connection with the
transactions contemplated by this Agreement.
(c) If this Agreement is terminated by EMPIRE pursuant to Sections 10.1(b)
or (c), FLAG shall pay to EMPIRE an amount equal to the lesser of $100,000 or
EMPIRE's actual out of pocket expenses incurred in connection with the
transactions contemplated by this Agreement.
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(d) Nothing contained in this Section 11.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
11.3 Brokers and Finders. Except as disclosed in Section 11.3 of the FLAG
Disclosure Memorandum, and except as disclosed in Section 11.3 of the Empire
Disclosure Memorandum, each of the Parties represents and warrants that neither
it nor any of its officers, directors, employees, or Affiliates has employed any
broker or finder or incurred any Liability for any financial advisory fees,
investment bankers' fees, brokerage fees, commissions, or finders' fees in
connection with this Agreement or the transactions contemplated hereby. In the
event of a claim by any broker or finder based upon his or its representing or
being retained by or allegedly representing or being retained by EMPIRE or by
FLAG, each of EMPIRE and FLAG, as the case may be, agrees to indemnify and hold
the other Party harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of EMPIRE Common Stock, there shall be made no amendment that, pursuant
to the GBCC, requires further approval by such shareholders without the further
approval of such shareholders; and further provided, that after any such
approval by the holders of FLAG Common Stock, the provisions of this Agreement
relating to the manner or basis in which shares of EMPIRE Common Stock will be
exchanged for shares of FLAG Common Stock shall not be amended after the
Shareholders' Meeting in a manner adverse to the holders of FLAG Common Stock
without any requisite approval of the holders of the issued and outstanding
shares of FLAG Common Stock entitled to vote thereon.
11.6 Waivers.
(a) Prior to or at the Effective Time, FLAG, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
EMPIRE, to waive or extend the time for the compliance or fulfillment by EMPIRE
of any and all of its obligations under this Agreement, and to waive any or all
of the conditions precedent to the obligations of FLAG under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of FLAG.
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(b) Prior to or at the Effective Time, EMPIRE, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
FLAG, to waive or extend the time for the compliance or fulfillment by FLAG, of
any and all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of EMPIRE under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of EMPIRE.
(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
EMPIRE: Empire Bank Corp.
115 E. Dame Avenue
Homerville, GA 31634-1934
Telecopy Number: (912) 487-2471
Attention: Leonard H. Bateman
Copy to Counsel: Kilpatrick Stockton LLP
Suite 2800
1100 Peachtree Street
Atlanta, GA 30309-4530
Telecopy Number: (404) 815-6555
Attention: Richard R. Cheatham, Esq.
FLAG: FLAG Financial Corporation
101 North Greenwood St.
LaGrange, GA 30240
Telecopy Number: (706) 845-5155
Attention: J. Daniel Speight, Jr.
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Copy to Counsel: Powell Goldstein Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, GA 30303
Telecopy Number: (404) 572-5958
Attention: Walter G. Moeling IV, Esq.
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions, Articles and Sections. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
[SIGNATURES APPEAR ON NEXT PAGE]
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[SIGNATURES TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
FLAG FINANCIAL CORPORATION
By: /s/ J. Daniel Speight, Jr.
-----------------------------------
J. Daniel Speight, Jr.
President & Chief Executive Officer
EMPIRE BANK CORP.
By: /s/ Leonard H. Bateman
-------------------------------------
Leonard H. Bateman
President and Chief Executive Officer
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Exhibit 1
AFFILIATE AGREEMENT
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
Attention: J. Daniel Speight, Jr., President and Chief Executive Officer
Gentlemen:
The undersigned is a shareholder of Empire Bank Corp. ("EMPIRE"), a Georgia
Corporation, and will become a shareholder of FLAG Financial Corporation
("FLAG"), a Georgia corporation, pursuant to the transactions described in the
Agreement and Plan of Merger, dated as of July 30, 1998 (the "Agreement"), by
and between FLAG, and EMPIRE. Under the terms of the Agreement, EMPIRE will be
merged with and into FLAG (the "Merger"), and the shares of the $10.00 par value
common stock of EMPIRE ("EMPIRE Common Stock") will be converted into and
exchanged for shares of the $1.00 par value common stock of FLAG ("FLAG Common
Stock"). This Affiliate Agreement represents an agreement between the
undersigned and FLAG regarding certain rights and obligations of the undersigned
in connection with the shares of FLAG to be received by the undersigned as a
result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and FLAG hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
EMPIRE he is an "affiliate" under Rule 145(c) as defined in Rule 405 of the
Rules and Regulations of the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended ("1933 Act"), and the undersigned
anticipates that he will be such an "affiliate" at the time of the Merger.
2. Initial Restrictions on Disposition. The undersigned agrees that he will
not sell, transfer or otherwise dispose of his interests in, or reduce his risk
relative to, any of the shares of FLAG Common Stock into which his shares of
EMPIRE Common Stock are converted upon consummation of the Merger until such
time as FLAG notifies the undersigned that the requirements of SEC Accounting
Series Release Nos. 130 and 135 ("ASR 130 and 135") have been met except that
transfers may be made in compliance with Staff Accounting Bulletin No. 76 issued
by the SEC. The undersigned understands that ASR 130 and 135 relate to
publication of financial results of post-Merger combined operations of FLAG and
EMPIRE. FLAG agrees that it will publish such results within 45 days after the
end of the first fiscal quarter of FLAG containing the required period of
post-Merger combined operations and that it will notify the undersigned promptly
following such publication.
<PAGE>
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) At any meeting of shareholders of EMPIRE called to vote upon the Merger
and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval with respect to the
Merger and the Merger Agreement is sought (the "Shareholders' Meeting"), the
undersigned shall, to the extent that the Shareholder has the power, vote (or
cause to be voted) the Shareholder's Shares in favor of the Merger, the
execution and delivery by EMPIRE of the Merger Agreement, and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement, provided that the terms of the Merger Agreement shall not have been
amended to reduce the consideration payable in the Merger to a lesser amount of
FLAG Common Stock or otherwise to materially and adversely impair the
Shareholder's rights or increase the Shareholder's obligations thereunder. The
undersigned hereby waives any rights of appraisal, or rights to dissent from the
Merger, that the undersigned may have.
(b) The FLAG Common Stock received by the undersigned as a result of the
Merger will be taken for his own account and not for others, directly or
indirectly, in whole or in part.
(c) FLAG has informed the undersigned that any distribution by the
undersigned of FLAG Common Stock has not been registered under the 1933 Act and
that shares of FLAG Common Stock received pursuant to the Merger can only be
sold by the undersigned (1) following registration under the 1933 Act, or (2) in
conformity with the volume and other requirements of Rule 145(d) promulgated by
the SEC as the same now exist or may hereafter be amended, or (3) to the extent
some other exemption from registration under the 1933 Act might be available.
The undersigned understands that FLAG is under no obligation to file a
registration statement with the SEC covering the disposition of the
undersigned's shares of FLAG Common Stock or to take any other action necessary
to make compliance with an exemption from such registration available.
(d) The undersigned will, and will cause each of the other parties whose
shares are deemed to be beneficially owned by the undersigned pursuant to
Section 9 hereof, have all shares of EMPIRE Common Stock beneficially owned by
the undersigned registered in the name of the undersigned or such parties, as
applicable, prior to the effective date of the Merger and not in the name of any
bank, broker-dealer, nominee or clearinghouse.
(e) During the thirty (30) days immediately preceding the Effective Time of
the Merger, the undersigned has not sold, transferred, or otherwise disposed of
his interests in, or reduced his risk relative to, any of the shares of EMPIRE
Common Stock beneficially owned by the undersigned as of the record date for
determination of shareholders entitled to vote at the Shareholders' Meeting of
EMPIRE held to approve the Merger.
(f) The undersigned is aware that FLAG intends to treat the Merger as a
tax-free reorganization under Section 368 of the Code for federal income tax
purposes. The undersigned agrees to treat the transaction in the same manner as
FLAG for federal income tax purposes.
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4. Restrictions on Transfer. The undersigned understands and agrees that
stop-transfer instructions with respect to the shares of FLAG Common Stock
received by the undersigned pursuant to the Merger will be given to FLAG's
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and may
not be sold, nor may the owner thereof reduce his risks relative thereto in any
way, until such time as FLAG Financial Corporation ("FLAG") has published the
financial results covering at least 30 days of combined operations after the
effective date of the merger through which the business combination was
effected. In addition, the shares represented by this certificate may not be
sold, transferred or otherwise disposed of except or unless (1) covered by an
effective registration statement under the Securities Act of 1933, as amended,
(2) in accordance with (i) Rule 145(d) (in the case of shares issued to an
individual who is an affiliate of FLAG) of the Rules and Regulations of such
Act, or (3) in accordance with a legal opinion satisfactory to counsel for FLAG
that such sale or transfer is otherwise exempt from the registration
requirements of such Act.
Such legend will also be placed on any certificate representing FLAG
securities issued subsequent to the original issuance of FLAG Common Stock
pursuant to the Merger as a result of any transfer of such shares or any stock
dividend, stock split, or other recapitalization as long as the FLAG Common
Stock issued to the undersigned pursuant to the Merger has not been transferred
in such manner as to justify the removal of the legend therefrom. Upon the
request of the undersigned, FLAG shall cause the certificates representing the
shares of FLAG Common Stock issued to the undersigned in connection with the
Merger to be reissued free of any legend relating to restrictions on transfer by
virtue of ASR 130 and 135 as soon as practicable after the requirements of ASR
130 and 135 have been met. In addition, if the provisions of Rules 144 and 145
are amended to eliminate restrictions applicable to the FLAG Common Stock
received by the undersigned pursuant to the Merger, or at the expiration of the
restrictive period set forth in Rule 145(d), FLAG, upon the request of the
undersigned, will cause the certificates representing the shares of FLAG Common
Stock issued to the undersigned in connection with the Merger to be reissued
free of any legend relating to the restrictions set forth in Rules 144 and
145(d) upon receipt by FLAG of an opinion of its counsel to the effect that such
legend may be removed.
5. Understanding of Restrictions on Disposition. The undersigned has
carefully read the Agreement and this Affiliate Agreement and has discussed
their requirements and impact upon his ability to sell, transfer or otherwise
dispose of the shares of FLAG Common Stock received by the undersigned, to the
extent he believes necessary, with his counsel or counsel for EMPIRE.
6. Filing of Reports by FLAG. FLAG agrees, for a period of three years
after the effective date of the Merger, to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended, so that the public information provisions of Rule 145(d)
promulgated by the SEC as the same are presently in effect will be available to
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the undersigned in the event the undersigned desires to transfer any shares of
FLAG Common Stock issued to the undersigned pursuant to the Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of FLAG Common Stock received by him in connection
with the Merger at any time during the restrictive period set forth in Rule
145(d), the undersigned will provide the necessary representation letter to the
transfer agent for FLAG Common Stock, together with such additional information
as the transfer agent may reasonably request. If FLAG's counsel concludes that
such proposed sale or transfer complies with the requirements of Rule 145(d),
FLAG shall cause such counsel to provide such opinions as may be necessary to
FLAG's transfer agent so that the undersigned may complete the proposed sale or
transfer.
8. Certain Actions. The undersigned covenants and agrees with FLAG that,
for a period of two (2) years after the effective time of the Merger, the
undersigned shall not, without the prior written consent of FLAG, directly or
indirectly serve as a consultant to, serve as a management official of, or be or
become a major shareholder of any financial institution having an office in
Clinch, Ware and Pierce Counties, Georgia. It is expressly understood that the
covenants contained in this paragraph 8 do not apply to (i) "management
official" positions which the undersigned holds with financial institutions
(other than FLAG, EMPIRE, and their subsidiaries) as of the date of this
Agreement, (ii) securities holdings which cause the undersigned to be deemed a
major shareholder of a financial institution (other than FLAG, EMPIRE, and their
subsidiaries) as of the date of this Agreement, or (iii) advisory relationships
with a financial institution which the undersigned has as of the date of this
Agreement or may have after the date hereof solely in the capacity as legal
counsel. For the purposes of the covenants contained in this paragraph 8, the
following terms shall have the following respective meanings:
(a) The term "management official" shall refer to service of any type which
gives the undersigned the authority to participate, directly or indirectly, in
policy-making functions of the financial institution. This includes, but is not
limited to, service as an organizer, officer, director, or advisory director of
the financial institution. It is expressly understood that the undersigned may
be deemed a management official of the financial institution whether or not he
holds any official, elected, or appointed position with such financial
institution.
(b) The term "financial institution" shall refer to any bank, bank holding
company, savings and loan association, savings and loan holding company,
banking-related company, or any other similar financial institution which
engages in the business of accepting deposits or making loans or which owns or
controls a company which engages in the business of accepting deposits or making
loans. It is expressly understood that the term "financial institution" shall
include any financial institution as defined herein that, after the date of this
Agreement, makes application for an appropriate federal or state regulatory
authority for approval to organize.
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(c) The term "major shareholder" shall refer to the beneficial ownership of
five percent (5%) or more of any class of voting securities or the ownership of
five percent (5%) of the total equity interest in such company, however
denominated.
The provisions of this paragraph 8 shall be of no further force and effect
if the undersigned is not offered employment as a director of FLAG or any of its
subsidiaries (to include the subsidiaries of EMPIRE acquired at the Effective
Time of the Merger) at the Effective Time of the Merger or, if the undersigned
is so employed, the undersigned's employment is terminated by FLAG after the
Effective Time of the Merger.
9. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of EMPIRE and
FLAG that are deemed to be beneficially owned by the undersigned pursuant to
applicable federal securities laws, which the undersigned agrees may include,
without limitation, shares owned or held in the name of (i) the undersigned's
spouse, (ii) any relative of the undersigned or of the undersigned's spouse who
has the same home as the undersigned, (iii) any trust or estate in which the
undersigned, the undersigned's spouse and any such relative collectively own at
least a ten-percent (10%) beneficial interest or of which any of the foregoing
serves as trustee, executor, or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least ten-percent (10%) of any
class of equity securities or of the equity interest. The undersigned further
recognizes that, in the event that the undersigned is a director or officer of
FLAG or becomes a director or officer of FLAG upon consummation of the Merger,
among other things, any sale of FLAG Common Stock by the undersigned within a
period of less than six (6) months following the Effective Time of the Merger
may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
10. Miscellaneous. This Affiliate Agreement is the complete agreement
between FLAG and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
SIGNATURES CONTAINED ON NEXT PAGE
5
<PAGE>
This Affiliate Agreement is executed as of the _________ day of
________________, 1998.
Very truly yours,
__________________________________________
Signature
__________________________________________
Print Name
Address:__________________________________
__________________________________________
__________________________________________
[add below the signatures of all registered
owners of shares deemed beneficially owned
by the affiliate]
__________________________________________
Name
__________________________________________
Name
__________________________________________
Name
AGREED TO AND ACCEPTED as of
the _______ day of _____________________, 1998.
FLAG FINANCIAL CORPORATION
By: ____________________________________
6
<PAGE>
Exhibit 2
MATTERS AS TO WHICH KILPATRICK STOCKTON, LLP WILL OPINE
1. Empire Bank Corp. ("EMPIRE") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia with full
corporate power and authority to carry on the business in which it is engaged,
and to own and use its Assets.
2. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of EMPIRE or, to our knowledge but without any
independent investigation, result in any conflict with, breach of, or default or
acceleration under any Contract disclosed in the Agreement, Law, Order or Permit
(subject to the approval of Regulatory Authorities) to which EMPIRE is a party
or by which EMPIRE is bound.
3. The Agreement has been duly and validly executed and delivered by EMPIRE
and, assuming valid authorization, execution and delivery by FLAG, constitutes a
valid and binding agreement of EMPIRE enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; provided,
however, that we express no opinion as to the availability of the equitable
remedy of specific performance.
4. The authorized capital stock of EMPIRE consists of 1,000,000 shares of
the EMPIRE Common Stock, of which 26,450 shares were issued and outstanding as
of _______________________, 1998. The shares of the EMPIRE Common Stock that are
issued and outstanding were not issued in violation of any statutory preemptive
rights of shareholders, were duly issued, and are fully paid and nonassessable
under the GBCC. To our knowledge, except as set forth above, or as disclosed in
Section 5.3 of the EMPIRE Disclosure Memorandum, as of ______________, 1998,
there were no shares of capital stock or other equity securities of EMPIRE
outstanding and no outstanding Equity Rights relating to the capital stock of
EMPIRE.
<PAGE>
Exhibit 3
____________________, 1998
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
RE: Empire Bank Corp. ("EMPIRE")
Homerville, Georgia
Ladies and Gentlemen:
This letter is delivered pursuant to Section 9.2(g) of the Agreement and
Plan of Merger, dated as of July 30, 1998, by and between FLAG Financial
Corporation and EMPIRE.
In my capacity as an officer or a director of EMPIRE, and as of the date of
this letter, I do not, to the best of my knowledge, have any claims, and I am
not aware of any facts or circumstances that I believe are likely to give rise
to any claim, for indemnification under EMPIRE's Articles of Incorporation or
Bylaws as existing on the date hereof or as may be afforded by the laws of the
State of Georgia or the United States.
Very truly yours,
______________________________________
Signature of Officer or Director
______________________________________
Name of Officer or Director
______________________________________
Position at EMPIRE
<PAGE>
Exhibit 4
MATTERS AS TO WHICH POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
WILL OPINE
1. FLAG Financial Corporation ("FLAG") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia
with full corporate power and authority to carry on the business in which it is
engaged, and to own and use its Assets.
2. The execution and delivery of the Agreement and compliance with its
terms do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of FLAG or, to our knowledge but without any independent
investigation, result in any conflict with, breach of, or default under any
Contract disclosed in the Agreement, Law, Order or Permit (subject to the
approval of Regulatory Authorities) to which FLAG is a party or by which FLAG is
bound.
3. The Agreement has been duly and validly executed and delivered by FLAG,
and assuming valid authorization, execution and delivery by Empire Bank Corp.,
constitutes a valid and binding agreement of FLAG enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting creditors' rights generally, provided,
however, that we express no opinion as to the availability of the equitable
remedy of specific performance.
4. The authorized capital stock of FLAG consists of 20,000,000 shares of
FLAG Common Stock, of which 5,174,807 shares are issued and outstanding as of
____________ 1998, and (ii) 10,000,000 shares of FLAG Preferred Stock, of which
no shares are issued and outstanding as of _____________________ 1998. The
shares of FLAG Common Stock that are issued and outstanding were not issued in
violation of any statutory preemptive rights of shareholders, were duly issued
and are fully paid and nonassessable under the Georgia Business Corporation
Code. To our knowledge, except as set forth above, or as disclosed in Section
6.3 of the FLAG Disclosure Memorandum, as of _________________________, 1998,
there were no shares of capital stock or other equity securities of FLAG
outstanding and no outstanding Equity Rights relating to the capital stock of
FLAG. The shares of FLAG Common Stock to be issued to the shareholders of Empire
Bank Corp. as contemplated by the Agreement have been registered under the
Securities Act of 1933, as amended, and when properly issued and delivered
following consummation of the Merger will be fully paid and non-assessable under
the Georgia Business Corporation Code.
**********
empire PROXY STMT
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The FLAG Articles and Bylaws generally provide that any director who is
deemed eligible will be indemnified against liability and other expenses
incurred in a proceeding in which the director was made a party by reason of the
fact he is or was a director, to the fullest extent authorized by the GBCC;
provided, however, that FLAG will not indemnify any director for any liability
or expenses incurred by such director (i) for any appropriation, in violation of
his duties, of any business opportunity of FLAG; (ii) for any acts or omissions
which involve intentional misconduct or a knowing violation of law; (iii) for
the types of liability set forth in Section 14-2-832 of the GBCC or successor
provisions; or (iv) for any transaction from which the director derives an
improper personal benefit. FLAG's Articles and Bylaws provide for the
advancement of expenses to its directors at the outset of a proceeding, upon the
receipt from such director of the written affirmation and repayment promise
required by Section 14-2-856 of the GBCC, the purchase of insurance by FLAG
against any liability of the director arising from his duties and actions as a
director, the survival of such indemnification to the director's heirs,
executors and administrators, and the limitation of the directors' liability to
the corporation (except under the four situations described above). The
indemnification provisions are non-exclusive, and shall not impair any other
rights to which those seeking indemnification or advancement of expenses may be
entitled. The FLAG Bylaws also provide for a similar amount of indemnification
for the officers of FLAG. In the Bylaws of FLAG, shareholders are entitled to
notification of any indemnification paid to the directors. The GBCC's provisions
for indemnification are summarized below.
Section 14-2-851 of the GBCC empowers a corporation to indemnify any
person who was or is a party to any proceeding by reason of the fact that he is
or was a director of the corporation or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another domestic or foreign corporation, partnership, joint venture, trust,
employee benefit plan, or other entity against liability incurred in connection
with such proceeding, if he: (i) conducted himself in good faith; and (ii)
reasonably believed (a) in the case of conduct in his official capacity, that
such conduct was in the best interests of the corporation, (b) in all other
cases, that such conduct was at least not opposed to the best interests of the
corporation (for example, this Section states that a director's conduct with
respect to an employee benefit plan for a purpose he believed in good faith to
be in the interests of the participants in and beneficiaries of the plan is
conduct that satisfies this requirement), and (c) in the case of any criminal
proceeding, that he had no reasonable cause to believe his conduct was unlawful.
This Section further provides that the termination of proceeding by judgment,
order, settlement, or conviction or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did not meet the
standards of conduct described above. This Section also provides that a
corporation is not permitted to indemnify any director of the corporation under
this Section in connection with a proceeding by or in the right of the
corporation (except for reasonable expenses incurred in connection with the
proceeding if it is determined that the director has met the standards of
conduct as outlined in this Section), nor may a corporation indemnify a director
under this Section in connection with any proceeding with respect to conduct for
which he or she was adjudged liable on the basis that improper personal benefit
was received by him (whether or not the conduct involved action in his official
capacity).
Section 14-2-852 requires a corporation to indemnify a director against
reasonable expenses incurred by the director in connection with any proceeding
to which he was a party because he was a director of the corporation where the
director is wholly successful, on the merits or otherwise, in the defense of
such proceeding.
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<PAGE>
Section 14-2-853 empowers a corporation to advance funds to a director,
before the final disposition of a proceeding to which he was a party because he
was a director of the corporation, in order to pay for or reimburse the
reasonable expenses incurred by the director if the director delivers to the
corporation a written affirmation to the corporation of his belief that he has
satisfied the relevant standard of conduct described in Section 14-2-851 (or
that the proceeding involves conduct for which a director's liability has been
eliminated under the corporation's articles of incorporation), and a written
undertaking by the director to repay any funds so advanced (which must be an
unlimited general obligation of the director, but which need not be secured, and
which may be accepted by the corporation without reference to the financial
ability of the director to repay the advancement) if it is ultimately determined
that the director is not entitled to indemnification under the provisions of the
GBCC. This Section further provides that any advancement of expenses to be made
pursuant to this Section must be authorized (i) by the Board of Directors: (a)
when there are two or more disinterested directors, by a majority vote of all
the disinterested directors (a majority of whom will constitute a quorum for
such purposes) or by a majority of the members of a committee consisting of two
or more disinterested directors who are appointed by such a vote; or (b) if
there are fewer than two disinterested directors, by majority vote of a quorum
of the Board of Directors, in which authorization the directors who do not
qualify as disinterested directors may take part; or (ii) by the shareholders of
the corporation, but no shares owned by a director who does not qualify as a
disinterested director may be voted on the authorization.
Section 14-2-854 provides that a director who is a party to a
proceeding by virtue of the fact that he is a director may apply to the court
conducting the proceeding or another court of competent jurisdiction for
indemnification or the advancement of expenses. Once a court receives such an
application, and after the court gives any notice which it deems necessary, the
court considering the application must order indemnification or advance for
expenses (i) if the court determines that the director is entitled to such
indemnification, or (ii) if the court determines that, taking into account all
of the relevant circumstances, it is fair and reasonable to indemnify the
director or to advance expenses to the director, even if the director failed to
satisfy the standards of conduct set forth in Section 14-2-851, failed to comply
with the requirements of Section 14-2-853, or was adjudged liable in any
proceeding by or in right of the corporation or any proceeding initiated on the
basis that improper personal benefit was received by the director (provided
that, if the director is adjudged so liable, the indemnification must be limited
to the reasonable expenses incurred by the director in connection with such
proceeding). In addition, Section 14-2-851 states that, if the court determines
that the director is entitled to indemnification or advance for expenses, the
court may also direct the corporation to pay the director's reasonable expenses
incurred in connection with obtaining such court-ordered indemnification or
advance for expenses.
Section 14-2-855 states that a corporation may not indemnify a director
under Section 14-2-851 unless such indemnification is authorized thereunder and
a determination is made that the indemnification of the director in a particular
proceeding is permissible due to the fact that the director has satisfied the
relevant standard of conduct set forth in Section 14-2-851. Such a determination
must be made: (i) if there are two or more disinterested directors, by the board
of directors by a majority vote of all such disinterested directors (a majority
of whom constitutes a quorum for such purposes) or by a majority of the members
of a committee of two or more disinterested directors appointed by such a vote;
(ii) by special legal counsel selected in the manner described in (i) above, or,
if there are fewer than two disinterested directors, selected by the board of
directors (including the directors who are not considered disinterested
directors); or (iii) by the shareholders of the corporation, but no shares owned
by a director who does not qualify as a disinterested director may be voted on
the determination. The authorization of indemnification and evaluation as to the
reasonableness of the expenses involved with such indemnification must be
obtained in the same manner as the determination that indemnification is
permissible (as described above), except that, if there are fewer than two
II-2
<PAGE>
disinterested directors, or the determination as to the permissibility of the
indemnification is made by special legal counsel, then the authorization of such
indemnification and the evaluation as to the reasonableness of the expenses
involved must be made by the board of directors (in which authorization and
evaluation directors who do not qualify as disinterested directors may
participate).
Section 14-2-856 states that, if authorized by the corporation's
articles of incorporation or a bylaw, contract, or resolution approved or
ratified by the shareholders by a majority of the votes entitled to be cast, a
corporation will be permitted to indemnify a director made a party to a
proceeding (including a proceeding brought by or in right of the corporation),
without regard to the other limitations on indemnification contained within
Title 14, Chapter 2, Article 8, Part 5 of the GBCC, but any director, who at the
time does not qualify as a disinterested director with respect to an existing or
threatened proceeding that would be covered by such authorization, will not be
permitted to vote the shares owned or voted under the control of such director
with respect to such authorization. However, Section 14-2-856 further states
that no corporation may indemnify a director under Section 14-2-856 for any
liability incurred in a proceeding in which the director is adjudged liable to
the corporation (or is subjected to injunctive relief in favor of the
corporation): (i) for any appropriation, in violation of his duties, of any
business opportunity of the corporation; (ii) for any acts or omissions
involving intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Section 14-2-832 of the GBCC (relating to
unlawful distributions); or (iv) for any transaction from which he received an
improper personal benefit. Where approved or authorized in the manner described
above, a corporation may advance or reimburse expenses incurred by the director
in advance of final disposition of the proceeding only if the director delivers
a written affirmation to the corporation which indicates his good faith belief
that his conduct does not fall within any of the four categories of conduct
listed above, and a written undertaking by the director (executed personally or
on his behalf) to repay any advances made to him by the corporation if it is
ultimately determined that the director is not entitled to indemnification under
this Section.
Section 14-2-857 provides that a corporation may indemnify and advance
expenses to an officer of the corporation who is made a party to a proceeding by
virtue of his status as an officer of the corporation. A corporation's officers
may be indemnified to the same extent as the corporation's directors (as
discussed above), and any officer who is not also a director (or who was made a
party to a proceeding solely due to an act or omission committed in his role as
an officer) may be indemnified to any further extent as provided in the articles
of incorporation, the bylaws, a resolution of the board of directors, or
contract except for liability arising out of conduct which constitutes: (i) an
appropriation, in violation of his duties as an officer, of any business
opportunity of the corporation; (ii) any acts or omissions which involve
intentional misconduct or a knowing violation of law; (iii) the types of
liability set forth in Section 14-2-832; or (iv) the receipt of an improper
personal benefit. In addition, this Section provides that a corporation may
indemnify and advance expenses to its employees or agents (who are not also
directors) to the extent provided in the corporation's articles of
incorporation, bylaws, general or specific action of its board of directors, or
contract (so long as such indemnification or advancement of expenses is
consistent with public policy).
Section 14-2-858 provides that the corporation is empowered to purchase
and maintain insurance on behalf of any person who is a director, officer,
employee, or agent of the corporation or who, while a director, officer,
employee or agent of the corporation serves at the request of the corporation as
a director, officer, partner, trustee, employee, or agent of another domestic or
foreign corporation, partnership, joint venture, trust, employee benefit plan,
or other entity against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or advance expenses against
such liability under the provisions of Title 14, Chapter 2, Article 8, Part 5 of
the GBCC.
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<PAGE>
The Registrant maintains an insurance policy insuring the Registrant
and directors and officers of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933.
Item 21. Exhibits And Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description of Exhibits
- ------ -----------------------
2 - Agreement and Plan of Merger, dated as of July 30, 1998, by
and between FLAG and Empire (included in Appendix A to the Proxy
Statement and incorporated by reference herein).(PSI)
4.1 - Articles of Incorporation of FLAG, as amended (incorporated
herein by reference from Exhibit 3.1(i) of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993)
4.2 - Bylaws of FLAG, as amended (incorporated herein by
reference from Exhibit 3.1(ii) of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)
5 - Opinion of Powell, Goldstein, Frazer & Murphy LLP (including
consent)(PSI)
8 - Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
federal income tax matters (including consent)(PSI)
10.1 - Employment Agreement between J. Daniel Speight, Jr. and
the Company dated as of April 1,1998*(PSI)
10.2 - Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*+
10.3 - Employment Agreement between Ellison C. Rudd and the Company
dated as of April 1, 1998*+
10.4 - Employment Agreement between Patti S. Davis and the Company
dated as of April 1, 1998*+
10.5 - Separation Agreement between Charles O. Hinely and the
Company dated April 1, 1998*+
10.6 - Separation Agreement between J. Preston Martin and the
Company dated May 13, 1998*+
10.7 - Split Dollar Insurance Agreement between J. Daniel Speight,
Jr. and Citizens Bank dated November 2, 1992*+
II-4
<PAGE>
10.8 - Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*+
10.9 - Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank for individuals listed on
exhibit cover page*+
10.10 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed on
exhibit cover page*+
10.11 - Tax Sharing Agreement dated March 1, 1994, among the Company,
the Bank and Piedmont Mortgage Service, Inc. (Incorporated
herein by reference from Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993)
10.12 - Director Indexed Fee Continuation Program for First Federal
Savings Bank of LaGrange effective February 3, 1995*+
10.13 - Form of Director Agreement (pursuant to Director Indexed Fee
Construction Program for First Federal Savings Bank of LaGrange)
for individuals listed on exhibit cover page*+
10.14 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Fee Continuation Program of First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*+
10.15 - Form of Indexed Executive Salary Continuation Plan
Agreement by and between First Federal Savings Bank of LaGrange
and individuals listed on exhibit coverage page*+
10.16 - Form of Flexible Premium Life Insurance Endorsement Method
` Split Dollar Plan Agreement (pursuant to Executive Salary
Continuation Plan for First Federal Savings Bank of LaGrange) for
individuals listed on exhibit cover page*+
10.17 - Indexed Executive Salary Continuation Plan Agreement by and
between First Federal Savings Bank of LaGrange and William F.
Holle, Jr. dated February 3, 1995*+
10.18 - FLAG Financial Corporation 1994 Employees Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)*
10.19 - FLAG Financial Corporation 1994 Directors Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.7 to
` the Company's Annual Report on Form 10-K for the year ended
December 31, 1993)*
11 - Statement regarding Computation of Per Share Earnings+
II-5
<PAGE>
13 - Registrant's Annual Report for the fiscal year ended December
31, 1997 (incorporated herein by reference from Exhibit 13 to
the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997)
21 - Subsidiaries of the registrant +
23.1 - Consent of Porter Keadle Moore, LLP(with respect to financial
statements of FLAG Financial Corporation)
23.2 - Consent of Robinson, Grimes and Company, P.C.
23.3 - Consent of Porter Keadle Moore, LLP(with respect to financial
statements of Middle Georgia Bankshares, Inc.)
23.4 - Consent of Thigpen, Jones, Seaton & Co., P.C.
23.5 - Consent of Porter Keadle Moore, LLP(with respect to financial
statements of Empire Bank Corp.)
23.6 - Consents of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibits 5 and 8)(PSI)
23.7 - Consent of The Carson Medlin Company(PSI)
24 - Powers of Attorney (appears on the signature page to this
Registration Statement)(PSI)
99.1 - Form of Proxy of Empire(PSI)
99.2 - Form of Proxy of FLAG
*The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Registration Statement on Form S-4.
+Incorporated by reference from exhibit of the same number from the
Registrant's Amendment No. 1 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(PSI)Previously filed.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
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<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's Articles of Incorporation or Bylaws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
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<PAGE>
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of LaGrange, State of Georgia, on October 30, 1998.
FLAG FINANCIAL CORPORATION
By: /s/ J. Daniel Speight, Jr.
--- --------------------------
J. Daniel Speight, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities indicated on October 30, 1998.
Signature Title
--------- -----
/s/ Dr. A. Glenn Bailey* Director
------------------------
Dr. A. Glenn Bailey
/s/ H. Speer Burdette, III* Director
---------------------------
H. Speer Burdette, III
/s/ Patti S. Davis* Director, Senior Vice President,
------------------- Chief Financial Officer and Director
Patti S. Davis (principal financial and
accounting officer)
/s/ Fred A. Durand, III* Director
------------------------
Fred A. Durand, III
/s/ John S. Holle* Chairman of the Board and Director
------------------
John S. Holle
/s/ James W. Johnson* Director
---------------------
James W. Johnson
------------------------ Director
Kelly R. Linch
<PAGE>
------------------------ Director
J. Preston Martin
/s/ Ellison C. Rudd* Senior Vice President, Secretary and
------------------------ Treasurer
Ellison C. Rudd
/s/ J. Daniel Speight, Jr. President, Chief Executive Officer
------------------------- and Director (principal executive
J. Daniel Speight, Jr. officer)
/s/ John W. Stewart, Jr.* Director
-------------------------
John W. Stewart, Jr.
------------------------- Director
Robert W. Walters
*By /s/ J. Daniel Speight, Jr.
--------------------------
J. Daniel Speight, Jr.
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
2 - Agreement and Plan of Merger, dated as of July 30, 1998,
by and between FLAG and Empire (included in Appendix A to
the Proxy Statement and incorporated by reference
herein)(PSI)
4.1 - Articles of Incorporation of FLAG, as amended (incorporated
herein by reference from Exhibit 3.1(i) of the registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)
4.2 - Bylaws of FLAG, as amended (incorporated herein by
reference from Exhibit 3.1(ii) of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993)
5 - Opinion of Powell, Goldstein, Frazer & Murphy LLP
(including consent)(PSI)
8 - Opinion of Powell, Goldstein, Frazer & Murphy LLP
regarding federal income tax matters (including
consent)(PSI)
10.1 - Employment Agreement between J. Daniel Speight, Jr. and the
Company dated as of April 1, 1998*+
10.2 - Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*+
10.3 - Employment Agreement between Ellison C. Rudd and the
Company dated as of April 1, 1998*+
10.4 - Employment Agreement between Patti S. Davis and the Company
dated as of April 1, 1998*+
10.5 - Separation Agreement between Charles O. Hinely and the
Company dated April 1, 1998*+
10.6 - Separation Agreement between J. Preston Martin and the
Company dated May 13, 1998*+
10.7 - Split Dollar Insurance Agreement between J. Daniel
Speight, Jr. and Citizens Bank dated November 2, 1992*+
10.8 - Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*+
10.9 - Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank)for individuals listed
on exhibit cover page*+
<PAGE>
10.10 - Form of Flexible Premium Life Insurance Endorsement
Method Split Dollar Plan Agreement(pursuant to Director
Indexed Retirement Program for Citizens Bank) for
individuals listed on exhibit cover page*+
10.11 - Tax Sharing Agreement dated March 1, 1994, among the
Company, the Bank and Piedmont Mortgage Service, Inc.
(Incorporated herein by reference from Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993)
10.12 - Director Indexed Fee Continuation Program for First Federal
Savings Bank of LaGrange effective February 3, 1995*+
10.13 - Form of Director Agreement (pursuant to Director Indexed
Fee Construction Program for First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*+
10.14 - Form of Flexible Premium Life Insurance Endorsement
Method Split Dollar Plan Agreement (pursuant to Director
Indexed Fee Continuation Program of First Federal Savings
Bank of LaGrange) for individuals listed on exhibit cover
page*+
10.15 - Form of Indexed Executive Salary Continuation Plan
Agreement by and between First Federal Savings Bank of
LaGrange and individuals listed on exhibit coverage page*+
10.16 - Form of Flexible Premium Life Insurance Endorsement
Method Split Dollar Plan Agreement (pursuant to Executive
Salary Continuation Plan for First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*+
10.17 - Indexed Executive Salary Continuation Plan Agreement by
and between First Federal Savings Bank of LaGrange and
William F. Holle, Jr. dated February 3, 1995*+
10.18 - FLAG Financial Corporation 1994 Employees Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.6
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993)*
10.19 - FLAG Financial Corporation 1994 Directors Stock Incentive
Plan (Incorporated herein by reference from Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993)*
11 - Statement regarding Computation of Per Share Earnings+
13 - Registrant's Annual Report for the fiscal year ended
December 31, 1997 (incorporated herein by reference from
Exhibit 13 to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
21 - Subsidiaries of the registrant +
<PAGE>
23.1 - Consent of Porter Keadle Moore, LLP (with respect to
financial statements of FLAG Financial Corporation)
23.2 - Consent of Robinson, Grimes and Company, P.C.
23.3 - Consent of Porter Keadle Moore LLP (with Respect to
financial statements of Middle Georgia Bankshares, Inc.)
23.4 - Consent of Thigpen, Jones, Seaton & Co., P.C.
23.5 - Consent of Porter Keadle Moore LLP (with respect to
financial statements of Empire Bank Corp.)
23.6 - Consents of Powell, Goldstein, Frazer & Murphy LLP
(included in Exhibits 5 and 8)(PSI)
23.7 - Consent of The Carson Medlin Company(PSI)
24 - Powers of Attorney (appears on the signature page to this
Registration Statement)(PSI)
99.1 - Form of Proxy of Empire(PSI)
99.2 - Form of Proxy of FLAG
*The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Registration Statement on Form S-4.
+Incorporated by reference from exhibit of the same number from the
Registrant's Amendment No. 1 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(PSI)Previously filed.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 22, 1998, except for note 2 as
to which the date is May 8, 1998 and note 10 as to which the date is June 3,
1998, accompanying the consolidated financial statements of FLAG Financial
Corporation and subsidiaries incorporated by reference in the Form S-4
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in this Form S-4 Registration Statement and Prospectus and
to the use of our name as it appears under the caption "Experts."
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
Ooctober 30, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 31, 1997, accompanying the
consolidated financial statements of FLAG Financial Corporation and subsidiaries
incorporated by reference in the Form S-4 Registration Statement and Prospectus.
We consent to the use of the aforementioned report in this Form S-4 Registration
Statement and Prospectus and to the use of our name as it appears under the
caption "Experts."
/s/ ROBINSON, GRIMES AND COMPANY, P.C.
Columbus, Georgia
October 30, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 23, 1998, accompanying the
consolidated financial statements of Middle Georgia Bankshares, Inc. and
subsidiary incorporated by reference in the Form S-4 Registration Statement and
Prospectus. We consent to the use of the aforementioned report in this Form S-4
Registration Statement and Prospectus and to the use of our name as it appears
under the caption "Experts."
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
October 30, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 28, 1998, except for note S as
to which the date is February 18, 1998, accompanying the consolidated financial
statements of Three Rivers Bancshares, Inc. and subsidiaries incorporated by
reference in the Form S-4 Registration Statement and Prospectus. We consent to
the use of the aforementioned report in this Form S-4 Registration Statement and
Prospectus and to the use of our name as it appears under the caption "Experts."
/s/ THIGPEN, JONES, SEATON & CO., P.C.
Dublin, Georgia
October 30, 1998
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 17, 1998, accompanying the
consolidated financial statements of Empire Bank Corp. and subsidiary contained
in the Form S-4 Registration Statement and Prospectus. We consent to the use of
the aforementioned report in this Form S-4 Registration Statement and Prospectus
and to the use of our name as it appears under the caption "Experts."
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
October 30, 1998
Exhibit 99.2
PROXY
FLAG FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints J. Daniel Speight, Jr.
and John S. Holle, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of FLAG Financial
Corporation, a Georgia corporation ("FLAG"), which the undersigned would be
entitled to vote if personally present at the Special Meeting of FLAG
shareholders to be held at the main office of First Federal Savings Bank of
LaGrange located at 101 North Greenwood Street, LaGrange, Georgia, on
__________, ____________, 1998, at 8:00 a.m., local time, and at any adjournment
or postponement thereof (the "Special Meeting") upon the proposals described in
the Proxy Statement and the Notice of Special Meeting of Shareholders, dated
_____________, 1998, the receipt of which is acknowledged in the manner
specified below.
1. Merger. To approve the issuance of FLAG Common Stock pursuant to the
Agreement and Plan of Merger, dated as of July 30, 1998 (the "Merger
Agreement"), by and between FLAG and Empire Bank Corp. pursuant to
which (i) Empire will merge (the "Merger") with and into FLAG, and (ii)
each share of the $10.00 par value common stock of Empire ("Empire
Common Stock") issued and outstanding at the effective time of the
Merger will be exchanged for 42.5 shares of $1.00 par value common
stock of FLAG.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of the proxies on such other matters as may properly
come before the Special Meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares
are held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED:__________________________ , 1998
___________________________________
Signature
___________________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG FINANCIAL
CORPORATION, AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
