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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-44011
PROSPECTUS
FLAG FINANCIAL CORPORATION
1,012,284 SHARES OF COMMON STOCK, $1.00 PAR VALUE
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JOINT PROXY STATEMENT
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FLAG FINANCIAL CORPORATION MIDDLE GEORGIA BANKSHARES, INC.
SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 30, 1998 TO BE HELD ON MARCH 30, 1998
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This Prospectus of FLAG Financial Corporation, a unitary thrift holding
company organized and existing under the laws of the State of Georgia ("FLAG"),
relates to up to 1,012,284 shares of common stock, par value $1.00 per share, of
FLAG ("FLAG Common Stock") which are issuable to the shareholders of Middle
Georgia Bankshares, Inc., a bank holding company organized and existing under
the laws of the State of Georgia ("Middle Georgia"), upon consummation of the
proposed merger of Middle Georgia with and into FLAG (the "Merger"), pursuant to
the terms of the Agreement and Plan of Merger, dated as of October 28, 1997 (the
"Merger Agreement"), by and between FLAG and Middle Georgia.
At the effective time of the Merger (the "Effective Time"), except as
described herein, each issued and outstanding share of common stock, par value
$1.00 per share, of Middle Georgia ("Middle Georgia Common Stock") will be
converted into and exchanged for 15.75 shares of FLAG Common Stock (the
"Exchange Ratio"). See "DESCRIPTION OF MERGER." Following the Merger, assuming
no exercise of dissenters' rights, the current shareholders of Middle Georgia
will beneficially own approximately 33.2% of the FLAG Common Stock that will
then be outstanding. Holders of Middle Georgia 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 Joint Proxy Statement of Middle Georgia
and FLAG, and is being furnished to the shareholders of Middle Georgia in
connection with the solicitation of proxies by the Board of Directors of Middle
Georgia for use at its special meeting of shareholders to be held on Monday,
March 30, 1998 (including any adjournment or postponement thereof, the "Middle
Georgia Special Meeting"), and is being furnished to the shareholders of FLAG by
the Board of Directors of FLAG for use at its special meeting of shareholders to
be held on Monday, March 30, 1998 (including any adjournment or postponement
thereof, the "FLAG Special Meeting"). At the Middle Georgia Special Meeting, the
shareholders of Middle Georgia will consider and vote upon the Merger Agreement
and the transactions contemplated thereby, while at the FLAG Special Meeting,
the shareholders of FLAG will consider and vote upon the issuance of shares of
FLAG Common Stock pursuant to the Merger Agreement. This Joint Proxy
Statement/Prospectus (the "Joint Proxy Statement/Prospectus") is being mailed to
shareholders of Middle Georgia and the shareholders of FLAG on or about March 3,
1998.
On October 27, 1997, the last day prior to public announcement that FLAG
and Middle Georgia had executed the Merger Agreement, the last reported sale
price per share of FLAG Common Stock on The Nasdaq Stock Market's National
Market ("Nasdaq National Market") was $17.00 (or equivalent pro forma per share
of Middle Georgia Common Stock (based on the 15.75 Exchange Ratio) of $267.75).
On February 25, 1998, the last reported sale price per share of FLAG Common
Stock as reported on the Nasdaq National Market was $20.938 (or equivalent pro
forma per share of Middle Georgia Common Stock of $329.77).
FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN FLAG COMMON
STOCK, PLEASE REFER TO THE "RISK FACTORS" SECTION OF THIS JOINT PROXY
STATEMENT/PROSPECTUS BEGINNING ON PAGE 12.
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
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARCH 3, 1998.
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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
such Web site is http://www.sec.gov.
This Joint 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 Joint 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 Joint Proxy Statement/Prospectus or
incorporated herein by reference with respect to FLAG was supplied by FLAG, and
all information contained in this Joint Proxy Statement/Prospectus with respect
to Middle Georgia was supplied by Middle Georgia.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT 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 JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES BEING OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF FLAG OR MIDDLE GEORGIA OR THE INFORMATION SET FORTH
HEREIN SINCE THE DATE OF THIS JOINT 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 Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (including the amendment filed thereto on Form 10-K/A
dated February 17, 1998);
(b) FLAG's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997, and September 30, 1997; and
(c) FLAG's Current Reports on Form 8-K dated February 21, 1997
(including the amendments filed thereto on Form 8-K/A dated March 11, 1997
and March 12, 1997), October 28, 1997, January 21, 1998 and February 18,
1998.
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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 Joint Proxy Statement/Prospectus is a copy of FLAG's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 and a
copy of FLAG's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
THIS JOINT 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 MARCH
23, 1998.
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CONTENTS
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SUMMARY..................................................... 1
The Parties............................................ 1
Meetings of Shareholders; Record Date; Vote Required... 1
The Merger............................................. 3
Risk Factors........................................... 7
Comparative Per Share Data............................. 7
Selected Financial Data................................ 9
Selected Condensed Consolidated Pro Forma Financial
Data.................................................. 10
Recent Developments.................................... 10
RISK FACTORS................................................ 12
Limited Market for Shares of FLAG Common Stock......... 12
Restrictions on Dividends.............................. 12
Possible Costs Associated with the Integration of
Middle Georgia........................................ 12
Governmental Regulation................................ 12
Competition............................................ 13
Control by Management.................................. 13
Anti-takeover Effects of Certain Provisions of FLAG's
Articles of Incorporation, Bylaws and the GBCC........ 13
"Year 2000" Issues..................................... 13
MEETINGS OF SHAREHOLDERS.................................... 14
Date, Place, Time, and Purpose......................... 14
Record Dates, Voting Rights, Required Votes, and
Revocability of Proxies............................... 14
DESCRIPTION OF MERGER....................................... 17
General................................................ 17
Background of and Reasons for the Merger............... 17
Effective Time of the Merger........................... 20
Distribution of FLAG Certificates...................... 21
Conditions to Consummation of the Merger............... 22
Regulatory Approvals................................... 23
Waiver, Amendment, and Termination..................... 23
Dissenters' Rights..................................... 24
Conduct of Business Pending the Merger................. 27
Management and Operations After the Merger; Interests
of Certain Persons in the Merger...................... 30
Certain Federal Income Tax Consequences................ 32
Accounting Treatment................................... 33
Expenses and Fees...................................... 33
Resales of FLAG Common Stock........................... 34
DESCRIPTION OF FLAG COMMON STOCK............................ 35
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS.............. 35
Authorized Capital Stock............................... 35
Amendment of Articles of Incorporation and Bylaws...... 36
Classified Board of Directors and Absence of Cumulative
Voting................................................ 37
Removal of Directors................................... 38
Indemnification........................................ 38
Special Meetings of Shareholders....................... 39
Actions by Shareholders Without a Meeting.............. 39
Mergers, Consolidations, and Sales of Assets........... 40
Shareholders' Rights to Examine Books and Records...... 40
Dividends.............................................. 41
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COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 42
BUSINESS OF MIDDLE GEORGIA.................................. 44
General................................................ 44
Management............................................. 44
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 46
Certain Transactions and Business Relationships........ 58
Voting Securities and Principal Stockholders of Middle
Georgia............................................... 58
Year 2000 Issues....................................... 59
BUSINESS OF FLAG............................................ 60
General................................................ 60
Directors and Executive Officers....................... 60
Year 2000 Issues....................................... 62
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................ 63
SHAREHOLDER PROPOSALS FOR FLAG'S 1998 ANNUAL MEETING........ 69
EXPERTS..................................................... 69
LEGAL MATTERS............................................... 69
OTHER MATTERS............................................... 69
MIDDLE GEORGIA FINANCIAL DATA............................... F-1
Appendices:
Appendix A -- Agreement and Plan of Merger, dated as of
October 28, 1997, by and between FLAG
Financial Corporation and Middle Georgia
Bankshares, Inc.......................... A-1
Appendix B -- Excerpts from the Georgia Business
Corporation Code Relating to Dissenters'
Rights................................... B-1
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SUMMARY
The following is a summary of certain information contained in this Joint
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 Joint Proxy Statement/Prospectus and is qualified in its entirety by the
more detailed information appearing elsewhere or incorporated by reference in
this Joint Proxy Statement/Prospectus. Shareholders are urged to read carefully
the entire Joint Proxy Statement/Prospectus, including the Appendices. As used
in this Joint Proxy Statement/Prospectus, the terms "FLAG" and "Middle Georgia"
refer to those entities, respectively, and, where the context requires, to those
entities and their respective subsidiaries.
THE PARTIES
Middle Georgia. Middle Georgia is a bank holding company headquartered in
Unadilla, Georgia, with six banking offices located in the cities of Unadilla,
Vienna, Byromville, Montezuma and Oglethorpe, Georgia. As of September 30, 1997,
Middle Georgia had total consolidated assets of approximately $120 million,
total consolidated deposits of approximately $104 million, and total
consolidated shareholders' equity of approximately $11 million. Through its
wholly-owned banking subsidiary, Citizens Bank ("Citizens"), Middle Georgia
offers a broad range of banking and banking-related services. In addition, CB
Financial Group, Inc. ("CB Financial"), a wholly-owned subsidiary of Citizens,
provides pawn, title pawn and check cashing services.
Middle Georgia was organized under the laws of the State of Georgia and
commenced operations under the name Local Investors, Inc. in 1975, and is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). Local Investors, Inc. changed its name to Middle
Georgia Bankshares, Inc. on January 15, 1987. Middle Georgia's principal
executive office is located at 2233 Pine Street, Unadilla, Georgia 31091, and
its telephone number at such address is (912) 627-3208.
Additional information with respect to Middle Georgia and its subsidiaries
is included in this Joint Proxy Statement/Prospectus. See "BUSINESS OF MIDDLE
GEORGIA."
FLAG. FLAG is a unitary thrift holding company headquartered in LaGrange,
Georgia, with five savings bank offices located in LaGrange, Georgia which serve
markets located in western Georgia and eastern Alabama. As of September 30,
1997, FLAG had total consolidated assets of approximately $238 million, total
consolidated deposits of approximately $178 million, and total consolidated
shareholders' equity of approximately $22 million. Through its federal savings
bank subsidiary, First Federal Savings Bank of LaGrange ("First Federal"), and
First Federal's wholly-owned subsidiary, Piedmont Mortgage Service, Inc.
("Piedmont"), 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, engages in equipment leasing, engages in
mortgage banking services, provides a wide range of brokerage services and
performs real estate appraisal services.
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'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.
Additional information with respect to FLAG and its subsidiaries is
included in this Joint Proxy Statement/Prospectus, and in documents incorporated
by reference in this Joint Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION," "DOCUMENTS INCORPORATED BY REFERENCE," and "BUSINESS OF FLAG."
MEETINGS OF SHAREHOLDERS; RECORD DATE; VOTE REQUIRED
Middle Georgia. This Joint Proxy Statement/Prospectus is being furnished
to the holders of Middle Georgia Common Stock in connection with the
solicitation by the Middle Georgia Board of Directors of proxies for use at the
Middle Georgia Special Meeting at which Middle Georgia shareholders will be
asked to
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vote upon a proposal to approve the Merger Agreement and the transactions
contemplated therein. The Middle Georgia Special Meeting will be held at the
Citizens Media Room, North Third Street, Vienna, Georgia, on Monday, March 30,
1998, at 8:00 a.m., local time. See "MEETINGS OF SHAREHOLDERS -- Date, Place,
Time, and Purpose; Middle Georgia."
Middle Georgia's Board of Directors has fixed the close of business on
February 27, 1998, as the record date (the "Middle Georgia Record Date") for
determination of the shareholders entitled to notice of and to vote at the
Middle Georgia Special Meeting. Only holders of record of shares of Middle
Georgia Common Stock on the Middle Georgia Record Date will be entitled to
notice of and to vote at the Middle Georgia Special Meeting. Each share of
Middle Georgia 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 Middle Georgia Special Meeting. On the Middle Georgia Record Date, there
were 64,272 shares of Middle Georgia Common Stock issued and outstanding and
entitled to vote at the Middle Georgia Special Meeting, which shares were held
by 84 holders of record.
Approval of the Merger Agreement and the transactions contemplated therein
requires the affirmative vote by holders of a majority (32,137 shares) of the
shares of Middle Georgia Common Stock entitled to vote at the Middle Georgia
Special Meeting. As of the Middle Georgia Record Date, all directors and
executive officers of Middle Georgia as a group (six persons) were entitled to
vote approximately 53,172 shares of Middle Georgia Common Stock, constituting
approximately 83% of the total number of shares of Middle Georgia Common Stock
outstanding at that date, and have committed to vote their shares of Middle
Georgia Common Stock in favor of the Merger. In light of the shares beneficially
owned by Middle Georgia's directors and executive officers, Middle Georgia
anticipates that the Merger Agreement will be approved by its shareholders. As
of the Middle Georgia Record Date, FLAG and its affiliates held no shares of
Middle Georgia Common Stock. See "MEETINGS OF SHAREHOLDERS -- Record Dates,
Voting Rights, Required Votes, and Revocability of Proxies; Middle Georgia" and
"BUSINESS OF MIDDLE GEORGIA -- Management."
MIDDLE GEORGIA'S SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF
THE MERGER AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF
MIDDLE GEORGIA 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 JOINT PROXY
STATEMENT/PROSPECTUS.
FLAG. This Joint Proxy Statement/Prospectus 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 FLAG Special Meeting at which FLAG
shareholders will be asked to vote on a proposal to approve the issuance of FLAG
Common Stock pursuant to the Merger Agreement. The FLAG Special Meeting will be
held at the corporate headquarters of FLAG, 101 North Greenwood Street,
LaGrange, Georgia, on Monday, March 30, 1998, at 3:00 p.m., local time. See
"MEETINGS OF SHAREHOLDERS -- Date, Place, Time, and Purpose; FLAG."
FLAG's Board of Directors has fixed the close of business on February 27,
1998, as the record date (the "FLAG Record Date") for determination of the
shareholders entitled to notice of and to vote at the FLAG 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 FLAG 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
FLAG Special Meeting. On the FLAG Record Date, there were 2,036,990 shares of
FLAG Common Stock issued and outstanding and entitled to vote at the FLAG
Special Meeting, which shares were held by approximately 548 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 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
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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 (14 persons) were entitled to vote approximately 225,855 shares of
FLAG Common Stock, constituting approximately 11.1% of the total number of
shares of FLAG Common Stock outstanding at that date, and are anticipated 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, Middle
Georgia and its affiliates held no shares of FLAG Common Stock. See "MEETINGS OF
SHAREHOLDERS -- Record Dates, Voting Rights, Required Votes, and Revocability of
Proxies; FLAG."
THE MERGER
General. The Merger Agreement provides for the acquisition of Middle
Georgia by FLAG pursuant to the Merger of Middle Georgia with and into FLAG. A
copy of the Merger Agreement is set forth at Appendix A to this Joint Proxy
Statement/Prospectus, and the Merger Agreement is incorporated herein by
reference.
Consideration and Exchange Ratio. At the Effective Time, each share of
Middle Georgia Common Stock then issued and outstanding (excluding shares held
by Middle Georgia, 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 Middle Georgia shareholders who perfect
their statutory dissenters' rights) will be converted into and exchanged for the
right to receive 15.75 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 Middle Georgia 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 Middle Georgia 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 Middle Georgia Record Date, there were 64,272 shares of Middle
Georgia Common Stock issued and outstanding. Based on the number of shares of
Middle Georgia Common Stock outstanding on the Middle Georgia Record Date and
the Exchange Ratio of 15.75, it is anticipated that upon consummation of the
Merger, FLAG would issue approximately 1,012,284 shares of FLAG Common Stock to
holders of Middle Georgia Common Stock. Accordingly, FLAG would then have issued
and outstanding approximately 3,049,274 shares of FLAG Common Stock, based on
the number of shares of FLAG Common Stock issued and outstanding on the FLAG
Record Date. Following the Merger, and assuming no exercise of dissenters'
rights, the current shareholders of Middle Georgia will beneficially own
approximately 33.2% of the FLAG Common Stock that will then be outstanding.
Reasons for the Merger, Recommendations of the Boards of Directors of
Middle Georgia and FLAG. The Middle Georgia Board of Directors believes that the
Merger is in the best interests of Middle Georgia 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 Middle Georgia 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 and unanimously recommends that the shareholders vote "FOR" approval
of the issuance of shares 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 Middle
Georgia, the likelihood of the Merger being approved by regulatory authorities
without undue
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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
Middle Georgia.
The Boards of Directors of Middle Georgia 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 Middle Georgia 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."
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 Middle Georgia 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 earliest date on which
both of the following conditions are met: (a) the shareholders of Middle Georgia
have approved the Merger Agreement, and (b) the shareholders of FLAG have
approved the issuance of FLAG Common Stock pursuant to 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. MIDDLE GEORGIA AND FLAG ANTICIPATE THAT ALL CONDITIONS
TO THE CONSUMMATION OF THE MERGER WILL BE SATISFIED SO THAT THE MERGER CAN BE
CONSUMMATED DURING THE FIRST 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 "Middle Georgia Certificates") which,
immediately prior to the Effective Time, represented outstanding shares of
Middle Georgia Common Stock, appropriate transmittal materials and instructions
for use in effecting the surrender and cancellation of the Middle Georgia
Certificates in exchange for certificates representing shares of FLAG Common
Stock ("FLAG Certificates"). Cash will be paid to the holders of Middle Georgia
Common Stock in lieu of the issuance of any fractional shares of FLAG Common
Stock.
HOLDERS OF MIDDLE GEORGIA COMMON STOCK SHOULD NOT SEND IN THEIR MIDDLE
GEORGIA CERTIFICATES UNTIL THEY RECEIVE THE APPROPRIATE TRANSMITTAL MATERIALS
AND INSTRUCTIONS.
In no event will the holder of any surrendered Middle Georgia
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 Middle Georgia 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").
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 MIDDLE GEORGIA 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 Middle
Georgia shareholders, receipt of the required approval of the issuance of shares
of FLAG Common Stock pursuant to the Merger Agreement by FLAG shareholders,
receipt of an opinion of counsel as to the tax-free nature of certain aspects of
the Merger, receipt of a letter
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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)
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 Middle Georgia and FLAG, or by either Middle Georgia or FLAG under
certain circumstances, including if the Merger is not consummated by June 30,
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. If for any reason the
Merger is not consummated, FLAG will continue to operate as a unitary thrift
holding company under its present management and Middle Georgia will continue to
operate as a bank holding company under its present management. See "DESCRIPTION
OF MERGER -- Waiver, Amendment, and Termination."
Dissenter's Rights. Each holder of Middle Georgia 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 Georgia Business
Corporation Code (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 Joint 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 MUST DELIVER TO MIDDLE GEORGIA, PRIOR TO THE VOTE OF THE
SHAREHOLDERS OF MIDDLE GEORGIA AT THE MIDDLE GEORGIA 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 MIDDLE GEORGIA 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 WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER
AGREEMENT AND THUS WILL NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS. The
holders of FLAG Common Stock are not entitled to such dissenters' rights under
the GBCC with respect to the Merger.
Interests of Certain Persons in the Merger. Certain members of Middle
Georgia's management and Board of Directors have interests in the Merger in
addition to their interests as shareholders of Middle Georgia generally.
Promptly after the Effective Time, J. Daniel Speight, Jr., the current Chief
Executive Officer of Middle Georgia, and Patti S. Davis, the current Secretary
and Chief Financial Officer of Middle Georgia, will become members of FLAG's
Board of Directors. Mr. Speight will also become President and Chief Executive
Officer of FLAG, and Ms. Davis will also become Secretary and Senior Vice
President of FLAG, pursuant to employment agreements which those individuals
will enter into with FLAG, as the surviving corporation. In addition, the Merger
Agreement contains provisions relating to the indemnification of Middle Georgia
directors and officers by FLAG, and provisions relating to the eligibility of
the officers and employees of Middle Georgia for certain FLAG employee benefits.
As of the FLAG Record Date, none of the directors and officers of Middle Georgia
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."
5
<PAGE> 11
In addition, certain members of FLAG's management and Board of Directors
have interests in the Merger in addition to their interests as shareholders of
FLAG generally. John S. Holle, the current Chairman of the Board, President and
Chief Executive Officer of FLAG, will remain as Chairman of the Board of the
surviving corporation, and Ellison C. Rudd, current Executive Vice President,
Treasurer and Chief Financial Officer of FLAG, will become Senior Vice
President, Treasurer and Chief Financial Officer of the surviving corporation,
pursuant to employment agreements which those individuals will enter into with
FLAG, as the surviving corporation. In addition, Mr. Holle, along with Dr. A.
Glenn Bailey, H. Speer Burdette, III, Fred A. Durand, III, Kelly R. Linch, John
W. Stewart, Jr., and Robert W. Walters, current Directors of FLAG, will continue
as members of the surviving corporation's Board of Directors. Furthermore,
Messrs. Holle and Rudd currently have employment contracts with First Federal
which entitle them to certain benefits should either individual experience a
termination of employment, a material change in his present capacity or
circumstances of employment or a material reduction in the individual's
responsibility, authority, compensation or other benefits following the
consummation of the Merger. Should any of the above situations arise following
the Merger, the affected individual will receive, among other things, severance
payments (not to exceed three times the individual's average annual salary over
the preceding five years minus one dollar), and a continuation of all benefits
provided to such individual under FLAG's benefit plans for a period of three
years following the event of termination or changed circumstances. In addition,
as the Merger constitutes a change of control as defined by FLAG's 1994
Directors Stock Incentive Plan, eight of the current Directors of FLAG, who have
already been granted options to acquire a total of 52,000 shares of FLAG Common
Stock under the plan, will be granted, on a pro rata basis, options to acquire a
total of 48,625 additional shares of FLAG's Common Stock under the plan, as of
the date preceding the consummation of the Merger. Additionally, the change of
control provisions of the 1994 Employees Stock Incentive Plan will be triggered
by the consummation of the Merger, which will result in the immediate vesting of
the 26,750 stock options previously granted to the officers of FLAG under such
plan. As a result, 5,000 stock options held by Mr. Holle and 3,750 stock options
held by Mr. Rudd will become fully-vested following the consummation of the
Merger. As of the Middle Georgia Record Date, the directors and officers of FLAG
beneficially owned no shares of Middle Georgia Common Stock. See "DESCRIPTION OF
MERGER -- Management and Operations After the Merger; Interests of Certain
Persons in the Merger."
Messrs. Holle, Rudd and Speight and Ms. Davis will execute employment
contracts with FLAG, as the surviving corporation of the Merger. While the terms
of the contracts have not been finalized, it is expected that those contracts
will provide that each of the above-named individuals will receive a base salary
which is comparable to their current total compensation. It is estimated that
the base salaries will be as follows: Mr. Speight's annual base salary will be
approximately $215,000; Mr. Holle's annual base salary will be approximately
$175,000; and both Ms. Davis's and Mr. Rudd's annual base salaries will be
approximately $125,000. 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 Middle Georgia and FLAG of an opinion of
Alston & Bird 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 Middle Georgia Common Stock for shares of FLAG Common Stock
will not result in gain or loss to the shareholders of Middle Georgia, except
that gain or loss will be recognized to the extent of any cash received by such
Middle Georgia shareholders in the Merger, and (iii) Middle Georgia shareholders
who perfect their dissenters' rights and receive solely cash in redemption of
their Middle Georgia 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 MIDDLE GEORGIA COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX
6
<PAGE> 12
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, Middle
Georgia shareholders, whose rights are governed by Middle Georgia'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 Middle Georgia 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." Middle Georgia Common Stock is not traded in any
established market. On October 27, 1997, the last day prior to public
announcement that FLAG and Middle Georgia had executed the Merger Agreement, the
last reported sale price per share of FLAG Common Stock on the Nasdaq National
Market was $17.00, and the resulting equivalent pro forma price per share of
Middle Georgia Common Stock (based on the 15.75 Exchange Ratio) was $267.75. On
February 25, 1998, the latest practicable date prior to the mailing of this
Joint Proxy Statement/Prospectus, the last reported sale price per share of FLAG
Common Stock on the Nasdaq National Market was $20.938, and the resulting
equivalent pro forma price per share of Middle Georgia Common Stock was $329.77.
The equivalent per share price of a share of Middle Georgia 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 15.75. To the knowledge of
Middle Georgia, the most recent trade of Middle Georgia Common Stock prior to
October 27, 1997, the last day prior to public announcement that FLAG and Middle
Georgia had executed the Merger Agreement, was the sale by Middle Georgia of 330
treasury shares to certain newly elected members of Citizens' Macon County
Advisory Board on August 13, 1997, at $165.00 per share. To the knowledge of
Middle Georgia, 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 Middle Georgia 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 Middle Georgia; (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 Middle Georgia Common Stock, giving effect to the Merger. The
Middle Georgia and FLAG pro forma combined information and the Middle Georgia
pro forma equivalent information give effect to the Merger on a
pooling-of-interests accounting basis and reflects the Exchange Ratio of 15.75
shares of FLAG Common Stock for each share of Middle Georgia 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 operations or combined 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 operations
or combined financial position.
7
<PAGE> 13
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of FLAG and
Middle Georgia 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 MIDDLE GEORGIA -- Management's Discussion and
Analysis of Financial Condition and Results of Operations," "MIDDLE GEORGIA
FINANCIAL DATA," and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE
-----------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) PER COMMON SHARE
FLAG historical.............................. $ 0.80 $ (0.30) $ (0.09) $ 1.02 $ 0.88
Middle Georgia historical.................... 12.76 12.89 16.66 17.41 15.67
FLAG and Middle Georgia pro forma
combined(1)................................ 0.80 0.08 0.29 1.05 0.91
Middle Georgia pro forma equivalent(2)....... 12.60 1.26 4.57 16.54 14.33
DIVIDENDS DECLARED PER COMMON SHARE
FLAG historical.............................. $ 0.26 $ 0.25 $ 0.33 $ 0.30 $ 0.30
Middle Georgia historical.................... 1.00 1.00 1.00 1.00 1.00
FLAG and Middle Georgia pro forma
combined(1)(4)............................. 0.26 0.25 0.33 0.30 0.30
Middle Georgia pro forma equivalent(3)....... 4.10 3.94 5.20 4.73 4.73
BOOK VALUE PER COMMON SHARE (PERIOD END)
FLAG historical.............................. $ 10.66 $ 10.07
Middle Georgia historical.................... 169.82 157.46
FLAG and Middle Georgia pro forma
combined(1)................................ 10.72 10.04
Middle Georgia pro forma equivalent(2)....... 168.84 158.13
</TABLE>
- ---------------
(1) Represents the pro forma combined information of FLAG and Middle Georgia 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 15.75 shares of FLAG Common Stock for each share of Middle
Georgia Common Stock.
(3) Represents historical dividends declared per share by FLAG multiplied by the
Exchange Ratio of 15.75 shares of FLAG Common Stock for each share of Middle
Georgia 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.
8
<PAGE> 14
SELECTED FINANCIAL DATA
The following tables present certain selected historical financial
information for FLAG and Middle Georgia and are derived from the respective
consolidated financial statements of FLAG and Middle Georgia, 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 Middle Georgia contained or incorporated by reference
herein. Interim unaudited data for the nine month periods ended September 30,
1997 and 1996, of FLAG and Middle Georgia reflect, in the opinion of the
respective managements of FLAG and Middle Georgia, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
data. Results for the nine month periods ended September 30, 1997 and 1996 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 "MIDDLE GEORGIA FINANCIAL DATA."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FLAG
BALANCE SHEET DATA
Total assets.................................. $238,463 $228,914 $221,958 $232,105 $231,700 $206,660 $188,173
Loans, net.................................... 160,131 155,227 152,988 147,433 141,153 137,234 137,368
Deposits...................................... 177,639 183,738 177,999 177,848 165,721 162,816 153,129
Stockholders' equity.......................... 21,718 20,149 20,518 20,698 19,012 19,874 18,151
STATEMENT OF EARNINGS DATA
Net interest income........................... $ 5,975 $ 6,242 $ 8,173 $ 7,283 $ 6,837 $ 6,407 $ 6,278
Provision for loan losses..................... 424 3,335 3,485 630 440 620 595
Noninterest income............................ 2,479 2,369 2,993 2,459 1,880 1,973 1,240
Noninterest expense........................... 5,591 6,328 8,170 6,041 5,528 4,686 4,351
Net earnings (loss)........................... 1,630 (597) (178) 2,026 1,768 2,234 1,625
PER SHARE DATA
Book value (period end)....................... $ 10.66 $ 9.89 $ 10.07 $ 10.80 $ 9.44 $ 9.87 $ 9.02
Net earnings (loss)........................... 0.80 (0.30) (0.09) 1.02 0.88 1.11 0.81
Dividends..................................... 0.26 0.25 0.33 0.30 0.30 0.28 0.24
Total shares outstanding...................... 2,037 2,037 2,037 1,916 2,013 2,013 2,013
Weighted average shares outstanding........... 2,037 2,002 2,011 1,991 2,013 2,013 2,013
RATIOS
Return on average assets...................... 0.96% (0.35)% (0.08)% 0.87% 0.79% 1.10% 0.89%
Return on average stockholders' equity........ 10.60 (3.91) (0.88) 9.78 9.00 11.78 9.28
Average equity to average assets.............. 9.04 8.86 8.96 8.94 8.76 9.37 9.57
Average loans to average deposits............. 85.98 84.74 84.92 84.00 84.74 86.91 95.02
MIDDLE GEORGIA
BALANCE SHEET DATA
Total assets.................................. $119,887 $ 83,553 $ 99,772 $ 83,360 $ 76,445 $ 70,135 $ 65,064
Loans, net.................................... 86,597 58,877 68,144 53,589 53,617 44,849 44,950
Deposits...................................... 104,427 71,576 88,018 73,296 67,615 61,774 57,009
Stockholders' equity.......................... 10,914 9,773 10,069 9,151 7,724 7,222 6,551
STATEMENT OF EARNINGS DATA
Net interest income........................... $ 4,037 $ 3,370 $ 4,668 $ 4,529 $ 4,026 $ 3,603 $ 3,605
Provision for loan losses..................... 76 90 220 110 30 275 318
Noninterest income............................ 965 850 1,072 937 826 774 1,013
Noninterest expense........................... 3,796 2,957 3,992 3,720 3,361 3,103 2,996
Net earnings.................................. 818 824 1,065 1,114 996 673 942
PER SHARE DATA
Book value (period end)....................... $ 169.82 $ 152.85 $ 157.46 $ 142.98 $ 120.69 $ 111.11 $ 100.78
Net earnings.................................. 12.76 12.89 16.66 17.41 15.67 10.37 14.51
Dividends..................................... 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Total shares outstanding...................... 64 64 64 64 64 65 65
Weighted average shares outstanding........... 64 64 64 64 64 65 65
SELECTED RATIOS
Return on average assets...................... 0.99% 1.32% 1.28% 1.46% 1.41% 0.99% 1.48%
Return on average stockholders' equity........ 10.40 11.61 11.08 13.20 13.33 9.77 15.41
Average equity to average assets.............. 9.55 11.36 11.57 11.03 10.57 10.18 9.58
Average loans to average deposits............. 80.41 77.78 75.59 76.23 76.10 75.60 75.47
</TABLE>
9
<PAGE> 15
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 Joint Proxy
Statement/Prospectus. See "-- Comparative Per Share Data" and "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION."
SELECTED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ---------------------------
1997 1996 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Interest income............................... $ 19,686 $18,711 $25,008 $24,349 $21,089
Interest expense.............................. 9,674 9,099 12,167 12,537 10,226
Net interest income........................... 10,012 9,612 12,841 11,812 10,863
Provision for loan losses..................... 500 3,425 3,705 740 470
Noninterest income............................ 3,444 3,219 4,065 3,396 2,706
Noninterest expense........................... 9,387 9,285 12,162 9,761 8,889
Income taxes.................................. 1,120 106 152 1,567 1,446
Net earnings.................................. 2,449 227 887 3,140 2,764
Earnings per common share..................... 0.80 0.08 0.29 1.05 0.91
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets................................ $358,350
Federal funds sold.......................... 610
Investment securities....................... 66,438
Loans, net.................................. 246,728
Deposits.................................... 282,066
Other borrowings............................ 36,018
Stockholders' equity........................ 32,632
</TABLE>
RECENT DEVELOPMENTS
FLAG's Pending Acquisition of Three Rivers Bancshares, Inc. Effective
February 12, 1998, FLAG and Three Rivers Bancshares, Inc. ("Three Rivers")
entered into an Agreement and Plan of Merger ("Three Rivers Agreement") pursuant
to which Three Rivers will merge with and into FLAG. The Three Rivers Agreement
provides that FLAG will exchange 48 shares of FLAG Common Stock for each share
of Three Rivers Common Stock outstanding, with approximately 398,400 shares of
FLAG Common Stock expected to be issued to Three Rivers shareholders. The
parties expect the merger to be accounted for as a pooling of interests and
expect to consummate the transaction during the second quarter of 1998, subject
to approval of Three Rivers shareholders in accordance with applicable law,
approval of various regulatory authorities and other customary conditions of
closing.
Three Rivers is a privately-held bank holding company located in Milan,
Georgia and is the sole shareholder of Bank of Milan. Bank of Milan has two
offices located in Milan, Georgia and McRae, Georgia.
10
<PAGE> 16
Prior to entering negotiations with FLAG regarding the combination of FLAG
and Middle Georgia, management of Middle Georgia and management of Three Rivers
explored the possibility of combining Middle Georgia and Three Rivers. These
discussions were preliminary in nature and did not result in any serious
negotiations between the two entities.
Additional information with respect to the Three Rivers transaction is set
forth in FLAG's Current Reports on Form 8-K dated January 28, 1998 and February
18, 1998 (the "FLAG 8-Ks"). The FLAG 8-Ks include or incorporate by reference
certain forward looking statements, estimates, and projections concerning the
transaction with Three Rivers which are subject to various uncertainties and
risks. Estimates and projections concerning the future financial performance of
FLAG following the transaction with Three Rivers 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.
FLAG Year End 1997 Financial Results. For the year ended December 31,
1997, FLAG announced consolidated net income of approximately $2,033,000, or
$1.00 in basic earnings per share, versus a net loss of approximately $178,000,
or $0.09 in basic earnings per share, in 1996. The results in 1996 included $2.8
million in charges related to a $4.5 million portfolio of equipment leases sold
to First Federal through the Bennett Funding Group, Inc., as well as a special
assessment to fund the Savings Association Insurance Fund ("SAIF") totaling $1.2
million. For the fourth quarter ended December 31, 1997, net income was
approximately $403,000, or $0.20 in basic earnings per share, essentially
unchanged from the comparable period in 1996.
Total assets increased 12% to $248 million at December 31, 1997, while net
loans increased 9% to $166 million. From the prior year level, stockholders'
equity as of December 31, 1997 increased 8% to $22.1 million, or 8.9% of total
assets. Book value per share was $10.83 as of December 31, 1997.
Nonperforming assets, which include the Bennett Funding leases, were $4.6
million at December 31, 1997, versus $7.2 million at December 31, 1996.
Excluding Bennett Funding, nonperforming assets would have been $2.5 million at
December 31, 1997, versus $2.6 million at December 31, 1996. The $4.6 million
balance at December 31, 1997 in nonperforming assets reflects a write-down of
Bennett Funding to its net realizable value of $2.1 million. The allowance for
loan losses after the write-down of Bennett Funding was $2.3 million as of
December 31, 1997, versus $4.3 million at December 31, 1996.
11
<PAGE> 17
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, THE SHAREHOLDERS OF MIDDLE GEORGIA 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 been a lack of vibrancy in the trading history of FLAG Common Stock.
The average daily trading volume of FLAG Common Stock over the six-month period
ending December 31, 1997 was approximately 34 shares, and on some days the
trading volume for shares of FLAG Common Stock was zero. It is not anticipated
that the merger of Middle Georgia 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 and the other subsidiaries of FLAG and Middle
Georgia, and certain statutory and regulatory restrictions exist on the payment
of dividends by those subsidiaries.
POSSIBLE COSTS ASSOCIATED WITH THE INTEGRATION OF MIDDLE GEORGIA
The ability of FLAG, as the surviving corporation, to perform with
financial success is dependent upon the integration of Middle Georgia and its
subsidiaries into FLAG, as the surviving corporation. There may be significant,
unanticipated costs associated with the integration of Middle Georgia with and
into FLAG.
GOVERNMENTAL REGULATION
FLAG, Middle Georgia, and their respective subsidiaries are currently
subject to extensive governmental regulation. FLAG, as a unitary thrift holding
company, is primarily regulated by the Office of Thrift Supervision (the "OTS"),
as is FLAG's wholly-owned subsidiary savings association, First Federal. Middle
Georgia, as a bank holding company, is primarily regulated by the Federal
Reserve. Middle Georgia's wholly-owned banking subsidiary, Citizens, is
primarily regulated by the Federal Deposit Insurance Corporation (the "FDIC")
and the GDBF.
Upon the consummation of the Merger, FLAG will become a bank holding
company for purposes of governmental regulation. As a result, the Federal
Reserve will replace the OTS as the primary regulator of FLAG following the
Merger. This change in primary regulators will likely result in an increased
regulatory burden for FLAG. For example, FLAG will be subject to certain minimum
capital requirements administered by the Federal Reserve, which are
substantially similar to those requirements to which Citizens is currently
subject (see "BUSINESS OF MIDDLE GEORGIA -- Management's Discussion and Analysis
of Financial Condition and Results of Operations; Capital Resources"). Failure
to meet minimum capital requirements can initiate certain mandatory -- and
possibly additional discretionary -- actions by the Federal Reserve that, if
undertaken, could have a direct material effect on the financial position or
results of operations of FLAG. FLAG anticipates that it will be able to satisfy
the minimum capital requirements.
First Federal will continue to be primarily regulated by the OTS, and
Citizens will continue to be primarily regulated by the FDIC and the GDBF. The
Federal and State regulators of these entities will continue to 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.
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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, may be able to afford newer and more sophisticated technology than
FLAG, and may be able to provide more funds to borrowers than FLAG. The
long-term success of FLAG will be dependent on the ability of its subsidiaries
to compete successfully with other financial institutions in their service
areas.
CONTROL BY MANAGEMENT
Upon consummation of the Merger, the resulting directors and executive
officers of FLAG will beneficially own approximately 874,975 shares of FLAG
Common Stock, or approximately 28.7% of the total outstanding shares. It is
therefore anticipated that resulting management of FLAG will have significant
control of FLAG following the consummation of the Merger.
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 Middle Georgia's currently installed
computer systems, software products or other business systems, or those of
FLAG's or Middle Georgia'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 Middle Georgia 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 Middle Georgia 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 Middle
Georgia will correctly process all date information at all times, and FLAG and
Middle Georgia 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 Middle Georgia 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 Middle
Georgia will be able to successfully remedy problems that are discovered. The
expenses of FLAG's and Middle Georgia's efforts to identify and address such
problems, or the expenses or liabilities to which FLAG and Middle Georgia may
become subject as a result of such problems, could have a material adverse
effect on FLAG's results of operations and financial condition.
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MEETINGS OF SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
Middle Georgia. This Joint Proxy Statement/Prospectus is being furnished
to the holders of Middle Georgia Common Stock in connection with the
solicitation by the Middle Georgia Board of Directors of proxies for use at the
Middle Georgia Special Meeting at which Middle Georgia shareholders will be
asked to vote upon a proposal to approve the Merger Agreement. The costs
associated with the solicitation of proxies for the Middle Georgia Special
Meeting will be borne by Middle Georgia. The Middle Georgia Special Meeting will
be held at the Citizens Media Room, North Third Street, Vienna, Georgia, on
Monday, March 30, 1998, at 8:00 a.m., local time.
FLAG. This Joint Proxy Statement/Prospectus 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 FLAG 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 FLAG Special Meeting
will be held at the corporate headquarters of FLAG, 101 North Greenwood Street,
LaGrange, Georgia, on Monday, March 30, 1998, at 3:00 p.m., local time.
RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
Middle Georgia. The close of business on February 27, 1998, has been fixed
as the Middle Georgia Record Date for determining holders of outstanding shares
of Middle Georgia Common Stock entitled to notice of and to vote at the Middle
Georgia Special Meeting. Only holders of Middle Georgia Common Stock of record
on the books of Middle Georgia at the close of business on the Middle Georgia
Record Date are entitled to notice of and to vote at the Middle Georgia Special
Meeting. As of the Middle Georgia Record Date, there were 64,272 shares of
Middle Georgia Common Stock issued and outstanding and entitled to vote at the
Middle Georgia Special Meeting, which shares were held by 84 holders of record.
Holders of Middle Georgia Common Stock are entitled to one vote on each
matter considered and voted upon at the Middle Georgia Special Meeting for each
share of Middle Georgia Common Stock held of record as of the Middle Georgia
Record Date. The vote required for the approval of the Merger Agreement is a
majority of the issued and outstanding shares of Middle Georgia Common Stock
entitled to vote at the Middle Georgia 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 Middle Georgia 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 MIDDLE GEORGIA 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 Middle Georgia 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 Middle Georgia Special
Meeting. No proxy that is voted against the approval of the Merger Agreement
will be voted in favor of an adjournment of the Middle Georgia Special Meeting
in order to permit further solicitation of proxies.
FAILURE EITHER TO VOTE BY PROXY OR IN PERSON AT THE MIDDLE GEORGIA SPECIAL
MEETING WILL HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE MERGER
AGREEMENT.
A Middle Georgia shareholder who has given a proxy may revoke it at any
time prior to its exercise at the Middle Georgia Special Meeting by (i) giving
written notice of revocation to the Secretary of Middle Georgia, (ii) properly
submitting to Middle Georgia a duly executed proxy bearing a later date, or
(iii) attending the Middle Georgia Special Meeting and voting in person. All
written notices of revocation and other
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communications with respect to revocation of proxies should be addressed as
follows: Middle Georgia Bankshares, Inc., 2233 Pine Street, Unadilla, Georgia
31091; Attention: Patti S. Davis.
As of the Middle Georgia Record Date, all directors and executive officers
of Middle Georgia as a group (six persons) were entitled to vote approximately
53,172 shares of Middle Georgia Common Stock, constituting approximately 83% of
the total number of shares of Middle Georgia Common Stock outstanding at that
date (including 35,565 shares of Middle Georgia Common Stock which were subject
to a shareholder agreement as of the Middle Georgia Record Date), and have
committed to vote their shares of Middle Georgia Common Stock in favor of the
Merger Agreement. In light of the shares beneficially owned by Middle Georgia's
directors and executive officers, Middle Georgia anticipates that the Merger
Agreement will be approved by its shareholders. None of FLAG or any of its
directors and executive officers beneficially owned, as of the Middle Georgia
Record Date, any shares of Middle Georgia Common Stock. See "BUSINESS OF MIDDLE
GEORGIA -- Management."
FLAG. The close of business on February 27, 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 FLAG 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
FLAG Special Meeting. As of the FLAG Record Date, there were 2,036,990 shares of
FLAG Common Stock issued and outstanding and entitled to vote at the FLAG
Special Meeting, which shares were held by 548 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 SHARES 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 FLAG
SPECIAL MEETING. If necessary, the proxy holder may vote in favor of a proposal
to adjourn the FLAG Special Meeting in order to permit further solicitation of
proxies in the event there are not sufficient votes to approve the foregoing
proposals at the time of the FLAG Special Meeting. No proxy that is voted
against the approval of the issuance of shares of FLAG Common Stock pursuant to
the Merger Agreement will be voted in favor of an adjournment of the FLAG
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 FLAG 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 FLAG 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.
As of the FLAG Record Date, all directors and executive officers of FLAG as
a group (14 persons) were entitled to vote approximately 225,855 shares of FLAG
Common Stock, constituting approximately 11.1% of the total number of shares of
FLAG Common Stock outstanding at that date, and are anticipated 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, Middle Georgia and
its affiliates held no shares of FLAG Common Stock.
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The costs associated with the solicitation of proxies for the FLAG Special
Meeting will be borne by FLAG. In addition to the solicitation of shareholders
of record by mail, telephone, facsimile or personal contact, FLAG will be
contacting brokers, dealers, banks, or voting trustees or their nominees who can
be identified as record holders of FLAG Common Stock. Such holders, after
inquiry by FLAG, will provide information concerning quantities of proxy
materials needed to supply such information to beneficial owners, and FLAG will
reimburse them for the reasonable expense of mailing proxy materials to such
persons.
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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 Joint Proxy Statement/Prospectus and incorporated
herein by reference. All shareholders are urged to read the Appendices in their
entirety.
GENERAL
The Merger Agreement provides for the acquisition of Middle Georgia by FLAG
pursuant to the Merger of Middle Georgia with and into FLAG. At the Effective
Time, each share of Middle Georgia Common Stock then issued and outstanding
(excluding shares held by Middle Georgia, 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 Middle
Georgia shareholders who perfect their dissenters' rights) will be converted
into and exchanged for the right to receive 15.75 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 Middle Georgia 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 Middle Georgia Record Date, Middle Georgia had 64,272 shares of
Middle Georgia Common Stock issued and outstanding. Based on the number of
shares of Middle Georgia Common Stock outstanding on the Middle Georgia Record
Date and the Exchange Ratio of 15.75, it is anticipated that upon consummation
of the Merger, FLAG would issue approximately 1,012,284 shares of FLAG Common
Stock to holders of Middle Georgia Common Stock. Accordingly, FLAG would then
have issued and outstanding approximately 3,049,274 shares of FLAG Common Stock
based on the number of shares of FLAG Common Stock issued and outstanding on the
FLAG Record Date. Following the Merger, and assuming no exercise of dissenters'
rights, the current shareholders of Middle Georgia will beneficially own
approximately 33.2% of the FLAG Common Stock that will then be outstanding.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. Middle Georgia has for a number of years been
reviewing various opportunities relating to the growth of Middle Georgia and its
subsidiaries. Management of Middle Georgia has from time to time explored
acquiring other institutions; however, none of those negotiations were
successful. Management of Middle Georgia believed that the future ability of
Middle Georgia to maximize enhancement of shareholder value and to compete with
larger institutions was premised on the ability of Middle Georgia to operate
from a larger asset base. Middle Georgia had not previously explored the
acquisition of Middle Georgia by any institution prior to entering into
negotiations with FLAG. Even though Middle Georgia received informal inquiries
from other institutions regarding the possible acquisition of Middle Georgia
from time to time, Middle Georgia never participated in negotiations regarding
such an acquisition.
Prior to entering negotiations with FLAG regarding the combination of FLAG
and Middle Georgia, management of Middle Georgia and management of Three Rivers
explored the possibility of combining Middle Georgia and Three Rivers. These
discussions were preliminary in nature and did not result in any serious
negotiations between the two entities. See "SUMMARY -- Recent Developments."
On September 16, 1997, executive officers from FLAG and Middle Georgia met
to discuss the two banking organizations and their strategic plans. On September
30, 1997, the executive officers met again to discuss the vision and the
mechanics of how a combination of the two banking organizations could be
accomplished. In considering any transaction, the future role and influence of
Middle Georgia's directors and officers was a significant factor for Middle
Georgia. Accordingly, early in discussions with FLAG, manage-
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ment of Middle Georgia and FLAG determined that J. Daniel Speight, Jr. and Patti
S. Davis would become executive officers of FLAG as the surviving corporation of
the Merger. In addition, the controlling shareholders of Middle Georgia will
become significant shareholders of FLAG. Each executive officer agreed to
discuss with their respective management groups the potential combination of
FLAG and Middle Georgia. On October 13 and 14, 1997, the executive officers,
along with their legal counsel and accountants, met again to further discuss a
possible combination.
On October 16, 1997, the FLAG Board of Directors authorized the management
of FLAG to pursue formal negotiations relating to the Merger. The two
organizations executed a confidentiality agreement on October 21, 1997, and
final calculations relating to the Exchange Ratio were performed and agreed to
by executive officers of FLAG and Middle Georgia on that date, subject to the
approval of the Boards of Directors of FLAG and Middle Georgia. In negotiating
the final Exchange Ratio, the parties 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. The parties did not follow a precise formula in the negotiation of
the final Exchange Ratio, which was based on mutual determination by management
of each institution that the Exchange Ratio fairly represented equivalent value
for the shareholders of each institution.
The Board of Directors of FLAG, along with its legal advisors, met on
October 24, 1997, 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 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 Board of Directors of Middle Georgia met on October 27, 1997, 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 Middle Georgia, the Board of Directors of Middle Georgia
unanimously approved the Merger Agreement and authorized the Chief Executive
Officer of Middle Georgia to take the appropriate actions necessary to execute
the Merger Agreement.
The Merger Agreement was executed on October 28, 1997, subject to each
party's right to terminate the Merger Agreement at any time prior to November
14, 1997, if such party's board of directors was not satisfied by the results of
its due diligence examination of the other party's business. During October and
November of 1997, FLAG and Middle Georgia each conducted an extensive due
diligence review of the material financial, operating and legal information
relating to the other party.
At a November 13, 1997 meeting of the Board of Directors of FLAG, the FLAG
Board reviewed and accepted Middle Georgia's disclosure memorandum which had
previously been delivered to FLAG pursuant to the terms of the Merger Agreement.
After hearing recommendations from FLAG's management and FLAG's legal counsel
relating to the due diligence investigation of Middle Georgia, the FLAG Board
affirmatively decided not to exercise its due-diligence-related termination
rights as set forth under the Merger Agreement. This decision was made subject,
however, to the completion of a due diligence review of certain environmental
matters which were previously disclosed to FLAG by Middle Georgia. The FLAG
Board of Directors delegated to John S. Holle, the Chairman of the Board,
President and Chief Executive Officer of FLAG, the power to terminate the Merger
Agreement on behalf of FLAG if the results of the environmental due diligence
investigation of Middle Georgia so required. Additionally, the FLAG Board
delegated to Mr. Holle the power to amend the Merger Agreement on behalf of
FLAG.
On November 14, 1997, the parties amended the Merger Agreement to extend
FLAG's due-diligence-related termination rights to the close of business on
November 18, 1997, with respect to the environmental matters disclosed to FLAG
by Middle Georgia. Such environmental due diligence review was completed by
FLAG's legal counsel on November 18, 1997, and, based on the results of such
review, Mr. Holle determined not to terminate the Merger Agreement on behalf of
FLAG.
Middle Georgia's Reasons for the Merger and Recommendation of
Directors. The Middle Georgia 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 Middle
Georgia. In
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reaching its conclusion that the Merger Agreement is in the best interests of
Middle Georgia and its shareholders, the Middle Georgia 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 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 results of Middle Georgia's due diligence review of FLAG and a
variety of factors affecting and relating to the overall strategic focus of
Middle Georgia, including Middle Georgia's desire to expand into markets
outside the general vicinity of its core markets;
(d) the potential diversification of the lending risks of Middle
Georgia away from heavy reliance on an agriculturally-based economy;
(e) the potential increases in access to the public capital markets
and stock liquidity; and
(f) the vision shared by Middle Georgia and FLAG relating to future
expansion, including the role to be played by certain existing officers and
directors of Middle Georgia as part of the management of FLAG as the
surviving corporation of the Merger.
While each member of the Middle Georgia Board of Directors individually
considered the foregoing and other factors, the Middle Georgia 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 Middle Georgia 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 Middle Georgia
shareholders.
The Middle Georgia Board of Directors did not consider obtaining an opinion
regarding the fairness of the exchange ratio to the shareholders of Middle
Georgia. The transaction with FLAG is a negotiated merger taking into account a
number of factors, including the role of current Middle Georgia and FLAG
management in the surviving corporation. The Merger is premised on a significant
representation in the ongoing consolidated company through J. Daniel Speight,
Jr. and Patti S. Davis serving as directors and executive officers of FLAG, as
the surviving corporation of the Merger. In addition, the controlling
shareholders of Middle Georgia will become significant shareholders of FLAG.
While management of Middle Georgia is familiar with the range of prices
currently being paid in the acquisitions of other community banks in Georgia in
auction scenarios, the combination of Middle Georgia and FLAG is better
characterized as a true merger. The exchange ratio was not based on "auction"
pricing. Thus, the price range being paid in the acquisitions of community banks
in Georgia is not useful, in the abstract, as a benchmark. Accordingly, Middle
Georgia management and the board of directors of Middle Georgia believed that a
fairness opinion, which is premised on fairness strictly from a "financial point
of view," would not be relevant in the context of this transaction. Management
and the board of directors of Middle Georgia determined that the Merger was in
the best interests of the Middle Georgia shareholders to enhance long-term
shareholder value, while ensuring continued community bank service to the
communities served by Middle Georgia.
The terms of the Merger, including the Exchange Ratio, were the result of
arm's-length negotiations between representatives of Middle Georgia and
representatives of FLAG. Based upon its consideration of the foregoing factors,
the Board of Directors of Middle Georgia approved the Merger Agreement and the
Merger as being in the best interests of Middle Georgia and its shareholders.
THE MIDDLE GEORGIA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MIDDLE
GEORGIA SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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FLAG's Reasons for the Merger. 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 Middle Georgia, including the composition of the
earning assets portfolio of Middle Georgia;
(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 Middle Georgia Common Stock;
(c) the nonfinancial terms of the Merger, including the treatment of
the Merger as a tax-free exchange of Middle Georgia 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 Middle Georgia and the ability of the operations of Middle
Georgia after the Effective Time to contribute to the earnings of FLAG;
(f) the attractiveness of the Middle Georgia franchise, the market
position of Middle Georgia in each of the markets in which it operates, the
compatibility of the franchise of Middle Georgia with the operations of
FLAG and the ability of Middle Georgia to contribute to the business
strategy of FLAG;
(g) the compatibility of the community bank orientation of the
operations of Middle Georgia 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 Board of Directors of FLAG has not sought or obtained an opinion of an
independent investment banking firm as to the fairness to the shareholders of
FLAG, from a financial point of view, of the exchange ratio or any other aspect
of the Merger. However, like the Middle Georgia Board of Directors, the Board of
Directors of FLAG has reviewed the terms of the Merger and believes that such
terms are fair to the shareholders of FLAG, and that consummation of the Merger
is in the best interests of FLAG and its 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
Middle Georgia. 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" APPROVAL OF THE ISSUANCE OF SHARES OF FLAG COMMON STOCK PURSUANT TO
THE MERGER AGREEMENT.
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
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State of the State of Georgia. Unless otherwise agreed upon in writing by Middle
Georgia 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 earliest date
on which both of the following conditions are met: (a) the shareholders of
Middle Georgia have approved the Merger Agreement to the extent such approval is
required by applicable law, and (b) the shareholders of FLAG have approved the
issuance of FLAG Common Stock pursuant to 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. Middle Georgia and FLAG anticipate that all conditions to
consummation of the Merger will be satisfied so that the Merger can be
consummated during the first quarter of 1998. However, delays in the
consummation of the Merger could occur.
The Board of Directors of either Middle Georgia or FLAG generally may
terminate the Merger Agreement if the Merger is not consummated by June 30,
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 a
Middle Georgia Certificate or Certificates which, immediately prior to the
Effective Time, represented outstanding shares of Middle Georgia Common Stock,
appropriate transmittal materials and instructions for use in effecting the
surrender and cancellation of the Middle Georgia Certificates in exchange for
FLAG Certificates representing shares of FLAG Common Stock.
HOLDERS OF MIDDLE GEORGIA COMMON STOCK SHOULD NOT SEND IN THEIR MIDDLE
GEORGIA CERTIFICATES UNTIL THEY RECEIVE THE APPROPRIATE TRANSMITTAL MATERIALS
AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of Middle Georgia Certificates,
together with the properly completed transmittal materials, there will be issued
and mailed to each holder of Middle Georgia 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 Middle
Georgia 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 Middle Georgia Common Stock have been
converted, regardless of whether such shareholders have surrendered their Middle
Georgia 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 Middle Georgia Certificate until
the holder duly surrenders such Middle Georgia Certificate. Upon surrender of
such Middle Georgia 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 Middle Georgia Certificate. In no event will the holder of any surrendered
Middle Georgia 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 Middle Georgia 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.
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After the Effective Time, no transfers of shares of Middle Georgia Common
Stock on Middle Georgia's stock transfer books will be recognized. If Middle
Georgia 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 Middle Georgia Certificates will have
no rights with respect to the shares of Middle Georgia Common Stock formerly
represented thereby other than the right to surrender such Middle Georgia
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 Middle Georgia Certificate surrendered for exchange is issued, the Middle
Georgia 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 Middle Georgia Certificates
surrendered, shall provide funds for their purchase, 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:
- approval of the Merger Agreement by the shareholders of Middle Georgia
as required by any law or by the provisions of any governing
instruments of Middle Georgia;
- approval of the issuance of shares of FLAG Common Stock pursuant to
the Merger Agreement, by the shareholders of FLAG Common Stock as
required by the FLAG Articles of Incorporation, the GBCC and rules of
the National Association of Securities Dealers, Inc. (the "NASD");
- receipt of certain regulatory approvals required for consummation of
the Merger (see "-- Regulatory Approvals");
- receipt of an opinion of Alston & Bird LLP as to the qualification of
the Merger as a tax-free reorganization (see "-- Certain Federal
Income Tax Consequences");
- approval of the shares of FLAG Common Stock issuable pursuant to the
Merger Agreement for listing on the Nasdaq National Market;
- 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;
- the accuracy, as of the date of the Merger Agreement and as of the
Effective Time, of the representations and warranties of Middle
Georgia and FLAG as set forth in the Merger Agreement;
- the performance of all agreements and the compliance with all
covenants of Middle Georgia and FLAG as set forth in the Merger
Agreement;
- receipt by FLAG and Middle Georgia of a letter from Porter Keadle
Moore, LLP to the effect the Merger will qualify for
pooling-of-interests accounting treatment;
- the execution of employment agreements with FLAG, as the surviving
corporation, by John S. Holle, Ellison C. Rudd, J. Daniel Speight, Jr.
and Patti S. Davis;
- 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;
- 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;
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- satisfaction of certain other conditions, including the receipt of
certain agreements of the affiliates of Middle Georgia and FLAG, the
execution of certain claims letters by the directors and officers of
Middle Georgia and FLAG, the receipt of certain opinion letters from
counsel for FLAG and counsel for Middle Georgia, and receipt of various
certificates from the officers of Middle Georgia 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 June
30, 1998, the Merger Agreement may be terminated and the Merger abandoned by
either Middle Georgia 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. 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 Middle Georgia 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 Middle Georgia would not, in its reasonable
judgment, have entered into the Merger Agreement.
Middle Georgia 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 Sections 3 and 4 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, Middle Georgia and FLAG may
amend the Merger Agreement by written agreement at any time before or after
approval of the Merger Agreement by the Middle Georgia shareholders and the
approval of the issuance of shares of FLAG Common Stock pursuant to the Merger
Agreement by the FLAG shareholders; provided, however, that after any such
approval by the holders of Middle Georgia Common Stock, no amendment shall be
made that, pursuant to Sections 14-2-1101 and
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14-2-1103 of the GBCC, requires further approval by such shareholders without
the further approval of such shareholders, and after any such approval by the
holders of FLAG Common Stock, the provisions of the Merger Agreement relating to
the manner or basis in which shares of Middle Georgia Common Stock will be
exchanged for shares of FLAG Common Stock shall not be amended 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. In addition, prior to or at the Effective Time, either Middle
Georgia 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
Middle Georgia 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 Middle Georgia and FLAG
or (ii) by Middle Georgia 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, a Middle Georgia 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 June 30, 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 Middle Georgia or FLAG fail to vote
their approval of the matters submitted for the approval by such shareholders at
the Middle Georgia Special Meeting or the FLAG Special Meeting, respectively
(the "Special Meetings").
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 Middle Georgia who properly dissents from the
Merger in connection with the Middle Georgia Special Meeting may be entitled to
receive in cash the fair value of such shareholder's shares of Middle Georgia
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. The holders of FLAG Common Stock are not entitled to such
dissenters' rights under the GBCC with respect to the Merger.
Any shareholder of Middle Georgia entitled to vote on the Merger Agreement
has the right to receive payment of the fair value of his or her shares of
Middle Georgia Common Stock upon compliance with the applicable provisions of
the GBCC. A record shareholder may assert dissenters' rights as to fewer than
all of
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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
Middle Georgia 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
Middle Georgia Bankshares, Inc., 2233 Pine Street, Unadilla, Georgia 31091
(telephone: (912) 627-3208, Attention: Patti S. Davis), before the vote on the
proposal to approve the Merger Agreement is taken at the meeting. The Objection
Notice must state that the shareholder intends to demand payment for his or her
shares of Middle Georgia 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 Middle Georgia's shareholders at the
Middle Georgia 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 Middle Georgia of such approval within ten days of the Middle
Georgia 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 Middle Georgia 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 Middle Georgia 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, Middle Georgia must, by
written notice, offer to each shareholder who has properly filed a payment
demand, and who has deposited his or her Middle Georgia Certificates
representing the Middle Georgia Common Stock, to pay an amount Middle Georgia
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 Middle Georgia's recent financial statements, (ii) a statement of
Middle Georgia'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 Middle Georgia 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,
Middle Georgia must return the deposited Certificates and release the transfer
restrictions imposed on uncertified shares. If Middle Georgia then consummates
the Merger, it must send a new Dissenters' Notice and repeat the payment demand
procedure.
In the event that Middle Georgia 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, Middle Georgia must provide certain information
to the shareholder (the financial statements and other information required to
accompany Middle Georgia'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 Middle Georgia 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
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shareholder is dissatisfied with an offer for payment made by Middle Georgia
within the time period set forth above, or (ii) Middle Georgia, having failed to
effect the Merger, does not return the deposited Middle Georgia 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 Middle Georgia 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 SHAREHOLDER WAIVES SUCH HOLDER'S RIGHT TO DEMAND PAYMENT UNDER
SECTION 14-2-1327 OF THE GBCC UNLESS SUCH HOLDER NOTIFIES MIDDLE GEORGIA OF SUCH
HOLDER'S DEMAND IN WRITING WITHIN 30 DAYS AFTER MIDDLE GEORGIA 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 Middle Georgia of such demand
for payment, Middle Georgia must institute proceedings in the superior court of
the county where Middle Georgia'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 Middle Georgia fails to file such action within the 60-day
period, Middle Georgia must pay each dissenting shareholder whose demand remains
unsettled the amount demanded by such dissenting shareholder. Middle Georgia 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
Middle Georgia, 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 Middle Georgia, if Middle
Georgia 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 Middle Georgia 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 Middle Georgia, 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 MIDDLE
GEORGIA 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 JOINT 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 MIDDLE GEORGIA SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE
REQUIRED BY LAW.
Any dissenting Middle Georgia 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, Middle Georgia 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
Middle Georgia 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, Middle Georgia 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 the prior written consent of FLAG shall have been
obtained, and except as otherwise expressly contemplated by the Merger
Agreement, Middle Georgia 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:
- amend the Articles of Incorporation, Bylaws or other governing
instruments of any Middle Georgia entity;
- incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a Middle Georgia entity to another
Middle Georgia entity) in excess of an aggregate of $100,000 (for the
Middle Georgia entities on a consolidated basis) except in the ordinary
course of the business of the Middle Georgia subsidiaries consistent
with past practices (which shall include, for Middle Georgia
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 Middle Georgia
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 Middle Georgia);
- 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 Middle Georgia entity, or
declare or pay any dividend or make any other distribution in respect
of Middle Georgia's capital stock, provided that Middle Georgia may (to
the extent legally and contractually permitted to do so), but shall not
be obligated to, declare and pay regular annual cash dividends on the
shares of Middle Georgia Common Stock at a rate not in excess of $1.00
per share with usual and regular record and payment dates in accordance
with past practice as previously disclosed to FLAG by Middle Georgia,
and such dates may not be changed without the prior written consent of
FLAG;
- 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 Middle Georgia, 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 Middle Georgia Common Stock or
any other capital stock of any Middle Georgia entity, or any stock
appreciation rights, or any option, warrant, or other equity right;
- adjust, split, combine or reclassify any capital stock of any Middle
Georgia entity or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Middle
Georgia Common Stock, or sell, lease, mortgage or otherwise dispose of
or otherwise encumber
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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 Middle Georgia subsidiary (unless
any such shares of stock are sold or otherwise transferred to another
Middle Georgia entity);
- 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 Middle Georgia
subsidiary, or otherwise acquire direct or indirect control over any
entity, other than in connection with (a) foreclosures in the ordinary
course of business, (b) acquisitions of control by a depository
institution subsidiary in its fiduciary capacity, or (c) the creation
of new wholly owned subsidiaries organized to conduct or continue
activities otherwise permitted by the Merger Agreement;
- grant any increase in compensation or benefits to the employees or
officers of any Middle Georgia entity, except in accordance with past
practice previously disclosed to FLAG by Middle Georgia 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 Middle
Georgia; enter into or amend any severance agreements with officers of
any Middle Georgia entity; grant any material increase in fees or other
increases in compensation or other benefits to directors of any Middle
Georgia entity except in accordance with past practice previously
disclosed to FLAG by Middle Georgia; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or
employee benefits or other equity rights;
- enter into or amend any employment contract between any Middle Georgia
entity and any person having a salary thereunder in excess of $50,000
per year (unless such amendment is required by law) that the Middle
Georgia 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;
- adopt any new employee benefit plan of any Middle Georgia entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Middle Georgia 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;
- 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;
- commence any litigation other than in accordance with past practice or
except as previously disclosed to FLAG by Middle Georgia, settle any
litigation involving any liability of any Middle Georgia entity for
material money damages or restrictions upon the operations of any
Middle Georgia entity; or
- 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 the prior written consent of Middle Georgia shall have
been obtained, and except as otherwise expressly contemplated by the Merger
Agreement, FLAG 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:
- amend the Articles of Incorporation or Bylaws of FLAG in any manner
adverse to the holders of Middle Georgia Common Stock;
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- incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a FLAG entity to another FLAG entity)
in excess of an aggregate of $100,000 (for the FLAG entities on a
consolidated basis) except in the ordinary course of the business of
FLAG subsidiaries consistent with past practices (which shall include,
for FLAG 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
FLAG 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 Middle Georgia by FLAG);
- 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 FLAG entity, or declare or pay
any dividend or make any other distribution in respect of FLAG's
capital stock;
- 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
Middle Georgia by FLAG, 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 FLAG Common Stock or any other
capital stock of any FLAG entity, or any stock appreciation rights, or
any option, warrant, or other equity right;
- adjust, split, combine or reclassify any shares of FLAG capital stock
or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of FLAG capital 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 FLAG subsidiary (unless any such shares of stock
are sold or otherwise transferred to another FLAG entity);
- 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 FLAG subsidiary, or
otherwise acquire direct or indirect control over any entity, other
than in connection with (a) foreclosures in the ordinary course of
business, (b) acquisitions of control by a depository institution
subsidiary in its fiduciary capacity, or (c) the creation of new
subsidiaries organized to conduct or continue activities otherwise
permitted by the Merger Agreement;
- grant any increase in compensation or benefits to the employees or
officers of any FLAG entity, except in accordance with past practice as
previously disclosed to Middle Georgia by FLAG 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 Middle Georgia by FLAG or
the provisions of any applicable program or plan adopted by its Board
of Directors prior to the date of the Merger Agreement; enter into or
amend any severance agreements with officers of any FLAG entity; grant
any material increase in fees or other increases in compensation or
other benefits to directors of any FLAG entity except in accordance
with past practice previously disclosed to Middle Georgia by FLAG; or
voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits or other equity rights;
- enter into or amend any employment contract between any FLAG entity
and any person having a salary thereunder in excess of $50,000 per year
(unless such amendment is required by law) that the FLAG 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;
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- adopt any new employee benefit plan of any FLAG entity or terminate or
withdraw from, or make any material change in or to, any existing
employee benefit plans of any FLAG 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;
- 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 applicable tax laws or regulatory accounting
requirements or GAAP;
- commence any litigation other than in accordance with past practice or
settle any litigation involving any liability of any FLAG entity for
material money damages or restrictions upon the operations of any FLAG
entity; or
- 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.
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 Middle Georgia's management and the Middle Georgia Board of Directors
have interests in the Merger in addition to their interests as shareholders of
Middle Georgia 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, J. Daniel Speight, Jr., the current Chief Executive Officer of Middle
Georgia, and Patti S. Davis, the current Secretary and Chief Financial Officer
of Middle Georgia, will become members of FLAG's Board of Directors. Mr. Speight
will also become the President and Chief Executive Officer of FLAG, and Ms.
Davis will also become the Secretary and Senior Vice President of FLAG, pursuant
to employment agreements which those individuals will enter into with FLAG, as
the surviving corporation. As of the FLAG Record Date, none of the directors and
officers of Middle Georgia beneficially owned any shares of FLAG Common Stock.
In addition, certain members of FLAG's management and Board of Directors
have interests in the Merger in addition to their interests as shareholders of
FLAG generally. John S. Holle, the current Chairman of the Board, President and
Chief Executive Officer of FLAG, will remain as Chairman of the Board of the
surviving corporation, and Ellison C. Rudd, current Executive Vice President,
Treasurer and Chief Financial Officer of FLAG, will become Senior Vice
President, Treasurer and Chief Financial Officer of the surviving corporation,
pursuant to employment agreements which those individuals will enter into with
FLAG, as the surviving corporation. In addition, Mr. Holle, along with Dr. A.
Glenn Bailey, H. Speer Burdette, III, Fred A. Durand, III, Kelly R. Linch, John
W. Stewart, Jr., and Robert W. Walters, all current Directors of FLAG, will
continue as members of the surviving corporation's Board of Directors.
Furthermore, Messrs. Holle and Rudd currently have employment contracts with
First Federal which entitle them to certain benefits should either individual
experience a termination of employment, a material change in his present
capacity or circumstances of employment or a material reduction in the
individual's responsibility, authority, compensation or other benefits following
the consummation of the Merger. Should any of the above situations arise
following the Merger, the affected individual will receive severance payments
(not to exceed three times the individual's average annual salary over the
preceding five years minus one dollar), and a continuation of all benefits
provided to such individual under FLAG's benefit plans for a period of three
years following the event of termination or changed circumstances. In addition,
as the Merger constitutes a change of control as defined by FLAG's 1994
Directors Stock Incentive Plan, eight of the current Directors of FLAG, who have
previously been granted options to acquire a total of 52,000 shares of FLAG
Common Stock under the plan, will be granted, on a pro rata basis, options to
acquire up to a total 48,625 additional shares of FLAG's Common Stock under the
plan, as of the date preceding the consummation of the Merger. Additionally, the
change of control provisions of the 1994 Employees Stock Incentive Plan will be
triggered by the consummation of the
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Merger, which will result in the immediate vesting of the 26,750 stock options
previously granted to the officers of FLAG under such plan. As a result, 5,000
stock options held by Mr. Holle and 3,750 stock options held by Mr. Rudd will
become fully-vested following the consummation of the Merger. As of the Middle
Georgia Record Date, the directors and officers of FLAG beneficially owned no
shares of Middle Georgia Common Stock. For a description of the provisions of
the Merger Agreement affecting the operations of Middle Georgia and FLAG prior
to the Effective Time, see "-- Conduct of Business Pending the Merger."
Indemnification and Advancement of Expenses. The Merger Agreement provides
that FLAG will indemnify, defend and hold harmless each person entitled to
indemnification from a Middle Georgia 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 Middle Georgia'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.
Employment Agreements. Messrs. Holle, Rudd and Speight and Ms. Davis will
execute employment contracts with FLAG, as the surviving corporation of the
Merger. While the terms of these contracts have not been finalized, it is
expected that those contracts will provide that each of the above-named
individuals will receive a base salary which is comparable to their current
total compensation. It is estimated that the base salaries will be as follows:
Mr. Speight's annual base salary will be approximately $215,000; Mr. Holle's
annual base salary will be approximately $175,000; and both Ms. Davis's and Mr.
Rudd's annual base salaries will be approximately $125,000. The execution of
these employment agreements is a condition to FLAG's and Middle Georgia's
obligations to consummate the Merger.
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 Middle Georgia entities employee
benefits under Middle Georgia's existing employee benefit and welfare plans or,
(ii) if FLAG determines to provide to officers and employees of the Middle
Georgia entities employee benefits under other employee benefit plans and
welfare plans, provide generally to officers and employees of the Middle Georgia
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 Middle Georgia will be treated as service
under FLAG's defined benefit plan, if any, (ii) service under any qualified
defined contribution plans of Middle Georgia will be treated as service under
FLAG's qualified defined contribution plans, and (iii) service under any other
employee benefit plans of Middle Georgia will be treated as service under any
similar employee benefit plans maintained by FLAG. With respect to officers and
employees of the Middle Georgia 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 Middle Georgia entities, FLAG will cause each comparable employee welfare
benefit plan which is substituted for a Middle Georgia 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
Middle Georgia between any Middle Georgia 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
Middle Georgia benefit plans.
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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, Alston & Bird LLP,
counsel to FLAG, will render an opinion to Middle Georgia 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 Middle Georgia 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 Middle Georgia will have the following
federal income tax consequences:
(a) The shareholders of Middle Georgia will recognize no gain or loss
upon the exchange of all of their Middle Georgia Common Stock solely for
shares of FLAG Common Stock.
(b) The aggregate tax basis of the FLAG Common Stock received by the
Middle Georgia shareholders in the Merger will, in each instance, be the
same as the aggregate tax basis of the Middle Georgia 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 Middle
Georgia shareholders will, in each instance, include the period during
which the Middle Georgia Common Stock surrendered in exchange therefor was
held, provided that the Middle Georgia Common Stock was held as a capital
asset on the date of the exchange.
(d) The payment of cash to Middle Georgia 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 a Middle Georgia shareholder in
exchange for Middle Georgia Common Stock pursuant to the exercise of
dissenters' rights, the former Middle Georgia 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 Middle Georgia 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
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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 Middle Georgia 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 Middle Georgia Common Stock
exchanged, and the number of shares of FLAG Common Stock received in exchange
for Middle Georgia 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 Middle Georgia as a
result of the Merger; (ii) gain or loss would be recognized by the holders of
Middle Georgia 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 Middle Georgia 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 Middle Georgia shareholders pursuant to the Merger would begin the day after
the Effective Time. If the condition of receiving this tax opinion is waived by
Middle Georgia, Middle Georgia 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 MIDDLE GEORGIA 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 Middle Georgia 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 Middle Georgia
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 Middle Georgia Common Stock for FLAG Common Stock in the Merger by affiliates
of Middle Georgia 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,
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including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel.
RESALES OF FLAG COMMON STOCK
FLAG Common Stock to be issued to shareholders of Middle Georgia in
connection with the Merger will be registered under the Securities Act. All
shares of FLAG Common Stock received by holders of Middle Georgia 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 Middle Georgia and FLAG not deemed to be "Affiliates"
of Middle Georgia or FLAG. "Affiliates" generally are defined as persons or
entities who control, are controlled by, or are under common control with Middle
Georgia 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 Middle Georgia 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 Middle Georgia 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 Joint Proxy Statement/Prospectus does not cover any resales of FLAG Common
Stock received by persons who may be deemed to be Affiliates of Middle Georgia
or FLAG.
Middle Georgia has agreed to use its reasonable efforts to cause each
person who may be deemed to be an Affiliate of Middle Georgia to execute and
deliver to FLAG prior to the Effective Time, an agreement (each, a "Middle
Georgia 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.
In addition, certain Affiliates of Middle Georgia will have agreed not to 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 Middle
Georgia Common Stock will be converted upon consummation of the Merger for a
period of two (2) years following the Effective Time, unless such Affiliate (i)
gives FLAG written notice not less than twenty (20) business days prior to such
contemplated disposition and (ii) FLAG consents to such contemplated
disposition. Furthermore, FLAG has agreed to use its reasonable efforts to cause
each person who may be deemed to be an Affiliate of FLAG to execute and deliver
to FLAG prior to the Effective Time, an agreement (each, a "FLAG Affiliate
Agreement") providing that such Affiliate will not sell, pledge, transfer, or
otherwise dispose of any FLAG Common Stock held by such Affiliate (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 these FLAG and
Middle Georgia Affiliate Agreements by FLAG is also a condition to FLAG's and
Middle Georgia's obligations to consummate the Merger. Middle Georgia
Certificates surrendered for exchange by any person who is an Affiliate of
Middle Georgia 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."
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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
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 stockholders" (10% or more stockholders), 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 stockholder regarding the business combination prior to the date on
which such stockholder became an interested stockholder, 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 Middle Georgia Common Stock will be
exchanging their shares of a Georgia corporation governed by the GBCC and Middle
Georgia's Articles of Incorporation (the "Middle Georgia 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 Middle Georgia shareholders
and those of FLAG shareholders. The differences deemed material by Middle
Georgia 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 Middle Georgia'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 2,036,990 shares
were issued and outstanding as of the FLAG Record Date. 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.
Middle Georgia. Middle Georgia's authorized capital stock consists of
1,000,000 shares of Middle Georgia Common Stock, $1.00 par value, of which
64,272 shares were issued and outstanding as of the Middle Georgia Record Date.
Each share of Middle Georgia Common Stock is entitled to one vote per share for
all purposes. Middle Georgia's shareholders do not have the preemptive right to
purchase or subscribe to any unissued authorized shares of Middle Georgia Common
Stock or any option or warrant for the purchase thereof. In addition, the Board
of Directors of Middle Georgia has the ability to increase or decrease the
number of issued and outstanding shares of Middle Georgia Common Stock without
the approval of the shareholders, within the maximum number of shares authorized
by the Middle Georgia Articles and the minimum capitalization requirements of
the Middle Georgia Articles or the GBCC.
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 stockholders, 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
stockholders 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.
Middle Georgia. The Middle Georgia Articles and Bylaws are generally
silent with respect to the issue of amending the Middle Georgia 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, Middle Georgia's Bylaws may be altered, amended, or repealed by
the Middle Georgia Board of Directors, subject to the ratification and approval
of such amendments at the annual meeting of Middle Georgia shareholders by
majority vote of the shares entitled to elect directors. The Middle Georgia
Bylaws provide that the Middle Georgia shareholders have the power to alter,
amend or repeal any bylaws adopted by the Board of Directors of Middle Georgia,
and new Bylaws may be adopted by the Middle Georgia shareholders. In addition,
the shareholders may prescribe that any bylaw or bylaws adopted by them shall
not be altered, amended, or repealed by the Middle Georgia Board of Directors.
Action taken by the shareholders with respect to the Middle Georgia 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 Middle
Georgia 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 ten. Unlike the Middle Georgia
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 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 stockholders 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.
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<PAGE> 43
Middle Georgia. Unlike the FLAG Board of Directors, the Middle Georgia
Board is not classified. The number of directors is determined by the Board of
Directors or the Middle Georgia shareholders from time to time, but in no event
will the Board of Directors have less than three directors nor more than 25
directors. The Middle Georgia Bylaws provide that the directors will be elected
by the affirmative vote of a majority of the shares represented at the annual
meeting of Middle Georgia 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.
Middle Georgia. The Middle Georgia Bylaws provide that the entire Board of
Directors of Middle Georgia 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.
The FLAG Articles and Bylaws provide more restrictive requirements for the
removal of FLAG directors than do the Middle Georgia Articles and Bylaws with
respect to Middle Georgia directors. The effect of these differences in the
parties' governing documents is that the directors of FLAG are afforded greater
protection against their removal by the vote of the FLAG shareholders than are
the directors of Middle Georgia.
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.
Middle Georgia. The Middle Georgia Bylaws provide that Middle Georgia
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 Middle Georgia; provided, however, that
Middle Georgia 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 the corporation. In addition, no such person will be indemnified
by Middle Georgia 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 the corporation, or (iii) a majority of the members of the
Board of Directors then holding office, excluding the
38
<PAGE> 44
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 the corporation (or
subjected to injunctive relief in favor of the corporation) for: (i) any
appropriation, in violation of his duties, of any business opportunity of Middle
Georgia; (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. Middle Georgia'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 Middle Georgia 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 such meetings 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.
Middle Georgia. The Middle Georgia Bylaws provide that special meetings
may be called at any time by the President, Chief Executive Officer, Chairman of
the Board or the Board of Directors of Middle Georgia. Middle Georgia is
required to call a special meeting when requested in writing by the holders of
not less than twenty-five percent 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 stockholders 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 stockholders entitled to vote were present and voted. Since FLAG's
Articles do not provide for the action by stockholders of FLAG without a
meeting, any such action must be taken by the unanimous written consent of all
stockholders 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
memorandum of understanding with the interested stockholder prior to the date
when such interested stockholder first became an interested stockholder, or (ii)
the business combination is unanimously approved by the continuing directors of
FLAG.
Middle Georgia. The Middle Georgia Articles and Bylaws are silent on
whether action required or permitted to be taken by Middle Georgia shareholders
must be effected at a duly called meeting of shareholders or whether such action
may be effected by written consent of the shareholders. Section 14-2-704 of the
GBCC 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 the unanimous
written consent of all of the shareholders entitled to vote on such action.
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<PAGE> 45
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 stockholder") of FLAG Common Stock entitled
to vote to approve a "business combination" with an interested stockholder
(basically, a 10% or more stockholder of FLAG), unless (i) two-thirds of the
directors of FLAG approve a memorandum of understanding with the interested
stockholder regarding the business combination prior to the date such
stockholder became an interested stockholder, 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. Middle Georgia's Articles and Bylaws do not contain
such provisions.
Middle Georgia. In general, transactions effectuating a plan of merger or
share exchange, or a sale of assets other than in the regular course of business
are not addressed by the Middle Georgia Articles or Bylaws. Accordingly,
Sections 14-2-1101 et seq. and 14-2-1202 govern the shareholder approval of
mergers and share exchanges, and sales of assets other than in the regular
course of business, respectively. The approval of such transactions requires
that the Board of Directors of Middle Georgia recommend the transaction to the
shareholders and that the shareholders entitled to vote must approve the plan by
a majority vote.
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
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.
Middle Georgia. The Middle Georgia Bylaws contain substantially similar
terms as the FLAG Bylaws with respect to the rights of shareholders of Middle
Georgia to inspect corporate records or accounts.
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<PAGE> 46
Basically, the Middle Georgia 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.
Middle Georgia. The Bylaws of Middle Georgia provide that the Board of
Directors of Middle Georgia may, from time to time, declare and pay dividends
(in cash or property), but only to the extent that such dividends are declared
and paid from Middle Georgia's unreserved and unrestricted earned surplus, or
out of the unreserved and unrestricted net earnings of the current fiscal year,
computed to the date of declaration of the dividend, or the preceding fiscal
year. Dividends may also be declared by the Middle Georgia Board of Directors
and paid in the shares of Middle Georgia out of any treasury shares which have
been reacquired out of the capital funds of the corporation. In addition,
dividends may be declared by the Middle Georgia Board of Directors and paid in
the authorized but unissued shares of the corporation out of the retained
earnings of Middle Georgia, provided that such shares may not be issued at less
than par value, and that, at the time such a dividend is paid, certain
adjustments provided for in the Middle Georgia Bylaws are made with regard to
Middle Georgia's retained earnings and capital stock.
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<PAGE> 47
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.
<TABLE>
<CAPTION>
SALE PRICE PER SHARE
OF FLAG
COMMON STOCK ANNUAL DIVIDENDS DECLARED
--------------------- PER SHARE OF FLAG
HIGH LOW COMMON STOCK
--------- --------- -------------------------
<S> <C> <C> <C>
1996
First Quarter......................................... $ 14.50 $ 12.50 $0.075
Second Quarter........................................ 13.50 12.00 0.085
Third Quarter......................................... 12.75 9.50 0.085
Fourth Quarter........................................ 11.75 10.75 0.085
1997
First Quarter......................................... $ 13.00 $ 10.25 $0.085
Second Quarter........................................ 14.625 11.25 0.085
Third Quarter......................................... 16.50 14.00 0.085
Fourth Quarter........................................ 21.50 16.50 0.085
1998
First Quarter (through February 25, 1998)............. $ 21.50 $17.875
</TABLE>
On October 27, 1997, the last day prior to the public announcement that
FLAG and Middle Georgia had executed the Merger Agreement, the last reported
sale price per share of FLAG Common Stock on the Nasdaq National Market was
$17.00, and the resulting equivalent pro forma price per share of Middle Georgia
Common Stock (based on the 15.75 Exchange Ratio) was $267.75. On February 25,
1998, the latest practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, the last reported sale price per share of FLAG Common
Stock on the Nasdaq National Market was $20.938, and the resulting equivalent
pro forma price per share of Middle Georgia Common Stock was $329.77. The
equivalent per share price of a share of Middle Georgia 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 Middle Georgia Common
Stock, and no reliable information is available as to trades of such shares or
the prices at which such shares have traded. Middle Georgia pays dividends
annually. The last dividend paid by Middle Georgia was $1.00 per share, paid on
February 6, 1997. The Merger Agreement permits Middle Georgia to pay its regular
annual dividend in accordance with its usual record and payment dates.
To the knowledge of Middle Georgia the most recent trade of Middle Georgia
Common Stock prior to October 27, 1997, the last day prior to the public
announcement that FLAG and Middle Georgia had executed the Merger Agreement, was
the sale by Middle Georgia of 330 treasury shares to certain newly elected
members of Citizens' Macon County Advisory Board on August 13, 1997 at $165.00
per share. To the knowledge of Middle Georgia, there have been no trades of
Middle Georgia Common Stock since the announcement of the Merger.
The foregoing information regarding Middle Georgia Common Stock is provided
for informational purposes only and, due to the absence of an active market for
Middle Georgia's shares, should not be viewed as indicative of the actual or
market value of Middle Georgia 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
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<PAGE> 48
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 Middle
Georgia'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 institution. FLAG's subsidiary thrift institution is
subject to certain legal restrictions on the amount of dividends it is permitted
to pay.
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<PAGE> 49
BUSINESS OF MIDDLE GEORGIA
GENERAL
Middle Georgia is a bank holding company headquartered in Unadilla,
Georgia. Citizens, Middle Georgia's wholly-owned subsidiary, operates six
banking offices located in the cities of Unadilla, Vienna, Byronville, Montezuma
and Oglethorpe, Georgia. As of September 30, 1997, Middle Georgia had total
consolidated assets of approximately $120 million, total consolidated deposits
of approximately $104 million, and total consolidated shareholders' equity of
approximately $11 million. Through Citizens and CB Financial, a wholly-owned
subsidiary of Citizens, Middle Georgia offers a broad range of banking and
banking-related services, in addition to providing pawn, title pawn and check
cashing services.
MANAGEMENT
The following table presents information about each of the directors and
executive officers of Middle Georgia 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 Middle Georgia Common Stock is based upon "beneficial ownership" concepts
set forth in rules promulgated under the Securities Exchange Act of 1934, as
amended. 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PRESENT MIDDLE GEORGIA
OCCUPATION AND DIRECTOR OR BENEFICIALLY OWNED
PRINCIPAL POSITION AND OFFICES HELD EXECUTIVE AT THE MIDDLE GEORGIA
OCCUPATION FOR WITH MIDDLE GEORGIA OFFICER RECORD DATE
NAME AND ADDRESS LAST FIVE YEARS AND CITIZENS SINCE AND PERCENT OF CLASS
- ---------------- --------------- ------------------------- ----------- ---------------------
<S> <C> <C> <C> <C>
Patti S. Davis Banker Senior Vice President and 1990 172 shares(1)(7)
P.O. Box 628 Chief Financial Officer .27%
Unadilla, GA 31091 of Citizens; Executive
Vice President, Chief
Financial Officer and
Director of Middle
Georgia
Wendell S. Dunaway Farmer Director of Middle 1982 10,981 shares(2)
P.O. Box 647 Georgia; Director and 17.09%
Hawkinsville, GA Chairman of the Board
31035 of Citizens
James W. Johnson Equipment Director and Chairman of 1982 6,142 shares(3)
P.O. Box 626 Dealer the Board of Middle 9.56%
Hawkinsville, GA Georgia; Director of
31035 Citizens
Charles G. Speight, Sr. Retired Director and President of 1982 0 shares(4)(7)
P.O. Box 303 Businessman Middle Georgia; 0%
Unadilla, GA 31091 Director and Vice
Chairman of Citizens
Michael C. Speight Banker Director of Middle 1995 0 shares(5)(7)
405 N. Sixth Street Georgia and 0%
Vienna, GA 31092 Citizens
</TABLE>
44
<PAGE> 50
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PRESENT MIDDLE GEORGIA
OCCUPATION AND DIRECTOR OR BENEFICIALLY OWNED
PRINCIPAL POSITION AND OFFICES HELD EXECUTIVE AT THE MIDDLE GEORGIA
OCCUPATION FOR WITH MIDDLE GEORGIA OFFICER RECORD DATE
NAME AND ADDRESS LAST FIVE YEARS AND CITIZENS SINCE AND PERCENT OF CLASS
- ---------------- --------------- ------------------------- ----------- ---------------------
<S> <C> <C> <C> <C>
J. Daniel Speight, Jr. Banker Director and Chief 1984 35,877 shares(6)(7)
Route 1 Executive Officer of 55.82%
Pinehurst, GA 31070 Middle Georgia;
Director, President and
Chief Executive Officer
of Citizens
Executive Officers and 53,172 shares (7)
Directors as a Group 82.73%
</TABLE>
- ---------------
(1) Includes 172 shares in a self-directed IRA. Excludes 4,615 shares in the
name of Ms. Davis and 167 shares in the name of Speight Futures, Inc., which
are subject to the terms and conditions of that certain Shareholder
Agreement dated December 23, 1992. See Note 7.
(2) Includes 10,956 shares in the name of Mr. Dunaway and 25 shares in the name
of Dunaway Brothers, Inc.
(3) Includes 2,471 shares in the name of Mr. Johnson, 115 shares in the name of
Catherine Johnson, and 3,556 shares in the name of McCranie Companies Profit
sharing Plan.
(4) Excludes 3,340 shares in the name of Mr. Speight and 995 shares in the name
of Patricia H. Speight, which are subject to the terms and conditions of
that certain Shareholder Agreement dated December 23, 1992. See Note 7.
(5) Excludes 1,668 shares in the name of Mr. Speight, 20 shares in the name of
Mr. Speight as Custodian for Andrew C. Speight, 71 shares in the name of Mr.
Speight as Custodian for Gregory C. Speight, 71 shares in the name of Mr.
Speight as Custodian for Kevin A. Speight and 493 shares in the name of
Sp8Co., Inc., which are subject to the terms and conditions of that certain
Shareholder Agreement dated December 23, 1992. See Note 7.
(6) Includes 312 shares in a self-directed IRA. Excludes 6,400 shares in the
name of Mr. Speight, 71 shares in the name of Mr. Speight as Custodian for
J.D. Speight, III, 20 shares in the name of Mr. Speight as Custodian for
Alexander W. Speight, 100 shares in the name of Mr. Speight as Trustee for
Patricia Ruth Taylor and 493 shares in the name of Sp8Co., Inc., which are
subject to the terms and conditions of that certain Shareholder Agreement
dated December 23, 1992. For purposes of this chart only, beneficial
ownership of the 35,565 shares of Middle Georgia Common Stock subject to the
Shareholder Agreement is attributed to Mr. Speight. See Note 7.
(7) Certain shareholders of Middle Georgia, all of whom are members of the
Speight Family, have executed a Shareholder Agreement dated December 23,
1992. The Shareholder Agreement provides that all shares subject to the
terms and conditions of the Shareholder Agreement are to be voted by the
Voting Committee as set forth in the Shareholder Agreement (the "Speight
Family Voting Committee"). The Speight Family Voting Committee consists of:
J. Daniel Speight, Jr., Michael C. Speight, Ann S. Mixon, Charles G.
Speight, Jr., David Speight and Patti S. Davis.
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<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Corporate Profile. Middle Georgia, a one-bank holding company for
Citizens, is located in Unadilla, Georgia, Dooly County, a community
approximately 160 miles south of downtown Atlanta, Georgia.
Middle Georgia has expanded its presence in its primary service area by
purchasing a full service branch banking facility in June 1997 located in
Montezuma, Macon County, Georgia and by subsequently opening an additional
facility in neighboring Oglethorpe, Georgia. The branch addition has contributed
significant loan and deposit growth during 1997.
Middle Georgia 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, Citizens
finances agriculture, commercial and consumer transactions, makes secured and
unsecured loans, including residential mortgage loans, and provides a variety of
other banking services.
Middle Georgia's primary service area is in Dooly and Macon 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 Middle Georgia 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 decreased 4% during 1996 as compared to
1995, totaling just over $1,065,000. Net earnings for 1995 grew 12% compared to
1994 earnings of $996,000. Net earnings per common share decreased 4% in 1996
and increased 11% in 1995. Pretax earnings for 1996 decreased by approximately
$108,000, or 7%, primarily due to increases in Middle Georgia's provision for
loan losses resulting from loan growth.
The returns on average assets and on average stockholders' equity were
1.28% and 11.08%, respectively, in 1996 compared to 1.46% and 13.20%,
respectively, in 1995. The return on average assets remained steady in light of
the 9% growth in average assets during 1996.
Total assets at December 31, 1996 were $99.8 million compared to $83.1
million at the end of 1995, an increase of approximately 20%. Total loans were
approximately $69.5 million at December 31, 1996, an increase of over 27% from
the 1995 balance, and total deposits at December 31, 1996, were $88 million as
compared to $73 million in 1995, an increase of 21%. Middle Georgia continues to
fund the majority of its assets with deposits acquired in its local marketplace.
Core deposits, which include certificates of deposit of $100,000 or more,
increased by 18% during the past twelve months. Middle Georgia also held
approximately $15 million of public fund deposits at December 31, 1996,
including approximately $9 million which was related to a short-term community
project.
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 Middle Georgia's earnings. Middle Georgia
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 1996 increased by 3% from 1995 and by 12% in 1995 as compared to
1994. The increased volume of earning assets was the primary reason for the
increase in 1996.
Interest income increased 6% in 1996 and 19% in 1995. The increase in 1996
and 1995 was primarily a result of an increase in interest and fees on loans of
approximately $394,000 or 6%, and an increase in interest on investment
securities of approximately $93,000 or 12%.
Average earning assets in 1996 increased 7% when compared to 1995 due to
increases in average loans of over $3.3 million and average investment
securities of $1.5 million. Increases in average earning assets of 6% were also
experienced between 1995 and 1994 due to increases in average loans of $4.4
million and a $1.5
46
<PAGE> 52
million increase in average investment securities. The average earning asset mix
remained consistent during 1996 with loans at 77%, investment securities at 19%
and other earning assets at 4% of the total. In 1995, loans accounted for 77%,
investment securities 18% and other earning assets 5%. 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 a
taxable-equivalent basis and average balances for 1996, 1995, and 1994.
TABLE 1 -- CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
TAXABLE EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest earning deposits
and fed funds sold....... $ 3,208 $ 174 5.42% $ 3,271 $ 197 6.02% $ 5,324 $ 217 4.08%
Investment securities:
Taxable.................. 10,330 662 6.41 9,833 608 6.18 8,147 460 5.65
Nontaxable............... 3,647 307 8.42 2,678 249 9.30 2,873 269 9.36
------- ------ ------ ------- ------ ------ ------- ------ ------
Total investment
securities........ 13,977 969 6.93 12,511 857 6.85 11,020 729 6.62
------- ------ ------ ------- ------ ------ ------- ------ ------
Loans (including loan
fees).................... 57,466 6,606 11.50 54,139 6,212 11.47 49,732 5,176 10.41
------- ------ ------- ------ ------- ------
Total interest
earning assets.... 74,651 7,749 10.38 69,921 7,266 10.39 66,076 6,122 9.27
Allowance for loan losses.... (1,062) (955) (952)
Cash and due from banks...... 2,255 2,142 2,097
Premises and equipment....... 3,549 2,609 1,675
Other assets................. 3,668 2,750 1,832
------- ------- -------
Total assets........ $83,061 $76,467 $70,728
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Demand................... $10,458 $ 271 2.59% $10,408 $ 278 2.67% $11,787 $ 282 2.39%
Savings.................. 3,207 88 2.74 3,264 89 2.73 3,472 95 2.74
Time..................... 45,761 2,597 5.68 40,316 2,281 5.66 34,374 1,558 4.53
Other borrowings........... 444 21 4.73 64 4 6.25 1,121 69 6.16
------- ------ ------ ------- ------ ------ ------- ------ ------
Total interest bearing
liabilities................ 59,870 2,977 4.97 54,052 2,652 4.91 50,754 2,004 3.95
Non-interest bearing demand
deposits................... 13,012 13,235 11,826
Other liabilities............ 569 742 675
Stockholders' equity......... 9,610 8,438 7,473
------- ------- -------
Total liabilities and
stockholders' equity....... $83,061 $76,467 $70,728
======= ======= =======
Net interest income.......... 4,772 4,614 4,118
------ ------ ------
Net interest spread.......... 5.41% 5.48% 5.32%
====== ====== ======
Net interest yield on
interest earning assets.... 6.39% 6.60% 6.23%
====== ====== ======
Tax equivalent adjustment:
Investment securities...... (104) (85) (92)
------ ------ ------
Net interest income.......... $4,668 $4,529 $4,026
====== ====== ======
</TABLE>
47
<PAGE> 53
Nonaccrual loans and the interest income recorded on these loans (both
prior and subsequent to the time the loans were placed on nonaccrual status, if
any) are included in the yield calculation for loans for all periods presented.
Consolidated Average Balances, Interests and Rates. The net cost of funds,
defined as interest expense divided by average earning assets, increased 20
basis points in 1996, while the yield on total earning assets decreased one
basis point and earning assets to total assets decreased. The rate paid on
interest bearing liabilities increased 6 basis points from 1995 levels. During
1995, the yield on total earning assets increased 112 basis points while the
rate paid on interest bearing liabilities increased 96 basis points and the net
cost of funds increased 76 basis points.
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 net interest spread decreased 7 basis points to 5.41% from the 1995
spread of 5.48% as the yield on interest earning assets decreased while the
rates paid on interest bearing liabilities increased. The increase in 1995 was
16 basis points from the 5.32% reflected in 1994. The net interest margin also
showed a decline as reflected by the 6.39% earned in 1996, a 21 basis point
decrease from 1995. The net interest margin for 1995 increased 37 basis points
from the 6.23% shown in 1994. 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
TAXABLE EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
CHANGES IN CHANGES IN
-------------------------- --------------------------
YIELD/ NET YIELD/ NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest earning deposits and fed funds sold......... $ (4) $(19) $(23) $(101) $ 81 $ (20)
Investment securities:
Taxable............................................ 31 23 54 102 46 148
Nontaxable......................................... 83 (25) 58 (18) (2) (20)
Loans (including loan fees).......................... 379 15 394 484 552 1,036
---- ---- ---- ----- ---- ------
Total interest income......................... 489 (6) 483 467 677 1,144
---- ---- ---- ----- ---- ------
Interest paid on:
Deposits:
Demand............................................. 1 (8) (7) (36) 32 (4)
Savings............................................ (1) 0 (1) (5) (1) (6)
Time............................................... 309 7 316 296 427 723
Other borrowings..................................... 18 (1) 17 (66) 1 (65)
---- ---- ---- ----- ---- ------
Total interest expense........................ 327 (2) 325 189 459 648
---- ---- ---- ----- ---- ------
Net interest income........................... $162 $ (4) $158 $ 278 $218 $ 496
==== ==== ==== ===== ==== ======
</TABLE>
Loans. Average loans increased over 6% in 1996 with much of the increase
concentrated in the commercial loan and real estate mortgage categories. These
categories account for 26% and 60%, respectively, of the total loan portfolio.
Total gross loans outstanding at year end increased 27% over the previous year
end levels. The growth in the portfolio resulted from Middle Georgia's ongoing
efforts to increase the loan portfolio through the origination of quality loans.
Consumer installment loans also increased 17% from year end 1995.
48
<PAGE> 54
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, 1996, with maturities based on the remaining
scheduled repayments of principal.
TABLE 3 -- LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................ $18,066 26% $10,957 20% $11,242 21% $ 9,253 20% $10,475 23%
Real
estate -- construction... 1,390 2 205 -- 2,638 5 871 2 214 1
Real estate -- mortgage... 41,691 60 36,374 67 33,921 62 29,122 64 29,026 63
Installment loans to
individuals............. 8,338 12 7,103 13 6,800 12 6,551 14 5,958 13
------- --- ------- --- ------- --- ------- --- ------- ---
Total loans...... 69,485 100 54,639 100 54,601 100 45,797 100 45,673 100
Less: Allowance for loan
losses........... 1,188 1,018 934 920 690
Unearned interest.... 153 32 50 28 33
------- ------- ------- ------- -------
$68,144 $53,589 $53,617 $44,849 $44,950
======= ======= ======= ======= =======
</TABLE>
TABLE 4 -- LOAN PORTFOLIO MATURITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MATURITY
------------------------------------------- RATE STRUCTURE
OVER ONE ---------------------------
ONE YEAR PREDETERMINED FLOATING OR
YEAR OR THROUGH DUE AFTER INTEREST ADJUSTABLE
LESS FIVE YEARS FIVE YEARS TOTAL RATE RATE
------- ---------- ---------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial................................ $6,142 $10,840 $1,084 $18,066 $14,272 $3,794
Real estate-construction.................. 570 361 459 1,390 1,390 --
------ ------- ------ ------- ------- ------
$6,712 $11,201 $1,543 $19,456 $15,662 $3,794
====== ======= ====== ======= ======= ======
</TABLE>
Investment Securities. The composition of Middle Georgia's investment
securities portfolio reflects Middle Georgia's investment strategy of maximizing
portfolio yields commensurate with risk and liquidity considerations. The
primary objectives of Middle Georgia's investment strategy are to maintain an
appropriate level of liquidity and provide a tool to assist in controlling
Middle Georgia'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. Middle
Georgia's classification of its entire portfolio as available for sale indicates
its desire to maintain a high level of liquidity and provide more flexibility in
meeting liquidity needs. During 1996 and 1995, gross investment securities sales
were $2.1 million and $3.1 million, respectively. Maturities and paydowns were
$2.0 million and $1.7 million during 1996 and 1995, respectively, representing
14% of the average total portfolio for each year. Net realized gains associated
with the sales were minimal, accounting for 1.1% and 5.4% of noninterest income
during 1996 and 1995, respectively. Gross unrealized gains in the total
portfolio amounted to approximately $87,000 at December 31, 1996 and gross
unrealized losses amounted to approximately $148,000.
Total average investment securities increased 12% during 1996. Average
investment securities during 1995 increased 14% from the 1994 average levels.
Total investment securities increased $5.0 million, or approximately 39%, during
1996.
49
<PAGE> 55
Table 5 reflects the carrying amount of the investment securities portfolio
for the past three years.
TABLE 5 -- CARRYING VALUE OF SECURITIES AVAILABLE FOR SALE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
U. S. Treasury.............................................. $ 747 $ 757 $ 750
U.S. Government agencies.................................... 6,986 2,255 2,315
State, county and municipal................................. 3,684 3,624 5,701
Mortgage backed securities.................................. 5,948 6,021 2,400
Equity securities........................................... 253 -- --
------- ------- -------
Total............................................. $17,618 $12,657 $11,166
======= ======= =======
</TABLE>
Table 6 presents the expected maturity of the total investment securities
portfolio (using amortized cost) by maturity date and average yields (for all
obligations on a fully taxable basis assuming a 34% tax rate) at December 31,
1996. 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 BUT AFTER FIVE BUT
WITHIN ONE WITHIN WITHIN AFTER TEN
YEAR FIVE YEARS TEN YEARS YEARS TOTALS
-------------- -------------- -------------- -------------- -------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------ ----- ------ ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........................ $ -- --% $ 744 5.59% $ -- --% $ -- --% $ 744
U.S. Government agencies............. 5,086 5.60 947 5.79 998 5.65 -- -- 7,031
State, county and municipal.......... 155 8.68 1,552 7.62 778 5.24 1,151 8.85 3,636
Mortgage backed securities........... -- -- 757 6.79 1,073 6.38 4,185 6.27 6,015
Equity securities.................... -- -- 253 6.41 -- -- -- -- 253
------ ------ ------ ------ -------
Total....................... $5,241 $4,253 $2,849 $5,336 $17,679
====== ====== ====== ====== =======
</TABLE>
Deposits. As reflected in Table 1, total average interest bearing
liabilities increased 11% during 1996. The largest dollar increase in average
interest bearing deposits was in the time deposit category, rising over $5.4
million or 14% from 1995. Average interest bearing demand deposits increased by
$50,000 or less than 1%. Average noninterest bearing demand deposits increased
over $223,000 or approximately 2% during 1996 after increasing 12% during 1995.
Savings deposits, interest bearing demand deposits and noninterest bearing
demand deposits accounted for 38% and 42% of total average deposits during 1996
and 1995, respectively. The maturities of time deposits of $100,000 or more
issued by Middle Georgia at December 31, 1996 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)
<TABLE>
<S> <C>
Within 3 months............................................. $ 5,087
After 3 through 6 months.................................... 1,211
After 6 through 12 months................................... 4,736
After 12 months............................................. 1,220
-------
$12,254
=======
</TABLE>
Liquidity Management. The objective of liquidity management is to ensure
that sufficient funding is available, at a reasonable cost, to meet the ongoing
operational cash needs of Middle Georgia and to take advantage of income
producing opportunities as they arise. While the desired level of liquidity will
vary
50
<PAGE> 56
depending upon a variety of factors, it is the primary goal of Middle Georgia 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 Middle Georgia'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, Middle Georgia 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.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments, maturities of securities and, to a lesser extent,
sales of securities available for sale. Commercial and real estate-construction
loans that mature in one year or less amounted to $6.7 million or 10% of the
total loan portfolio at December 31, 1996. Securities available for sale
maturing in the same time frame totaled over $5 million or 30% of the total
investment securities portfolio at year end 1996 (including estimated maturities
of mortgage backed securities). Other short-term investments such as federal
funds sold and maturing interest bearing deposits with other banks are
additional sources of liquidity funding.
The liability portion of the balance sheet provides liquidity through
various customers' interest bearing and noninterest bearing deposit accounts.
Federal funds purchased and advances from the Federal Home Loan Bank are
additional sources of liquidity and basically represent Middle Georgia's
incremental borrowing capacity. This source of liquidity is short-term in nature
and is used as necessary to fund asset growth and meet short-term liquidity
needs.
As disclosed in Middle Georgia's Consolidated Statement of Cash Flows (see
"MIDDLE GEORGIA FINANCIAL DATA"), net cash provided by operating activities was
approximately $2.4 million primarily due to net earnings and increases in
accrued expenses. Net cash used in investing activities of $20.7 million
consisted primarily of net loans originated of $15.1 million and securities
purchased of $9.2 million. This resulted from management's continued efforts to
invest new funds from deposits into loans and investment securities. The $14.9
million of net cash provided by financing activities consisted primarily of the
$15 million increase in demand, savings and time deposits.
Management considers Middle Georgia's liquidity position at the end of 1996
to be sufficient to meet its foreseeable cash flow requirements. Reference is
made to the Consolidated Statements of Cash Flows for a three year analysis of
the changes in cash and cash equivalents resulting from operating, investing and
financing activities. See "MIDDLE GEORGIA FINANCIAL DATA."
Interest Rate Sensitivity Management. The absolute level and volatility of
interest rates can have a significant impact on Middle Georgia'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 Middle Georgia'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.
Middle Georgia 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
Middle Georgia'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
51
<PAGE> 57
income. Interest rate sensitivity is measured as the difference between the
volumes of assets and liabilities in Middle Georgia'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, 1996.
TABLE 8 -- INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OVER FIVE
IMMEDIATE OVER THREE YEARS AND
THROUGH MONTHS OVER ONE NON-
THREE THROUGH ONE THROUGH FIVE RATE
MONTHS YEAR YEARS SENSITIVE TOTAL
--------- ----------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits and federal
funds sold............................ $ 1,640 $ -- $ -- $ -- $ 1,640
Investment securities:
Taxable............................... 5,085 -- 4,821 4,028 13,934
Tax-exempt............................ -- 155 1,552 1,977 3,684
Loans:................................... 32,909 16,512 18,073 1,991 69,485
------- ------- ------- ------- -------
Total interest earning assets.... 39,634 16,667 24,446 7,996 88,743
Interest bearing liabilities:
Deposits:
Interest bearing demand............... 20,884 -- -- -- 20,884
Savings............................... 3,091 -- -- -- 3,091
Time.................................. 11,591 25,302 10,386 -- 47,279
------- ------- ------- ------- -------
Total interest bearing
liabilities.................... 35,566 25,302 10,386 -- 71,254
Noninterest bearing funding sources, net... -- -- -- 16,764 16,764
------- ------- ------- ------- -------
Interest sensitivity gap................... 4,068 (8,635) 14,060 (8,768) $ 725
------- ------- ------- ------- =======
Cumulative interest sensitivity gap........ $ 4,068 $(4,567) $ 9,493 $ 725
======= ======= ======= =======
</TABLE>
As seen in Table 8, 50% of earning asset funding sources will reprice
within one year compared to 45% of all interest earning assets. 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
Middle Georgia'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
Middle Georgia's net interest margin. Because of these factors an interest
sensitivity gap report may not provide a complete assessment of Middle Georgia's
exposure to changes in interest rates.
Table 8 indicates Middle Georgia is in a liability sensitive or negative
gap position after twelve months. This liability sensitive position would
generally indicate that Middle Georgia'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.
Fair Value of Financial Instruments. As indicated in Note 15 to Middle
Georgia's Consolidated Financial Statements, the fair value of Middle Georgia's
financial instruments is exceeded by the net book
52
<PAGE> 58
value of such assets and liabilities by approximately $265,000 at December 31,
1996. These disclosures should not be considered a surrogate of the liquidation
value of Middle Georgia, but rather represent a good faith estimate of the
increase or decrease in value of financial instruments held by Middle Georgia
since purchase, origination, or issuance.
Capital Resources. Stockholders' equity at December 31, 1996 increased 10%
from December 31, 1995. Net earnings after dividends for 1996 and the change in
the unrealized gain/(loss) on the securities available for sale portfolio, net
of tax, accounted for the majority of the increase in stockholders' equity.
Dividends of $63,942, or $1.00 per share, were declared on Middle Georgia's
Common Stock in 1996 and 1995. Middle Georgia has strived to retain earnings 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 1996 was 11.57% compared to 11.03% in 1995. The
increase in the ratio is the result of retaining earnings to support anticipated
future asset growth. Table 9 summarizes these and other key ratios of Middle
Georgia for each of the last three years.
TABLE 9 -- KEY RATIOS
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Return on average assets.................................... 1.28% 1.46% 1.41%
Return on average equity.................................... 11.08 13.20 13.33
Dividend payout ratio....................................... 6.00 5.74 6.38
Average equity to average assets............................ 11.57 11.03 10.57
</TABLE>
The FDIC has issued guidelines for the implementation of risk-based capital
requirements by U.S. banks. 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.
Citizens' Tier I capital, which consists of stockholders' equity net of
unrealized gains and losses on securities available for sale and intangible
assets, amounted to $8.9 million at December 31, 1996. 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 $9.9 million at December 31, 1996. The percentage
ratios, as calculated under the guidelines, were 11.1% and 12.4% for Tier I and
Total Risk-based Capital, respectively, at December 31, 1996.
A minimum leverage ratio is required in addition to the risk-based capital
standards and is defined as Tier I capital divided by average assets adjusted
for the unrealized gain/loss on the investment securities portfolio and
intangible assets. Although a minimum leverage ratio of 3% has been established,
the FDIC 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 FDIC. The
FDIC uses the leverage ratio in tandem with the risk-based capital ratios to
assess capital adequacy of banks. Citizens' leverage ratios at December 31, 1996
and 1995 were 10.3% and 10.8%, respectively. Risk-based and leverage capital
positions as of December 31, 1996 and 1995 are presented in Table 10.
53
<PAGE> 59
TABLE 10 -- ANALYSIS OF CAPITAL ADEQUACY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Risk-based capital ratios:
Tier I capital to risk-adjusted assets.................... 11.1% 13.2%
Tier II capital to risk-adjusted assets................... 1.3 1.2
------- -------
Total capital to risk-adjusted assets............. 12.4% 14.4%
======= =======
Leverage ratio.................................... 10.3% 10.8%
======= =======
Tier I capital............................................ $ 8,876 $ 8,326
Tier II capital........................................... 999 791
------- -------
Total capital..................................... $ 9,875 9,117
======= =======
Total risk-adjusted assets.................................. $79,735 $63,124
======= =======
</TABLE>
All three of the capital ratios of Citizens currently exceed the minimum
ratios required in 1996 as defined by federal regulators and are deemed to be
well capitalized. Citizens monitors these ratios to ensure that Citizens 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 Middle Georgia.
Provision and Allowance for Loan Losses. Middle Georgia 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. Middle Georgia'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.
During recent years, Middle Georgia 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 continually 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 Middle Georgia'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 Middle Georgia.
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 increased 100% in 1996 compared to a 267%
increase in 1995. The increased provision for 1996 and 1995 is a direct result
of management's efforts to maintain an adequate allowance given the increase in
loans outstanding. The allowance for loan losses as a percentage of gross loans
outstanding at year end totaled 1.7% and 1.9% for 1996 and 1995, respectively.
Middle Georgia 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 Middle
Georgia's allowance for loan losses for each of the last five years.
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<PAGE> 60
TABLE 11 -- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year............. $1,018 $ 934 $920 $690 $491
Charge-offs:
Commercial............................................... 8 1 19 -- 84
Real estate.............................................. 20 -- 1 39 36
Installment loans to individuals......................... 30 31 11 14 12
------ ------ ---- ---- ----
Total charge-offs................................ 58 32 31 53 132
------ ------ ---- ---- ----
Recoveries:
Commercial............................................... -- -- 1 -- 1
Real estate.............................................. -- -- 9 8 --
Installment loans to individuals......................... 8 6 5 -- 12
------ ------ ---- ---- ----
Total recoveries................................. 8 6 15 8 13
------ ------ ---- ---- ----
Net charge-offs............................................ 50 26 16 45 119
Provisions charged to earnings............................. 220 110 30 275 318
------ ------ ---- ---- ----
Balance at end of year..................................... $1,188 $1,018 $934 $920 $690
====== ====== ==== ==== ====
Ratio of net charge-offs to average loans outstanding
during the period........................................ .09% .05% .03% .10% .26%
====== ====== ==== ==== ====
</TABLE>
Asset Quality. Nonperforming assets, comprised of nonaccrual loans, loans
90 days or more past due and other real estate owned, totaled $2.3 million at
December 31, 1996. At December 31, 1995, nonperforming assets amounted to $1
million. The increase in nonperforming assets during 1995 relates to one large
loan relationship, totaling $872,000, that was placed on nonaccrual status in
September 1995 when the customer filed for bankruptcy protection. This loan was
subsequently paid off in December 1997. The increase in other real estate at
December 31, 1996 was due primarily to one property totaling approximately
$182,000 that was foreclosed upon in November 1996. This property had not yet
been sold as of December 31, 1997. There were no related party loans which were
considered nonperforming at December 31, 1996 or 1995. 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. As a result of
management's ongoing review of the loan portfolio, loans are placed on
nonaccrual status generally when they are past due for principal or interest
payments for more than 90 days or it is otherwise not reasonable to expect
collection of principal and interest under their original terms. Exceptions are
allowed for loans 90 days past due when such loans are well collateralized and
in process of collection. When a loan is placed on nonaccrual status, previously
accrued and uncollected interest is charged to interest income on loans. Loans
made by Middle Georgia 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, 1996. There were no other foreclosed or repossessed assets at
December 31, 1996. Table 12 summarizes Middle Georgia's risk elements for each
of the last five years. Management performs an evaluation of the loan portfolio
on a quarterly basis. Potential problem loans are reviewed monthly and a
determination is made as to the potential losses. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
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<PAGE> 61
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality and a review of specific problem and individually
significant loans.
TABLE 12 -- RISK ELEMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accruing loans 90 days or more past due.................... $ 979 $ 22 $ -- $ 11 $ 8
Loans on nonaccrual........................................ 1,013 902 87 626 73
Other real estate.......................................... 337 76 105 84 78
------ ------ ---- ---- ----
Total nonperforming assets................................. $2,329 $1,000 $192 $721 $159
====== ====== ==== ==== ====
Total nonperforming assets as a percentage of loans........ 3.35% 1.83% .35% 1.57% .35%
====== ====== ==== ==== ====
</TABLE>
Interest on nonaccrual loans which would have been reported during 1996 if
the loans had been current in accordance with their original terms amounted to
approximately $95,000. No interest income on nonaccrual loans was recorded in
net earnings during 1996.
There may be additional loans within Middle Georgia'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, 1996. At December 31, 1996,
management was unaware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on Middle Georgia'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 14% during 1996 as compared to 1995 primarily due to new accounts.
Total noninterest income for 1995 showed an increase of 13% compared to 1994.
Noninterest Expense. Noninterest expense for 1996 increased 7% following
an increase of 11% in 1995. Total salaries and employee benefits increased 9%
during 1996 and 7% in 1995 due largely to employee additions required to support
Middle Georgia's branch growth.
Net occupancy expense increased 34% in 1996 following an increase of 21% in
1995. The 1996 increase in occupancy expense was due to expenses related to
branch renovations, including depreciation and maintenance expenses, as well as
increases due to investments in technology upgrades.
Other noninterest expenses decreased by approximately $144,000 or 13%
compared to a 12% increase in 1995. The largest components of other noninterest
expenses which include data processing and stationery and supplies, increased 9%
in 1996. 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 expense decreased 11% during 1996, while it
increased by 12% in 1995. The effective tax rate as a percentage of pretax
income was 30% in 1996 and 32% in 1995. These tax rates differ from the
statutory Federal tax rate of 34 percent primarily due to state taxes and tax
exempt interest income on certain investment securities. In 1996, tax exempt
investment securities interest expressed as a percentage of pretax earnings
increased to 13% from 10% in 1995. See Note 11 to Middle Georgia's Consolidated
Financial Statements for an analysis of income taxes.
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
Middle Georgia'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.
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<PAGE> 62
Management's Discussion and Analysis of Financial Condition and Results of
Operations For Each of the Nine Months Ended September 30, 1997 and 1996:
Financial Condition. Total assets at September 30, 1997 were approximately
$120 million, representing a 20% increase from December 31, 1996. Deposits
increased approximately $16.4 million, or 19% from December 31, 1996, while net
loans increased approximately $18.5 million, or 27%. The allowance for loan
losses at September 30, 1997 totaled $1.3 million, representing 1.5% of total
loans compared to the December 31, 1996 total of $1.2 million, representing 1.7%
of total loans. Securities available for sale decreased 11% from December 31,
1996. The increases in assets, loans and deposits are primarily due to the
acquisition of the Montezuma branch, which contributed $29.1 million in deposits
and increased loan demand.
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 $2.3 million at December 31, 1996 to $1.4 million at
September 30, 1997. The decrease in nonperforming assets at September 30, 1997
relates to one large loan relationship totaling approximately $918,000, that was
past due greater than 90 days (and still accruing interest) at December 31, 1996
that is now current at September 30, 1997. There were no related party loans
which were considered nonperforming at September 30, 1997.
Middle Georgia was most recently examined by its primary regulatory
authority in December 1996. There were no recommendations by the regulatory
authority that in management's opinion will have material effects on the
company's liquidity, capital resources or operations.
Results of Operations. Net interest income increased $667,000, or 20%, in
the first nine months of 1997 compared to the same period for 1996. Interest
income for the first nine months of 1997 was $6.9 million, representing an
increase of $1.3 million, or 24% over the same period in 1996. Interest expense
for the first nine months of 1997 increased approximately $661,000, or 21%,
compared to the same period in 1996. This increase in interest income and
expense during the first nine months of 1997 compared to the same period in 1996
is primarily attributable to the increase in the volume of both loans and
deposits.
The provision for loan losses for the first nine months of 1997 decreased
$14,000 compared to the same period for 1996. It is management's belief that the
allowance for loan losses is adequate to absorb probable losses in the loan
portfolio.
Noninterest income increased 14% to approximately $965,000 for the nine
month period ended September 30, 1997, as compared to the same period in 1996.
This increase is primarily attributable to Middle Georgia's computer and network
installation sales.
Noninterest expenses for the first nine months of 1997 increased
approximately $839,000, or 28%, compared to the first nine months of 1996. The
net increase is primarily attributable to employee additions required to
maintain growth and expenses related to the new branch facility in Montezuma.
Capital Resources. Citizens 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 financial statements. Under capital
adequacy guidelines, Citizens must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Citizens' 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 Citizens to maintain minimum amounts and ratios of total and Tier I
capital (as defined) to risk-weighted assets and of Tier I capital (as defined)
to average assets. As of September 30, 1997, Citizens met all capital adequacy
requirements to which it is subject.
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<PAGE> 63
The following tables present Citizens' consolidated regulatory capital
position at September 30, 1997:
<TABLE>
<S> <C>
RISK-BASED CAPITAL RATIOS
Tier I Capital.............................................. 9.09%
Tier I Capital minimum requirement.......................... 4.00
-----
Excess...................................................... 5.09%
=====
Total Capital............................................... 10.37%
Total Capital minimum requirement........................... 8.00
-----
Excess...................................................... 2.37%
=====
LEVERAGE RATIO
Tier I Capital to adjusted total assets..................... 7.52%
Minimum leverage requirement................................ 3.00
-----
Excess...................................................... 4.52%
=====
</TABLE>
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
Several of Middle Georgia'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 Middle Georgia and its subsidiaries. These persons, corporations
and firms have had transactions in the ordinary course of business with Middle
Georgia and its subsidiaries, including borrowings, all of which, in the opinion
of Middle Georgia 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. Middle Georgia and
its subsidiaries 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 Citizens to directors, executive officers, and
related parties of Middle Georgia or Citizens as of September 30, 1997, was
approximately $3,881,000, which represented approximately 36% of consolidated
shareholders' equity on that date.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF MIDDLE GEORGIA
The following lists each shareholder of record that directly or indirectly
owned, controlled, or held with power to vote 5% or more of the 64,272
outstanding shares of Middle Georgia Common Stock as of the Middle Georgia
Record Date.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
---------------- ---------------- -------------------
<S> <C> <C>
Wendell S. Dunaway......................................... 10,981 shares(1) 17.09%
P.O. Box 647
Hawkinsville, GA 31035
James W. Johnson........................................... 6,142 shares(2) 9.56%
P.O. Box 626
Hawkinsville, GA 31035
Speight Family Voting Committee............................ 35,565 shares(3) 55.33%
(consisting of: J. Daniel Speight, Jr., Michael C.
Speight, Ann S. Mixon, Charles G. Speight, Jr., David
Speight and Patti S. Davis).
</TABLE>
- ---------------
(1) Includes 10,956 shares in the name of Mr. Dunaway and 25 shares in the name
of Dunaway Brothers, Inc.
(2) Includes 2,471 shares in the name of Mr. Johnson, 115 shares in the name of
Catherine Johnson, and 3,556 shares in the name of McCranie Companies Profit
sharing Plan.
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<PAGE> 64
(3) Certain shareholders of Middle Georgia, all of whom are members of the
Speight Family, have executed a Shareholder Agreement dated December 23,
1992. The Shareholder Agreement provides that all shares subject to the
terms and conditions of the Shareholder Agreement are to be voted by the
Voting Committee as set forth in the Shareholder Agreement (the "Speight
Family Voting Committee"). Individual members of the Speight Family Voting
Committee hold an aggregate of 532 shares that are not subject to the
Shareholder Agreement. See "-- Management."
YEAR 2000 ISSUES
Middle Georgia adopted a Year 2000 Policy and Plan of Action in September
1997 (the "Y2K Plan"). Pursuant to the Y2K Plan, Middle Georgia established a
Steering Committee in September 1997, consisting of ten members who are all
employees and/or officers of Citizens (the "Steering Committee"). The members of
the Steering Committee are representatives of all areas of Citizens and Middle
Georgia. The Steering Committee scheduled meetings quarterly for 1997,
bi-monthly for the first half of 1998, and monthly thereafter. The Steering
Committee has had two meetings since its inception. A representative of the
Steering Committee updates the Board of Directors of Citizens monthly on the
progress of the Steering Committee and status of compliance with the Y2K Plan.
In December 1997, the Board of Directors of Citizens approved a budget submitted
on behalf of the Steering Committee for expenses in connection with implementing
the Y2K Plan.
As of September 30, 1997, the Steering Committee had identified all
mission-critical areas, which the Steering Committee has committed to ensure are
Year 2000 compliant by December 31, 1998. The Board of Directors of Citizens
approved the list of mission-critical areas.
Citizens purchased and is utilizing software developed by Brintech known as
Year 2000 Risk Management System. The Brintech software assists Citizens in
evaluating and risk grading its vendors. Citizens has received correspondence
from various of its vendors regarding the status of their Year 2000 compliance
programs.
After a comprehensive contract review, Citizens will send to each of its
vendors a request regarding status of such vendor's Year 2000 compliance.
Citizens anticipates sending these letters to its vendors by the end of February
1998. The Brintech software will provide assistance in tracking responses from
vendors and providing risk assessments of such responses.
Through members of the Steering Committee, Citizens has reviewed all loans
over $100,000 to identify larger borrowers with potential Year 2000 problems in
their business plan or operations. Citizens intends to notify these borrowers of
their potential Year 2000 issues and to conduct seminars for its customers to
provide Year 2000 compliance assistance.
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<PAGE> 65
BUSINESS OF FLAG
GENERAL
FLAG is a unitary thrift holding company headquartered in LaGrange, Georgia
with five savings bank offices in LaGrange, Georgia, which serve markets located
in western Georgia and eastern Alabama. As of September 30, 1997, FLAG had total
consolidated assets of approximately $238 million, total consolidated deposits
of approximately $178 million, and total consolidated shareholders' equity of
approximately $22 million. Through its federal savings bank subsidiary, First
Federal, and First Federal's wholly-owned subsidiary, Piedmont, 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, engages in equipment leasing, engages in mortgage banking services,
provides a wide range of brokerage services and performs real estate appraisal
services.
FLAG continually evaluates business combination opportunities and conducts
due diligence activities in connection with possible business combinations. As a
result, business combination discussions and, in some cases, negotiations take
place, and future business combinations involving cash, debt, or equity
securities can be expected. Any future business combination or series of
business combinations that FLAG might undertake may be material, in terms of
assets acquired or liabilities assumed, to FLAG's financial condition. Recent
business combinations in the banking industry have typically involved the
payment of a premium over book and market values. This practice could result in
dilution of book value and net income per share for the acquirer.
DIRECTORS AND EXECUTIVE OFFICERS
The Bylaws of the company provide that the Board of Directors of FLAG shall
consist of ten members who shall be divided into three classes as nearly equal
in number as possible. The directors in each class are elected by the
shareholders for a term of three years and until their successors are elected
and qualified. The term of office of one of the classes of directors expires
each year at the Annual Meeting of Shareholders, and a new class of either three
or four directors is elected by the shareholders each year at that time. The
directors of the surviving corporation will be: Dr. A. Glenn Bailey, H. Speer
Burdette, III, Patti S. Davis, Fred A. Durand, III, John S. Holle, Kelly R.
Linch, J. Daniel Speight, Jr., John W. Stewart, Jr., and Robert W. Walters and
such additional persons as may thereafter be elected. The executive officers of
the surviving corporation will be: John S. Holle, Chairman of the Board; J.
Daniel Speight, Jr., President and Chief Executive Officer; Patti S. Davis,
Senior Vice President and Secretary; Ellison C. Rudd, Senior Vice President,
Treasurer and Chief Financial Officer; and such additional persons as may
thereafter be elected.
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 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 62 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 is a cousin of J. Daniel Speight, Jr., and has
served as Executive Vice President and Chief Financial Officer of Middle Georgia
since 1994. Ms. Davis has been Senior Vice President and Chief Financial Officer
of Citizens since 1990. Following the consummation of the Merger, Ms. Davis will
become a Senior Vice President and the Secretary of FLAG, and will serve as a
member of the
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Board of Directors of FLAG. In addition, Ms. Davis will continue to act as
Senior Vice President and Chief Financial Officer and a director of Citizens.
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
55 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 has 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. Mr. Holle previously
served in various other executive positions with First Federal after joining
First Federal in 1972. 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
and will 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 following the Merger. Mr. Holle is 47
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.
Ellison C. Rudd. Mr. Rudd has 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 since 1989 when he joined First Federal as a Vice President.
Following the Merger, Mr. Rudd will be Senior Vice President, Treasurer and
Chief Financial Officer of FLAG. 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.
Raymond C. Smith, Jr. Mr. Smith has served as Senior Vice President, Human
Resources since June 1996, having 16 years previous bank personnel experience.
Mr. Smith most recently served as Human Resources Manager for the Retail
Division of Bank South, N.A. Following the Merger, Mr. Smith will continue to
serve as Senior Vice President, Human Resources, of FLAG. Mr. Smith is 49 years
old.
J. Daniel Speight, Jr. Mr. Speight is a cousin of Patti S. Davis, and has
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, Mr. Speight will be the President and Chief Executive
Officer of FLAG, and will serve as a member of the Board of Directors of FLAG.
In addition, Mr. Speight will retain his status as President and Chief Executive
Officer and a director of Citizens following the consummation of the Merger. Mr.
Speight is 40 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
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<PAGE> 67
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 64 years old.
Lee W. Washam. Mr. Washam has served as Senior Vice President and
Secretary of FLAG and First Federal since 1995. From 1993 to 1995, he served as
Vice President and Assistant Secretary of First Federal. Mr. Washam joined First
Federal in 1983 and has served in various management positions since 1987.
Following the consummation of the Merger, Mr. Washam will continue to serve as
Senior Vice President and Secretary of First Federal. Mr. Washam is 36 years
old.
Mary E. Winks. Ms. Winks has served as Senior Vice President, Retail
Banking and Marketing since July 1996, having 27 years prior bank and consulting
experience. Most recently, Ms. Winks was a Senior Bank consultant with LSI, Inc.
of Atlanta. After the Merger, Ms. Winks will continue to serve as Senior Vice
President, Retail Banking and Marketing of First Federal. Ms. Winks is 46 years
old.
YEAR 2000 ISSUES
First Federal has appointed a Year 2000 committee comprised of three
outside directors and several key senior executives of First Federal. The
committee meets on a monthly basis to provide direction and monitor the progress
being made relating to First Federal's Year 2000 efforts.
First Federal managers and supervisors have identified: (i) hardware and
software used in their area of responsibility impacted by the Year 2000 issue;
and (ii) vendors upon whom First Federal relies to provide financial information
or services which may be impacted by the Year 2000 issue. First Federal has
conducted a risk assessment for each product, and has categorized the risks
associated with each product as "catastrophic," "serious," or "minimal." First
Federal's overall risk is considered to be serious to minimal. A separate plan
and action date have been established for hardware/software considered to be
critical to First Federal's on-going operations. The next steps in the process
will be to develop a test for the hardware/software, test the hardware/software
as it becomes Year 2000 compliant, and to document those tests accordingly.
First Federal plans to convert from an NCR software system to an
application system provided by Phoenix International Ltd., Inc. ("Phoenix") in
August 1998. Phoenix has represented in their contract with First Federal that
the Phoenix application system is Year 2000 compliant. First Federal will test
the system for Year 2000 Compliance prior to conversion. The Phoenix application
system will include many critical applications, including the general ledger,
loan application system, deposit application system and accounts receivable and
payable. The third party application system used to process First Federal's
payroll has already been certified as Year 2000 Compliant.
First Federal is in the initial stages of determining the impact of the
Year 2000 on its larger loan customers. For those loan customers with a
significant risk to their on-going operations arising from possible Year 2000
issues, First Federal will monitor and document their Year 2000 compliance
efforts. First Federal is in the process of developing a questionnaire for its
lending officers to use in assessing the Year 2000 risk for larger loan
customers. First Federal plans to conduct Year 2000 seminars for its commercial
customers. First Federal also intends to add a provision to its standard loan
agreement relating to the borrower's Year 2000 compliance.
Additional information about FLAG and its subsidiaries is included in
documents incorporated by reference in this Joint Proxy Statement/Prospectus.
See "AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE."
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<PAGE> 68
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 (the "Pro Forma Balance Sheet"), and the unaudited pro
forma consolidated statements of earnings for the nine months ended September
30, 1997, and for each of the three years in the period ended December 31, 1996
(collectively, the "Pro Forma Earnings Statements"), combine the historical
financial statements of FLAG with Middle Georgia 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 September 30, 1997, while the pro forma adjustments to the Pro Forma
Earnings Statements are computed as if the Merger were consummated on January 1,
1994, 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
Middle Georgia's combined results of operations actually would have been if the
Merger had occurred on January 1, 1994.
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
MIDDLE ADJUSTMENTS FORMA
FLAG GEORGIA DEBIT (CREDIT) COMBINED
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................................... $ 9,678 $ 4,646 $ 14,324
Federal funds sold.......................................... 610 610
Securities available for sale, at fair value................ 48,018 15,735 63,753
Securities held to maturity................................. 2,685 2,685
Loans held for sale......................................... 1,339 -- 1,339
Loans....................................................... 163,437 87,935 251,372
Less allowance for loan losses.............................. (4,645) (1,338) (5,983)
-------- -------- --------
Loans, net.................................................. 158,792 86,597 245,389
Premises and equipment, net................................. 5,961 4,371 10,332
Other assets................................................ 11,990 7,928 19,918
-------- -------- --------
Total assets....................................... $238,463 $119,887 $358,350
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing....................................... $ 8,971 $ 13,965 $ 22,936
Interest bearing.......................................... 168,668 90,462 259,130
-------- -------- --------
Total deposits.............................................. 177,639 104,427 282,066
Advances and Federal funds purchased........................ 34,018 2,000 36,018
Accrued expenses and other liabilities...................... 5,088 2,546 7,634
-------- -------- --------
Total liabilities.................................. 216,745 108,973 325,718
-------- -------- --------
Stockholders' Equity
Common stock................................................ 2,037 66 $ 946 3,049
Additional paid-in capital.................................. 8,038 3,373 (1,097) 10,314
Retained earnings........................................... 11,844 7,627 19,471
Unrealized gains (losses) on securities available for sale,
net of tax................................................ (201) (1) (202)
-------- -------- ------- --------
21,718 11,065 32,632
Less: Cost of 1,457 shares of treasury stock................ (151) 151 0
-------- -------- ------- --------
Total stockholders' equity......................... 21,718 10,914 32,632
-------- -------- ------- --------
Total stockholders' equity and liabilities ...... $238,463 $119,887 $358,350
======== ======== ======= ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
63
<PAGE> 69
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
MIDDLE ADJUSTMENTS FORMA
FLAG GEORGIA DEBIT (CREDIT) COMBINED
------- ------- -------------- --------
<S> <C> <C> <C> <C>
Interest income........................................ $12,786 $6,900 $19,686
Interest expense....................................... 6,811 2,863 9,674
------- ------ ------- -------
Net interest income.................................. 5,975 4,037 10,012
Provision for loan losses.............................. (424) (76) (500)
------- ------ ------- -------
Net interest income after provision for loan
losses............................................ 5,551 3,961 9,512
------- ------ ------- -------
Noninterest income:
Fees and service charges............................. 1,961 633 2,594
Net realized gains on the sale of assets............. 311 24 335
Other operating income............................... 207 308 515
------- ------ ------- -------
Total noninterest income............................... 2,479 965 3,444
------- ------ ------- -------
Noninterest expense:
Salaries and employee benefits....................... 2,401 1,617 4,018
Net occupancy and equipment expenses................. 484 792 1,276
Other operating expenses............................. 2,706 1,387 4,093
------- ------ ------- -------
Total noninterest expense.............................. 5,591 3,796 9,387
------- ------ ------- -------
Income before income taxes........................... 2,439 1,130 3,569
Income tax expense..................................... 808 312 1,120
------- ------ ------- -------
Net income........................................... $ 1,631 $ 818 $ 2,449
======= ====== ======= =======
Net income per common share outstanding.............. $ 0.80 $12.76 $ 0.80
======= ====== ------- =======
Weighted average outstanding shares.................... 2,037 64 3,045
======= ====== ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
64
<PAGE> 70
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>
PRO FORMA PRO
MIDDLE ADJUSTMENTS FORMA
FLAG GEORGIA DEBIT (CREDIT) COMBINED
------- ------- -------------- --------
<S> <C> <C> <C> <C>
Interest income........................................ $17,363 $7,645 $25,008
Interest expense....................................... 9,190 2,977 12,167
------- ------ ------- -------
Net interest income.................................. 8,173 4,668 12,841
Provision for loan losses.............................. (3,485) (220) (3,705)
------- ------ ------- -------
Net interest income after provision for loan
losses............................................ 4,688 4,448 9,136
------- ------ ------- -------
Noninterest income:
Fees and service charges............................. 2,396 656 3,052
Net realized gains on the sale of assets............. 387 13 400
Other operating income............................... 210 403 613
------- ------ ------- -------
Total noninterest income............................... 2,993 1,072 4,065
------- ------ ------- -------
Noninterest expense:
Salaries and employee benefits....................... 2,664 2,140 4,804
Net occupancy and equipment expenses................. 475 923 1,398
Other operating expenses............................. 5,031 929 5,960
------- ------ ------- -------
Total noninterest expense.............................. 8,170 3,992 12,162
------- ------ ------- -------
Income (loss) before income taxes.................... (489) 1,528 1,039
Income tax expense (benefit)........................... (311) 463 152
------- ------ ------- -------
Net income (loss).................................... $ (178) $1,065 $ 887
======= ====== ======= =======
Net income (loss) per common share outstanding....... $ (0.09) $16.66 $ 0.29
======= ====== ------- =======
Weighted average outstanding shares.................... 2,011 64 3,019
======= ====== ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
65
<PAGE> 71
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>
PRO FORMA PRO
MIDDLE ADJUSTMENTS FORMA
FLAG GEORGIA DEBIT (CREDIT) COMBINED
------- ------- -------------- --------
<S> <C> <C> <C> <C>
Interest income........................................ $17,168 $7,181 $24,349
Interest expense....................................... 9,885 2,652 12,537
------- ------ ------- -------
Net interest income.................................. 7,283 4,529 11,812
Provision for loan losses.............................. (630) (110) (740)
------- ------ ------- -------
Net interest income after provision for loan
losses............................................ 6,653 4,419 11,072
------- ------ ------- -------
Noninterest income:
Fees and service charges............................. 2,141 609 2,750
Net realized gains on the sale of assets............. 209 51 260
Other operating income............................... 109 277 386
------- ------ ------- -------
Total noninterest income............................... 2,459 937 3,396
------- ------ ------- -------
Noninterest expense:
Salaries and employee benefits....................... 2,424 1,960 4,384
Net occupancy and equipment expenses................. 397 687 1,084
Other operating expenses............................. 3,220 1,073 4,293
------- ------ ------- -------
Total noninterest expense.............................. 6,041 3,720 9,761
------- ------ ------- -------
Income before income taxes........................... 3,071 1,636 4,707
Income tax expense..................................... 1,045 522 1,567
------- ------ ------- -------
Net income........................................... $ 2,026 $1,114 $ 3,140
======= ====== ======= =======
Net income per common share outstanding.............. $ 1.02 $17.41 $ 1.05
======= ====== ------- =======
Weighted average outstanding shares.................... 1,991 64 2,999
======= ====== ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
66
<PAGE> 72
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
MIDDLE ADJUSTMENTS FORMA
FLAG GEORGIA DEBIT (CREDIT) COMBINED
------- ------- -------------- --------
<S> <C> <C> <C> <C>
Interest income........................................ $15,059 $6,030 $21,089
Interest expense....................................... 8,222 2,004 10,226
------- ------ ------- -------
Net interest income.................................. 6,837 4,026 10,863
Provision for loan losses.............................. (440) (30) (470)
------- ------ ------- -------
Net interest income after provision for loan
losses............................................ 6,397 3,996 10,393
------- ------ ------- -------
Noninterest income:
Fees and service charges............................. 1,717 512 2,229
Net realized gains (losses) on the sale of assets.... (27) 2 (25)
Other operating income............................... 190 312 502
------- ------ ------- -------
Total noninterest income............................... 1,880 826 2,706
------- ------ ------- -------
Noninterest expense:
Salaries and employee benefits....................... 2,227 1,836 4,063
Net occupancy and equipment expenses................. 349 567 916
Other operating expenses............................. 2,952 958 3,910
------- ------ ------- -------
Total noninterest expense.............................. 5,528 3,361 8,889
------- ------ ------- -------
Income before income taxes........................... 2,749 1,461 4,210
Income tax expense..................................... 981 465 1,446
------- ------ ------- -------
Net income........................................... $ 1,768 $ 996 $ 2,764
======= ====== ======= =======
Net income per common share outstanding.............. $ 0.88 $15.67 $ 0.91
======= ====== ------- =======
Weighted average outstanding shares.................... 2,013 64 3,021
======= ====== ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
67
<PAGE> 73
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(1) The unaudited pro forma consolidated balance sheet as of September 30, 1997
and consolidated statements of earnings for the nine months ended September
30, 1997 and for the years ended December 31, 1996, 1995 and 1994 have been
prepared based on the historical consolidated balance sheets and statements
of earnings, which give effect to the Merger of Middle Georgia with and into
FLAG accounted for as a pooling of interests, based on the exchange of 15.75
shares of FLAG Common Stock for each outstanding share of Middle Georgia
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 in nature.
68
<PAGE> 74
SHAREHOLDER PROPOSALS
Proposals of shareholders of FLAG intended to be presented at the 1998
Annual Meeting of Shareholders must have been received by FLAG at its principal
executive offices on or before November 24, 1997, in order to be included in
FLAG's Proxy Statement and Proxy relating to the 1998 Annual Meeting of
Shareholders. Only proper proposals which were timely received will be included
in such Proxy Statement and Proxy.
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 Joint 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 consolidated financial statements of FLAG, incorporated by reference
herein and in the Registration Statement, have been audited by Robinson, Grimes
and Company, P.C., independent certified public accountants, for the periods
indicated in their report thereon which is included in the FLAG Annual Report to
Shareholders which is incorporated by reference in FLAG's Annual Report on Form
10-K for the year ended December 31, 1996. 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 financial statements of Middle Georgia as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31,
1996, 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 Alston & Bird
LLP, Atlanta, Georgia.
OTHER MATTERS
Management of FLAG does not know of any matters to be brought before the
FLAG Special Meeting other than those described above. If any other matters
properly come before the FLAG Special Meeting, the persons designated as Proxies
will vote on such matters in accordance with their best judgment.
Management of Middle Georgia does not know of any matters to be brought
before the Middle Georgia Special Meeting other than those described above. If
any other matters properly come before the Middle Georgia Special Meeting, the
persons designated as Proxies will vote on such matters in accordance with their
best judgment.
69
<PAGE> 75
MIDDLE GEORGIA FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of September 30, 1997 and
1996 (Unaudited).......................................... F-2
Consolidated Statements of Earnings for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)............. F-3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)............. F-4
Notes to Consolidated Financial Statements (Unaudited)...... F-5
Report of Independent Certified Public Accountants.......... F-6
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-7
Consolidated Statements of Earnings for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-8
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994...... F-9
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-10
Notes to Consolidated Financial Statements.................. F-11
</TABLE>
F-1
<PAGE> 76
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 4,646,136 $ 3,514,339
Federal funds sold.......................................... 610,000 50,000
------------ -----------
Cash and cash equivalents......................... 5,256,136 3,564,339
Securities available for sale............................... 15,735,375 12,601,988
Other investments........................................... 1,149,755 900,210
Loans, net.................................................. 86,596,707 58,877,014
Premises and equipment...................................... 4,370,549 3,547,350
Other assets................................................ 6,778,565 4,062,252
------------ -----------
$119,887,087 $83,553,153
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand.................................................... $ 13,964,666 $12,086,273
Interest-bearing demand................................... 19,376,392 9,713,469
Savings................................................... 4,157,474 3,071,173
Time...................................................... 66,928,022 46,705,078
------------ -----------
Total deposits.................................... 104,426,554 71,575,993
Accounts payable and accrued liabilities.................... 2,546,021 2,203,908
Federal Home Loan Bank advances............................. 2,000,000 --
------------ -----------
Total liabilities................................. 108,972,575 73,779,901
------------ -----------
Stockholders' equity:
Common stock, par value $1, authorized 1,000,000 shares;
issued 65,729 shares................................... 65,729 65,729
Additional paid-in capital................................ 3,372,779 3,325,988
Retained earnings......................................... 7,627,232 6,632,713
Unrealized loss on securities available for sale, net of
tax.................................................... (332) (158,555)
------------ -----------
11,065,408 9,865,875
Less treasury stock at cost, 1,457 and 1,787 shares,
respectively........................................... (150,896) (92,623)
------------ -----------
Total stockholders' equity........................ 10,914,512 9,773,252
------------ -----------
$119,887,087 $83,553,153
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 77
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $6,104,110 $4,788,945
Interest on federal funds sold............................ 113,646 144,020
Interest on investment securities:
Taxable................................................ 530,449 488,790
Tax-exempt............................................. 152,000 151,594
---------- ----------
Total interest income............................. 6,900,205 5,572,849
---------- ----------
Interest expense:
Demand.................................................... 359,859 194,466
Savings................................................... 75,083 66,784
Time...................................................... 2,367,643 1,927,688
Other..................................................... 60,720 13,447
---------- ----------
Total interest expense............................ 2,863,305 2,202,385
---------- ----------
Net interest income............................... 4,036,900 3,370,464
Provision for loan losses................................... 76,000 90,000
---------- ----------
Net interest income after provision for loan
losses.......................................... 3,960,900 3,280,464
---------- ----------
Other income:
Service charges on deposits............................... 500,709 489,985
Other fees and commissions................................ 132,731 134,765
Gain on sales of securities............................... 24,318 2,837
Other..................................................... 307,908 222,209
---------- ----------
Total other income................................ 965,166 849,796
---------- ----------
Other expenses:
Salaries and employee benefits............................ 1,616,478 1,315,962
Occupancy................................................. 791,956 655,770
Other operating........................................... 1,387,362 985,371
---------- ----------
Total other expenses.............................. 3,795,796 2,957,103
---------- ----------
Earnings before income taxes...................... 1,130,270 1,173,157
Income taxes................................................ 312,437 348,721
---------- ----------
Net earnings...................................... $ 817,833 $ 824,436
========== ==========
Net earnings per share...................................... $ 12.76 $ 12.89
========== ==========
Dividends per share......................................... $ 1.00 $ 1.00
========== ==========
Weighted average number of shares outstanding............... 64,074 63,944
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 78
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 817,833 $ 824,436
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion.................. 443,303 378,211
Provision for loan losses................................. 76,000 90,000
Gain on sales of investment securities.................... (24,318) (2,837)
Change in:
Interest receivable and other assets................... (968,769) (557,194)
Interest payable and other liabilities................. 861,244 1,290,396
------------ -----------
Net cash provided by operating activities......... 1,205,293 2,023,012
------------ -----------
Cash flows from investing activities:
Proceeds from sales of other investments.................... 225,400 --
Purchases of other investments.............................. (856,595) (295,460)
Proceeds from sales of securities available for sale........ 40,617,143 3,453,296
Purchase of securities available for sale................... (38,464,020) (3,577,351)
Net change in loans......................................... (17,457,617) (5,377,766)
Purchase of premises and equipment.......................... (628,196) (389,073)
Cash acquired in branch purchase, net of premium paid....... 25,392,767 --
------------ -----------
Net cash provided by (used in) investing
activities...................................... 8,828,882 (6,186,354)
------------ -----------
Cash flows from financing activities:
Net change in demand, savings and time deposits............. (12,674,809) (1,450,740)
Proceeds from FHLB advances................................. 2,000,000 --
Purchases of treasury stock................................. -- (20,933)
Sales of treasury stock..................................... 54,450 --
Dividends paid.............................................. (63,942) (63,942)
------------ -----------
Net cash used in financing activities............. (10,684,301) (1,535,615)
------------ -----------
Net change in cash and cash equivalents..................... (650,126) (5,698,957)
Cash and cash equivalents at beginning of period............ 5,906,262 9,263,296
------------ -----------
Cash and cash equivalents at end of period.................. $ 5,256,136 $ 3,564,339
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 79
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation. The consolidated financial statements include the
accounts of Middle Georgia and Citizens. 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.
Recent Accounting Pronouncements. During February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 simplifies
current standards by eliminating the presentation of primary earnings per share
("EPS") and requiring the presentation of basic EPS, which includes no potential
common shares and thus no dilution. The Statement also requires entities with
complex capital structures to present basic and diluted EPS on the face of the
income statement and also eliminates the modified treasury stock method of
computing potential common shares. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Early application is not permitted. Upon adoption, restatement of all
prior-period EPS data presented is required. Based upon the current capital
structure of Middle Georgia, this Statement will have no effect on the EPS
calculation.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS 131 specifies the
presentation and disclosure of operating segment information reported in the
annual report and interim reports issued to stockholders. The provisions of both
statements will be effective for fiscal years beginning after December 15, 1997.
The management of Middle Georgia believes that the adoption of these statements
will not have a material impact on Middle Georgia's financial position, results
of operations, or liquidity.
F-5
<PAGE> 80
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Middle Georgia Bankshares, Inc.
Unadilla, Georgia
We have audited the accompanying consolidated balance sheets of Middle
Georgia Bankshares, Inc. and subsidiary as of December 31, 1996 and 1995, and
the related statements of earnings, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 Middle
Georgia Bankshares, Inc. and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
PORTER KEADLE MOORE, LLP
/s/ PORTER KEADLE MOORE, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
April 10, 1997
F-6
<PAGE> 81
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 4,266,262 $ 3,833,296
Federal funds sold.......................................... 1,640,000 5,430,000
----------- -----------
Cash and cash equivalents......................... 5,906,262 9,263,296
Securities available for sale............................... 17,617,849 12,656,683
Other investments........................................... 647,560 604,750
Loans, net.................................................. 68,144,472 53,589,248
Premises and equipment, net................................. 3,553,458 3,544,168
Cash surrender value of life insurance...................... 1,343,928 1,263,718
Accrued interest receivable................................. 1,585,859 1,576,088
Other assets................................................ 972,169 593,329
----------- -----------
$99,771,557 $83,091,280
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $16,764,294 $17,212,985
Interest-bearing demand................................... 20,883,690 10,916,052
Savings................................................... 3,091,065 3,148,259
Time...................................................... 47,279,123 41,749,437
----------- -----------
Total deposits.................................... 88,018,172 73,026,733
Accrued interest payable.................................... 508,442 432,419
Other liabilities........................................... 1,176,335 481,093
----------- -----------
Total liabilities................................. 89,702,949 73,940,245
----------- -----------
Commitments
Stockholders' equity:
Common stock, $1 par value; 1,000,000 shares authorized;
65,729 shares issued................................... 65,729 65,729
Additional paid-in capital................................ 3,352,504 3,352,504
Retained earnings......................................... 6,873,341 5,872,219
Unrealized gain (loss) on securities available for sale,
net of tax............................................. (37,895) 24,721
----------- -----------
10,253,679 9,315,173
Less treasury stock at cost, 1,787 and 1,640 shares,
respectively.............................................. (185,071) (164,138)
----------- -----------
Total stockholders' equity........................ 10,068,608 9,151,035
----------- -----------
$99,771,557 $83,091,280
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 82
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................. $6,606,128 $6,212,378 $5,175,671
Interest on deposits with other banks...................... -- 3,144 3,622
Interest on federal funds sold............................. 174,256 194,216 213,366
Interest and dividends on investments:
U.S. Treasury and U.S. Government agencies................. 599,016 569,438 440,718
State, county and municipal................................ 202,621 164,038 177,599
Other...................................................... 62,954 37,973 19,444
---------- ---------- ----------
Total interest income............................ 7,644,975 7,181,187 6,030,420
---------- ---------- ----------
Interest expense:
Interest on deposits:
Demand................................................... 270,561 278,319 282,092
Savings.................................................. 87,951 89,305 95,078
Time..................................................... 2,596,961 2,280,522 1,557,429
---------- ---------- ----------
2,955,473 2,648,146 1,934,599
Other interest expense..................................... 21,651 3,977 69,368
---------- ---------- ----------
Total interest expense........................... 2,977,124 2,652,123 2,003,967
---------- ---------- ----------
Net interest income.............................. 4,667,851 4,529,064 4,026,453
Provision for loan losses.................................. 220,000 110,000 30,000
---------- ---------- ----------
Net interest income after provision for loan losses........ 4,447,851 4,419,064 3,996,453
---------- ---------- ----------
Other income:
Service charges on deposits................................ 656,457 609,299 512,099
Gain on sales of securities available for sale............. 12,718 51,019 2,038
Miscellaneous.............................................. 402,896 276,623 311,734
---------- ---------- ----------
Total other income............................... 1,072,071 936,941 825,871
---------- ---------- ----------
Other expenses:
Salaries and employee benefits............................. 2,139,988 1,960,227 1,836,218
Occupancy.................................................. 922,672 686,645 566,444
Other operating............................................ 928,915 1,073,240 958,282
---------- ---------- ----------
Total other expenses............................. 3,991,575 3,720,112 3,360,944
---------- ---------- ----------
Earnings before income taxes............................... 1,528,347 1,635,893 1,461,380
Income taxes............................................... 463,283 521,506 465,459
---------- ---------- ----------
Net earnings..................................... $1,065,064 $1,114,387 $ 995,921
---------- ---------- ----------
Net earnings per share..................................... $ 16.66 $ 17.41 $ 15.67
---------- ---------- ----------
Weighted average number of shares outstanding.............. 63,944 63,995 63,537
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 83
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON PAID-IN RETAINED AVAILABLE FOR TREASURY
STOCK CAPITAL EARNINGS SALE, NET OF TAX STOCK TOTAL
------- ---------- ---------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........ $65,729 $3,325,988 $3,888,339 $ -- $ (57,722) $ 7,222,334
Unrealized gain upon adoption of
SFAS 115, net of tax of
$60,729......................... -- -- -- 99,085 -- 99,085
Treasury stock purchases, 2,426
shares.......................... -- -- -- -- (266,860) (266,860)
Treasury stock sales, 1,456
shares.......................... -- 21,174 -- -- 145,731 166,905
Cash dividends declared, $1.00 per
share........................... -- -- (62,486) -- -- (62,486)
Change in unrealized gain (loss)
on securities available for
sale, net of tax................ -- -- -- (431,341) -- (431,341)
Net earnings...................... -- -- 995,921 -- -- 995,921
------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1994........ 65,729 3,347,162 4,821,774 (332,256) (178,851) 7,723,558
Treasury stock sales, 147
shares.......................... -- 5,342 -- -- 14,713 20,055
Cash dividends declared, $1.00 per
share........................... -- -- (63,942) -- -- (63,942)
Change in unrealized gain (loss)
on securities available for
sale, net of tax................ -- -- -- 356,977 -- 356,977
Net earnings...................... -- -- 1,114,387 -- -- 1,114,387
------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1995........ 65,729 3,352,504 5,872,219 24,721 (164,138) 9,151,035
Treasury stock purchase, 147
shares.......................... -- -- -- -- (20,933) (20,933)
Cash dividends declared, $1.00 per
share........................... -- -- (63,942) -- -- (63,942)
Change in unrealized gain (loss)
on securities available for
sale, net of tax................ -- -- -- (62,616) -- (62,616)
Net earnings...................... -- -- 1,065,064 -- -- 1,065,064
------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1996........ $65,729 $3,352,504 $6,873,341 $ (37,895) $(185,071) $10,068,608
======= ========== ========== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 84
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 1,065,064 $ 1,114,387 $ 995,921
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion................ 516,707 357,629 327,411
FHLB stock dividends.................................... -- -- (2,500)
Provision for loan losses............................... 220,000 110,000 30,000
Provision for deferred taxes benefit.................... (79,302) (19,316) (2,067)
Provision for estimated losses on other real estate..... -- -- 15,000
Gain on sales of securities available for sale.......... (12,718) (51,019) (2,038)
(Gain) loss on disposals of premises and equipment...... 21,442 36,808 (17,346)
Gain on sale of other real estate....................... 2,516 (36,658) (4,000)
Change in:
Interest receivable................................... (9,771) (353,866) (210,757)
Interest payable...................................... 76,023 165,852 15,908
Cash surrender value of life insurance................ (80,210) (69,536) (33,954)
Other assets.......................................... (957) (92,684) (3,938)
Accrued expenses and other liabilities................ 695,242 30,794 69,606
------------ ----------- -----------
Net cash provided by operating activities.......... 2,414,036 1,192,391 1,177,246
------------ ----------- -----------
Cash flows from investing activities:
Change in interest-bearing deposits with other banks........ -- -- 100,712
Purchases of securities available for sale.................. (9,179,469) (6,222,794) (2,141,287)
Proceeds from sales and calls of securities available for
sale...................................................... 2,154,207 3,076,270 130,962
Proceeds from maturities of securities available for sale... 1,983,498 1,731,095 2,609,675
Purchases of other investments.............................. (42,810) (67,450) (205,500)
Net increase in loans....................................... (15,121,552) (50,845) (8,824,009)
Purchases of premises and equipment......................... (631,049) (2,268,146) (347,183)
Proceeds from sale of premises and equipment................ 75,930 19,977 71,131
Payments for and improvements to other real estate.......... -- -- (13,329)
Purchase of cash value life insurance policies.............. -- (1,059,209) --
Proceeds from sale of other real estate..................... 83,611 14,460 6,585
------------ ----------- -----------
Net cash used in investing activities.............. (20,677,634) (4,826,642) (8,612,243)
------------ ----------- -----------
Cash flows from financing activities:
Net change in demand and savings deposits................... 9,461,753 (648,886) 2,078,493
Net change in time deposits................................. 5,529,686 7,102,535 2,652,181
Repayments of note payable.................................. -- (390,000) (130,000)
Purchases of treasury stock................................. (20,933) -- 266,860
Sales of treasury stock..................................... -- 20,055 166,905
Dividends paid.............................................. (63,942) (63,694) (62,238)
------------ ----------- -----------
Net cash provided by financing activities.......... 14,906,564 6,020,010 4,972,201
------------ ----------- -----------
Net change in cash and cash equivalents..................... (3,357,034) 2,385,759 (2,462,796)
Cash and cash equivalents at beginning of year.............. 9,263,296 6,877,537 9,340,333
------------ ----------- -----------
Cash and cash equivalents at end of year.................... $ 5,906,262 $ 9,263,296 $ 6,877,537
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 2,901,100 $ 2,486,271 $ 1,988,059
Income taxes.............................................. 432,000 590,000 442,500
Noncash investing and financing activities :
Transfer of loans to other real estate...................... 346,328 76,077 25,787
Financed sales of other real estate......................... -- 107,413 --
Change in dividends payable................................. 248 248 248
Transfer of securities held to maturity to available for
sale upon adoption of SFAS 115............................ -- -- 11,792,471
Change in unrealized gain (loss) on securities available for
sale, net of tax.......................................... $ (62,616) $ 356,977 $ (332,256)
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 85
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Middle Georgia Bankshares, Inc. (the "Company") is a bank holding company
whose business is conducted by its wholly-owned bank subsidiary, Citizens Bank
(the "Bank"). The Company is subject to regulation under the Bank Holding
Company Act of 1956.
The Bank is a commercial bank that serves Dooly County and surrounding
communities in middle Georgia. The Bank is chartered and regulated by the
Georgia Department of Banking and Finance, and is insured and subject to
regulation by the Federal Deposit Insurance Corporation.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform to the current year presentation.
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, the
valuation of real estate acquired in connection with or in lieu of foreclosure
on loans, and valuation allowances associated with the realization of deferred
tax assets which are based on future taxable income.
Investment Securities
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Securities held to
maturity are those securities for which the Bank has the ability and intent to
hold until maturity. All other securities are classified as available for sale.
At December 31, 1996 and 1995, there were no trading securities or securities
held to maturity.
Available for sale securities are recorded at fair value. 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. Transfers of securities between categories
are recorded at fair value at the date of transfer.
A decline in the market value of any investment below cost that is deemed
other than temporary is charged to earnings and establishes a new cost basis for
the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses are
included in earnings and are derived using the specific identification method of
determining the cost of securities sold.
Other Investments
Other investments include equity securities with no readily determinable
fair value. These investment securities are carried at cost.
F-11
<PAGE> 86
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans and Allowance for Loan Losses
Loans are stated at principal amount outstanding, net of unearned interest
and the allowance for loan losses. Interest income on loans is primarily
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
As a result of management's ongoing review of the loan portfolio, loans are
placed on nonaccrual status generally when they are past due for principal or
interest payments for more than 90 days or it is otherwise not reasonable to
expect collection of principal and interest under their original terms.
Exceptions are allowed for loans 90 days past due when such loans are well
collateralized and in process of collection.
The Bank accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosure." 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. Interest income from impaired loans is
recognized using a cash basis method of accounting during the time within that
period in which the loans were impaired.
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 Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgements of information available to them at the time
of their examination.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation.
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 earnings for the period. The cost of maintenance and
repairs is charged to expense as incurred, whereas significant renewals and
improvements are capitalized.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings................................................... 15 - 40 years
Furniture, fixtures and equipment........................... 3 - 10 years
</TABLE>
F-12
<PAGE> 87
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Real Estate
Properties acquired through foreclosure are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs to
dispose. Accounting literature defines fair value as the amount that is expected
to be received in a current sale between a willing buyer and seller other than
in a forced or liquidation sale. Fair values at foreclosure are based on
appraisals. Losses arising from the acquisition of foreclosed properties are
charged against the allowance for loan losses. Subsequent writedowns are
provided by a charge to income through the allowance for losses on other real
estate in the period in which the need arises.
Treasury Stock
Treasury stock is accounted for by the cost method. Subsequent reissuances
are accounted for at average cost.
Income Taxes
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized 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 and the tax bases of the Company's assets and liabilities
results in deferred tax assets, an evaluation of the probability of being able
to realize the future benefits indicated by such asset is required. A valuation
allowance is provided 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.
Net Earnings Per Share
Net earnings per share is based upon the weighted average number of common
shares outstanding during each period.
F-13
<PAGE> 88
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of securities available for
sale at December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Equity securities........................ $ 252,650 $ -- $ -- $ 252,650
U.S. Treasury............................ 744,272 2,949 190 747,031
U.S. Government agencies................. 7,031,312 4,014 49,282 6,986,044
State, county and municipal.............. 3,636,150 61,014 13,631 3,683,533
Mortgage-backed securities............... 6,014,587 19,311 85,307 5,948,591
----------- -------- -------- -----------
$17,678,971 $ 87,288 $148,410 $17,617,849
=========== ======== ======== ===========
1995:
U.S. Treasury............................ $ 746,928 $ 9,790 $ -- $ 756,718
U.S. Government agencies................. 2,300,295 1,248 46,699 2,254,844
State, county and municipal.............. 3,542,924 93,007 12,060 3,623,871
Mortgage-backed securities............... 6,026,662 50,243 55,655 6,021,250
----------- -------- -------- -----------
$12,616,809 $154,288 $114,414 $12,656,683
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated fair value of securities available for
sale at December 31, 1996, 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>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
U.S. Treasury:
1 to 5 years................................................ $ 744,272 $ 747,031
=========== ===========
U.S. Government agencies:
Within 1 year............................................... $ 5,085,894 $ 5,085,113
1 to 5 years................................................ 947,110 947,935
5 to 10 years............................................... 998,308 952,996
----------- -----------
$ 7,031,312 $ 6,986,044
=========== ===========
State, county and municipal:
Within 1 year............................................... $ 155,000 $ 156,545
1 to 5 years................................................ 1,551,947 1,569,856
5 to 10 years............................................... 778,499 769,060
More than 10 years.......................................... 1,150,704 1,188,072
----------- -----------
$ 3,636,150 $ 3,683,533
=========== ===========
Total securities other than mortgage-backed securities:
Within 1 year............................................... $ 5,240,894 $ 5,241,658
1 to 5 years................................................ 3,243,329 3,264,822
5 to 10 years............................................... 1,776,807 1,722,056
More than 10 years.......................................... 1,150,704 1,188,072
Mortgage-backed securities.................................. 6,014,587 5,948,591
Equity securities........................................... 252,650 252,650
----------- -----------
$17,678,971 $17,617,849
=========== ===========
</TABLE>
F-14
<PAGE> 89
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales of securities available for sale during 1996, 1995 and
1994 totalled $2,154,207, $3,076,270 and $130,962, respectively. Gross gains of
$12,718, $51,019 and $2,038 were realized on those sales.
Investment securities with a carrying value of approximately $16,516,000
and $5,437,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits or for other purposes.
(3) LOANS
Major classifications of loans at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural...................... $18,066,228 $10,957,472
Real estate -- construction................................. 1,389,710 205,009
Real estate -- mortgage..................................... 41,691,295 36,373,566
Consumer loans.............................................. 8,338,259 7,103,305
----------- -----------
Total loans....................................... 69,485,492 54,639,352
Less: Unearned interest..................................... 152,900 32,221
Allowance for loan losses............................. 1,188,120 1,017,883
----------- -----------
Total net loans................................... $68,144,472 $53,589,248
=========== ===========
</TABLE>
The Bank grants loans and extensions of credit to individuals and a variety
of firms and corporations located primarily in counties in middle Georgia.
Although the Bank has a diversified loan portfolio, a substantial portion is
collateralized by improved and unimproved agricultural real estate and is
dependent upon the agriculture market.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Balance at beginning of year........................ $1,017,883 $ 933,867 $919,549
Provisions charged to expense....................... 220,000 110,000 30,000
Loan charge-offs.................................... (58,020) (31,857) (31,397)
Recoveries.......................................... 8,257 5,873 15,715
---------- ---------- --------
Balance at end of year.............................. $1,188,120 $1,017,883 $933,867
---------- ---------- --------
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land........................................................ $ 244,993 $ 244,993
Buildings and improvements.................................. 2,822,064 2,702,224
Furniture and equipment..................................... 3,454,104 3,069,065
---------- ----------
6,521,161 6,016,282
Less: Accumulated depreciation.............................. 2,967,703 2,472,114
---------- ----------
$3,553,458 $3,544,168
========== ==========
</TABLE>
Depreciation expense was approximately $525,000, $342,000 and $294,000 in
1996, 1995 and 1994, respectively.
F-15
<PAGE> 90
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) DEPOSITS
At December 31, 1996, maturities of time deposits are as follows:
<TABLE>
<S> <C>
Maturing In:
1997........................................................ $31,374,470
1998........................................................ 12,028,835
1999........................................................ 2,281,905
2000........................................................ 85,982
2001 and thereafter......................................... 1,507,931
-----------
Total............................................. $47,279,123
===========
</TABLE>
Time deposits of $100,000 or more were approximately $12,254,000 and
$8,691,000 at December 31, 1996 and 1995, respectively.
(6) EMPLOYEE AND DIRECTOR BENEFIT PLANS
The Company has a 401(k) profit-sharing plan covering substantially all
employees subject to certain minimum age and service requirements, with
contributions determined annually by the Board of Directors. The Company
contributed $19,256, $21,285 and $47,420 in 1996, 1995 and 1994, respectively,
to the plan.
The Bank provides retirement benefits to its key officers and Board of
Directors and for purposes of providing death benefits for their designated
beneficiaries. Under the plan, The Bank purchased split-dollar whole life
insurance contracts on the lives of each key officer and director. The increase
in cash surrender value of the contracts, less The Bank's cost of funds,
constitutes The Bank's contribution to the plan each year. In the event the
insurance contracts fail to produce positive returns, The Bank has no obligation
to contribute to the plan. At December 31, 1996 and 1995, the cash surrender
value of these insurance contracts was approximately $1,283,000 and $1,079,000,
respectively, and is included as a component of the cash surrender value of life
insurance on the consolidated balance sheets. Expenses incurred for benefits
were approximately $10,500 during 1996. No expenses were recorded for benefits
relating to this plan during 1995.
(7) FEDERAL HOME LOAN BANK TRANSACTIONS
The Bank has an agreement with the Federal Home Loan Bank (FHLB) to provide
the Bank credit facilities. Any amounts advanced by the FHLB are secured under a
blanket floating lien covered by all of the Bank's 1-4 family first mortgage
loans. The Bank may draw advances up to 75% of the outstanding balance of these
loans based on the agreement with the FHLB. The Bank has no borrowings from the
FHLB outstanding at December 31, 1996 and 1995.
(8) COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contract amount of these instruments reflects the extent of involvement the Bank
has in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance 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 these instruments.
The same credit policies are used in making commitments and conditional
obligations as for on-balance-sheet instruments.
F-16
<PAGE> 91
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In most cases, collateral is required to support financial instruments with
credit risk.
<TABLE>
<CAPTION>
APPROXIMATE
CONTRACT AMOUNT
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit................................ $15,500,000 $12,406,000
Standby letters of credit................................... $ 260,000 $ 98,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank, upon extension of credit is based on management's
credit evaluation. Collateral held varies but may include unimproved and
improved real estate, certificates of deposit, or personal property.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to local businesses. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds real estate, equipment and certificates
of deposit as collateral supporting those commitments for which collateral is
deemed necessary.
(9) REGULATORY MATTERS
The Company and the 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 and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The 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 maintenance of minimum amounts and ratios of total and Tier 1
capital (as defined) to risk-weighted assets and of Tier 1 capital to average
assets. Management believes, as of December 31, 1996 and 1995, that all capital
adequacy requirements to which they are subject are met.
As of December 31, 1996 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 1 risk-based
and Tier 1 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-17
<PAGE> 92
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank amounts and ratios are in excess of Bank only capital amounts and
Consolidated amounts and ratios are in excess of consolidated capital amounts
and ratios due to additional capital retained by the Company for general
corporate purposes.
<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>
December 31, 1996:
Total Capital (to Risk Weighted
Assets)............................ $9,874,759 12.4% $6,378,800 M8.0% $7,973,500 M10.0%
Tier 1 Capital (to Risk Weighted
Assets)............................ 8,875,709 11.1 3,189,400 M4.0 4,784,100 M 6.0
Tier 1 Capital (to Average Assets)... 8,875,709 10.3 3,441,400 M4.0 4,301,750 M 5.0
December 31, 1995:
Total Capital (to Risk Weighted
Assets)............................ 9,117,444 14.4 5,049,920 M8.0 6,312,400 M10.0
Tier 1 Capital (to Risk Weighted
Assets)............................ 8,325,569 13.2 2,524,960 M4.0 3,787,440 M 6.0
Tier 1 Capital (to Average Assets)... 8,325,569 10.8 3,090,160 M4.0 3,862,700 M 5.0
</TABLE>
Dividends paid by the Bank are the primary source of funds available to the
Company. Statutes and regulations impose restrictions on the amount of dividends
that may be declared. For the year ending December 31, 1997, the Bank could pay
approximately $579,000 to the Company without seeking regulatory approval.
(10) TREASURY STOCK TRANSACTIONS
During 1996 and 1994, the Company redeemed 147 and 2,426 shares of its
common stock at prices ranging from $100 to $142 per share. During 1995 and
1994, the Company re-issued 147 and 1,456 shares at prices ranging from $113 to
$136 per share.
(11) INCOME TAXES
The following is an analysis of the provision for income tax expense for
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $495,105 $472,822 $420,026
State.................................................. 47,480 68,000 47,500
-------- -------- --------
542,585 540,822 467,526
-------- -------- --------
Deferred (reduction):
Federal................................................ (66,767) (16,263) (1,740)
State.................................................. (12,535) (3,053) (327)
-------- -------- --------
(79,302) (19,316) (2,067)
-------- -------- --------
Total income tax expense..................... $463,283 $521,506 $465,459
======== ======== ========
</TABLE>
F-18
<PAGE> 93
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before taxes for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Pretax income at statutory rates....................... $519,638 $556,204 $496,869
Add (deduct):
Tax-exempt interest income............................. (86,080) (86,285) (77,640)
State taxes, net of federal effect..................... 23,064 42,900 31,078
Other.................................................. 6,661 8,687 15,152
-------- -------- --------
$463,283 $521,506 $465,459
======== ======== ========
</TABLE>
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 included as a component of other assets at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses................................... $ 339,353 $ 274,730
Unrealized loss on securities available for sale............ 23,227 --
Other, net.................................................. 32,357 12,760
--------- ---------
Gross deferred tax assets......................... 394,937 287,490
--------- ---------
Deferred income tax liabilities:
Premises and equipment...................................... (146,089) (141,171)
Unrealized gain on securities available for sale............ -- (15,153)
--------- ---------
Gross deferred tax liabilities.............................. (146,089) (156,324)
--------- ---------
Net deferred tax asset............................ $ 248,848 $ 131,166
========= =========
</TABLE>
(12) RELATED PARTY TRANSACTIONS
In the normal course of business, executive officers and directors of the
Company and the Bank, 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 1996.
<TABLE>
<S> <C>
Balance at December 31, 1995................................ $ 3,326,000
New loans................................................... 893,000
Repayments.................................................. (2,577,000)
-----------
Balance at December 31, 1996................................ $ 1,642,000
===========
</TABLE>
The Company is subject to a shareholder agreement entered into with members
of the Speight family. The Speight family collectively holds 35,565 shares of
Company stock at December 31, 1996 and 1995. This agreement provides for the
purchase and sale of each of the shareholders' stock during the life or at the
death of the shareholder, effectively controlling the management of the Company
by imposing certain restrictions and mutual obligations on themselves and on the
Company.
F-19
<PAGE> 94
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) MIDDLE GEORGIA (PARENT ONLY) FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 750,882 $ 423,394
Other investments........................................... 270,760 250,750
Investment in subsidiary.................................... 8,837,815 8,350,290
Goodwill, net............................................... 116,543 120,860
Other assets................................................ 126,754 135,483
----------- ----------
$10,102,754 $9,280,777
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities........................................... $ 34,146 $ 129,742
Stockholders' equity........................................ 10,068,608 9,151,035
----------- ----------
$10,102,754 $9,280,777
=========== ==========
</TABLE>
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Income:
Dividends received from subsidiary.......................... $ 607,476 $ 550,250 $757,144
Management fees............................................. 90,000 90,000 90,000
Other income................................................ 43,758 28,937 20,581
---------- ---------- --------
Total income...................................... 741,234 669,187 867,725
---------- ---------- --------
Expense:
Interest.................................................... -- 2,210 37,442
Amortization................................................ 4,317 4,316 4,318
Other operating............................................. 265,711 265,051 279,143
---------- ---------- --------
Total expense..................................... 270,028 271,577 320,903
---------- ---------- --------
Earnings before income tax benefit and equity in
undistributed earnings of subsidiary...................... 471,206 397,610 546,822
Income tax benefit.......................................... 43,717 50,493 70,041
---------- ---------- --------
Earnings before equity in undistributed earnings of
subsidiary................................................ 514,923 448,103 616,863
Equity in undistributed earnings of subsidiary.............. 550,141 666,284 379,058
---------- ---------- --------
Net earnings...................................... $1,065,064 $1,114,387 $995,921
========== ========== ========
</TABLE>
F-20
<PAGE> 95
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................... $1,065,064 $1,114,387 $ 995,921
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary........... (550,141) (666,284) (379,058)
Depreciation and amortization............................ 5,169 5,169 10,188
Change in:
Other assets.......................................... 7,877 (50,425) 17,199
Other liabilities..................................... (95,844) (516) 8,308
---------- ---------- ---------
Net cash provided by operating activities........ 432,125 402,331 652,558
---------- ---------- ---------
Cash flows used in investing activities, consisting of
purchases of equity securities........................... (20,010) (50,750) (200,000)
---------- ---------- ---------
Cash flows from financing activities:
Repayments of note payable................................. -- (390,000) (130,000)
Purchases of treasury stock................................ (20,933) -- (266,860)
Sales of treasury stock.................................... -- 20,055 166,905
Dividends paid............................................. (63,694) (63,694) (62,238)
---------- ---------- ---------
Net cash used in financing activities............ (84,627) (433,639) (292,193)
---------- ---------- ---------
Net change in cash......................................... 327,488 (82,058) 160,365
Cash at beginning of year.................................. 423,394 505,452 345,087
---------- ---------- ---------
Cash at end of year........................................ $ 750,882 $ 423,394 $ 505,452
========== ========== =========
Supplemental disclosures of cash flow information:
Noncash investing and financing activities:
Change in unrealized gain (loss) on subsidiary's
securities available for sale......................... $ (62,616) $ 356,977 $(332,256)
Change in dividends payable.............................. $ 248 $ 248 $ 248
</TABLE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation of
the fair value of the Company's financial instruments are detailed below. Where
quoted prices are not available, fair values are based on estimates using
discounted cash flows and other valuation techniques. The use of discounted cash
flows can be significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. The following disclosures
should not be considered a surrogate of the liquidation value of the Company,
but rather a good-faith estimate of the increase or decrease in value of
financial instruments held by the Company since purchase, origination, or
issuance.
Cash and Cash Equivalents
For cash, due from banks and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
F-21
<PAGE> 96
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Available for Sale
Fair values of securities available for sale are based on quoted market
prices.
Other Investments
The carrying value of other investments approximates fair value.
Loans
The fair value of fixed rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. For variable rate loans, the carrying
amount is a reasonable estimate of fair value.
Cash Surrender Value
The carrying amount of the cash surrender value of life insurance policies
is a reasonable estimate of fair value.
Deposits
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
Because commitments to extend credit and standby letters of credit are made
using variable rates, the contract value is a reasonable estimate of fair value.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include deferred income taxes and premises and
equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
F-22
<PAGE> 97
MIDDLE GEORGIA BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................... $ 5,906,262 $ 5,906,262 $ 9,263,296 $ 9,263,296
Securities available for sale............... 17,617,849 17,617,849 12,656,683 12,656,683
Other investments........................... 647,560 647,560 604,750 604,750
Loans, net.................................. 68,144,472 68,028,347 53,589,248 53,708,223
Cash surrender value........................ 1,343,928 1,343,928 1,263,718 1,263,718
Liabilities:
Deposits.................................... $88,018,172 $88,167,130 $73,026,733 $73,215,669
Unrecognized financial instruments:
Commitments to extend credit................ 15,500,000 15,500,000 12,406,000 12,406,000
Standby letters of credit................... 260,000 260,000 98,000 98,000
</TABLE>
(15) SUBSEQUENT EVENT
On January 15, 1997, the Bank entered into a Purchase and Assumption
agreement to acquire certain assets and assume deposit liabilities of the
Montezuma branch office of Wachovia Bank of Georgia, N.A., Atlanta, Georgia. The
assets to be purchased include loans secured by the assumed deposits, without
recourse, and premises and equipment of the Montezuma office and of a former
Wachovia branch in Oglethorpe which is currently not operational. Estimated
deposits to be assumed totalled approximately $30,045,000 as of December 31,
1996 with an associated deposit premium of $2,106,000. Estimated assets to be
purchased total approximately $2,142,000 at December 31, 1996. The transaction
is expected to close in May 1997.
F-23
<PAGE> 98
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FLAG FINANCIAL CORPORATION,
AND
MIDDLE GEORGIA BANKSHARES, INC.
DATED AS OF OCTOBER 28, 1997
A-1
<PAGE> 99
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Parties............................................................ A-6
Preamble........................................................... A-6
ARTICLE 1 -- TRANSACTIONS AND TERMS OF MERGER...................... A-6
1.1 Merger...................................................... A-6
1.2 Time and Place of Closing................................... A-6
1.3 Effective Time.............................................. A-6
ARTICLE 2 -- TERMS OF MERGER....................................... A-7
2.1 Charter..................................................... A-7
2.2 Bylaws...................................................... A-7
2.3 Directors and Officers...................................... A-7
ARTICLE 3 -- MANNER OF CONVERTING SHARES........................... A-7
3.1 Conversion of Shares........................................ A-7
3.2 Anti-Dilution Provisions.................................... A-7
3.3 Shares Held by Middle Georgia or FLAG....................... A-7
3.4 Dissenting Shareholders..................................... A-7
3.5 Fractional Shares........................................... A-8
ARTICLE 4 -- EXCHANGE OF SHARES.................................... A-8
4.1 Exchange Procedures......................................... A-8
4.2 Rights of Former Middle Georgia Shareholders................ A-9
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF MIDDLE GEORGIA...... A-9
5.1 Organization, Standing, and Power........................... A-9
5.2 Authority of Middle Georgia; No Breach By Agreement......... A-10
5.3 Capital Stock............................................... A-10
5.4 Middle Georgia Subsidiaries................................. A-11
5.5 Financial Statements........................................ A-11
5.6 Absence of Undisclosed Liabilities.......................... A-11
5.7 Absence of Certain Changes or Events........................ A-12
5.8 Tax Matters................................................. A-12
5.9 Allowance for Possible Loan Losses.......................... A-13
5.10 Assets...................................................... A-13
5.11 Intellectual Property....................................... A-14
5.12 Environmental Matters....................................... A-14
5.13 Compliance with Laws........................................ A-15
5.14 Labor Relations............................................. A-15
5.15 Employee Benefit Plans...................................... A-15
5.16 Material Contracts.......................................... A-17
5.17 Legal Proceedings........................................... A-17
5.18 Reports..................................................... A-18
5.19 Statements True and Correct................................. A-18
5.20 Accounting, Tax and Regulatory Matters...................... A-18
5.21 Charter Provisions.......................................... A-18
5.22 Board Recommendation........................................ A-18
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF FLAG................ A-19
6.1 Organization, Standing, and Power........................... A-19
6.2 Authority of FLAG; No Breach By Agreement................... A-19
6.3 Capital Stock............................................... A-20
6.4 FLAG Subsidiaries........................................... A-20
6.5 SEC Filings; Financial Statements........................... A-21
6.6 Absence of Undisclosed Liabilities.......................... A-21
</TABLE>
A-2
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.7 Absence of Certain Changes or Events........................ A-21
6.8 Tax Matters................................................. A-21
6.9 Allowance for Possible Loan Losses.......................... A-22
6.10 Assets...................................................... A-23
6.11 Intellectual Property....................................... A-23
6.12 Environmental Matters....................................... A-23
6.13 Compliance with Laws........................................ A-24
6.14 Labor Relations............................................. A-24
6.15 Employee Benefit Plans...................................... A-25
6.16 Material Contracts.......................................... A-26
6.17 Legal Proceedings........................................... A-27
6.18 Reports..................................................... A-27
6.19 Statements True and Correct................................. A-27
6.20 Accounting, Tax and Regulatory Matters...................... A-27
6.21 Charter Provisions.......................................... A-27
6.22 Board Recommendation........................................ A-28
ARTICLE 7 -- CONDUCT OF BUSINESS PENDING CONSUMMATION.............. A-28
7.1 Affirmative Covenants of Middle Georgia..................... A-28
7.2 Negative Covenants of Middle Georgia........................ A-28
7.3 Affirmative Covenants of FLAG............................... A-30
7.4 Negative Covenants of FLAG.................................. A-30
7.5 Adverse Changes in Condition................................ A-31
7.6 Reports..................................................... A-31
ARTICLE 8 -- ADDITIONAL AGREEMENTS................................. A-32
Registration Statement; Proxy Statement; Shareholder
8.1 Approval.................................................... A-32
8.2 Nasdaq Listing.............................................. A-32
8.3 Applications................................................ A-32
8.4 Filings with State Offices.................................. A-32
8.5 Agreement as to Efforts to Consummate....................... A-32
8.6 Investigation and Confidentiality........................... A-33
8.7 Press Releases.............................................. A-33
8.8 Certain Actions............................................. A-33
8.9 Accounting and Tax Treatment................................ A-34
8.10 Charter Provisions.......................................... A-34
8.11 Agreements of Affiliates.................................... A-34
8.12 Employee Benefits and Contracts............................. A-34
8.13 Indemnification............................................. A-35
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE..... A-36
9.1 Conditions to Obligations of Each Party..................... A-36
9.2 Conditions to Obligations of FLAG........................... A-37
9.3 Conditions to Obligations of Middle Georgia................. A-38
ARTICLE 10 -- TERMINATION.......................................... A-38
10.1 Termination................................................. A-38
10.2 Effect of Termination....................................... A-39
10.3 Non-Survival of Representations and Covenants............... A-39
ARTICLE 11 -- MISCELLANEOUS........................................ A-39
11.1 Definitions................................................. A-39
11.2 Expenses.................................................... A-45
11.3 Brokers and Finders......................................... A-45
</TABLE>
A-3
<PAGE> 101
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
11.4 Entire Agreement............................................ A-45
11.5 Amendments.................................................. A-46
11.6 Waivers..................................................... A-46
11.7 Assignment.................................................. A-46
11.8 Notices..................................................... A-47
11.9 Governing Law............................................... A-47
11.10 Counterparts................................................ A-47
11.11 Captions; Articles and Sections............................. A-47
11.12 Interpretations............................................. A-47
11.13 Enforcement of Agreement.................................... A-47
11.14 Severability................................................ A-48
Signatures......................................................... A-48
</TABLE>
A-4
<PAGE> 102
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Forms of agreement of affiliates of Middle Georgia.
(sec. 8.11(a)).
2 -- Form of agreement of affiliates of FLAG. (sec. 8.11(b)).
3 -- Matters as to which Powell Goldstein Frazer & Murphy LLP
will opine. (sec. 9.2(d)).
4 -- Form of Claims Letter (sec. 9.2(f)).
5 -- Matters as to which Alston & Bird LLP will opine.
(sec. 9.3(d)).
6 -- Form of Claims Letter (sec. 9.3(f)).
</TABLE>
A-5
<PAGE> 103
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of October 28, 1997, by and between FLAG FINANCIAL CORPORATION ("FLAG"),
a Georgia corporation; and MIDDLE GEORGIA BANKSHARES, INC. ("Middle Georgia"), a
Georgia corporation.
PREAMBLE
The respective Boards of Directors of Middle Georgia 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 combination of Middle Georgia with FLAG pursuant to the merger
of Middle Georgia with and into FLAG. At the effective time of such merger, the
outstanding shares of the capital stock of Middle Georgia shall be converted
into the right to receive shares of the common stock of FLAG (except as provided
herein). As a result, shareholders of Middle Georgia shall become shareholders
of FLAG and FLAG shall continue to conduct the business and operations of Middle
Georgia. The transactions described in this Agreement are subject to the
approvals of the shareholders of Middle Georgia, the shareholders of FLAG, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the Georgia Department of Banking and Finance and the satisfaction
of certain other conditions described in this Agreement. It is the intention of
the parties to this Agreement that the merger 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.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time, Middle Georgia shall be merged 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 Middle Georgia and FLAG.
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 both of the following conditions are met: (a) the
shareholders of Middle Georgia have approved this Agreement to the extent such
approval is required by applicable Law, and (b) the shareholders of FLAG have
approved any issuance of FLAG Common Stock to be made pursuant to this
Agreement.
A-6
<PAGE> 104
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. 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.
2.3 DIRECTORS AND OFFICERS.
(a) The directors of the Surviving Corporation shall be: Dr. A. Glenn
Bailey, H. Speer Burdette, III, Patti S. Davis, Fred A. Durand, III, John
S. Holle, Kelly R. Linch, J. Daniel Speight, Jr., John W. Stewart, Jr.,
Robert W. Walters and 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: John
S. Holle, Chairman of the Board; J. Daniel Speight, Jr., President and
Chief Executive Officer; Patti S. Davis, Senior Vice President and
Secretary; Ellison C. Rudd, Senior Vice President, Treasurer and Chief
Financial Officer; and such additional persons as may thereafter be
elected. Such persons shall serve as the 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 FLAG, Middle Georgia, or the shareholders of either of the foregoing, the
shares of the constituent corporations 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 Middle Georgia Common Stock (excluding shares held
by any Middle Georgia 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
dissenters' 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 15.75 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) shall be after the
Exchange Ratio has been determined in accordance with Section 3.1(b) and prior
to the Effective Time, the Exchange Ratio shall be proportionately adjusted.
3.3 SHARES HELD BY MIDDLE GEORGIA OR FLAG. Each of the shares of Middle
Georgia Common Stock held by any Middle Georgia 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.
3.4 DISSENTING SHAREHOLDERS. Any holder of shares of Middle Georgia
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
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shareholder has complied with the applicable provisions of the GBCC and
surrendered to Middle Georgia the certificate or certificates representing the
shares for which payment is being made. In the event that after the Effective
Time a dissenting shareholder of Middle Georgia fails to perfect, or effectively
withdraws or loses, his right to appraisal and of payment for his shares, FLAG
shall issue and deliver the consideration to which such holder of shares of
Middle Georgia Common Stock is entitled under this Article 3 (without interest)
upon surrender by such holder of the certificate or certificates representing
shares of Middle Georgia Common Stock held by him. If and to the extent required
by applicable Law, Middle Georgia 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 the Surviving Corporation.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Middle Georgia 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 and
Middle Georgia 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 Middle Georgia 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
Middle Georgia 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 Middle
Georgia Common Stock represented by Certificates that are not registered in the
transfer records of Middle Georgia, 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 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 Middle Georgia Common Stock (other than
shares to be canceled pursuant to Section 3.3 or as to which statutory
dissenters' 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. To
the extent required by Section 3.5, each holder of shares of Middle Georgia
Common Stock issued and outstanding at the Effective Time also shall receive,
upon surrender of the Certificate or Certificates, cash in lieu of any
fractional share of FLAG Common Stock to which such holder may be otherwise
entitled (without
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interest). FLAG shall not be obligated to deliver the consideration to which any
former holder of Middle Georgia 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 Middle Georgia 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 Middle Georgia shall constitute ratification of the appointment
of the Exchange Agent.
4.2 RIGHTS OF FORMER MIDDLE GEORGIA SHAREHOLDERS. At the Effective Time,
the stock transfer books of Middle Georgia shall be closed as to holders of
Middle Georgia Common Stock immediately prior to the Effective Time and no
transfer of Middle Georgia 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
Middle Georgia 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 Sections 3.1
and 3.5 in exchange therefor, subject, however, to the Surviving Corporation'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 Middle
Georgia in respect of such shares of Middle Georgia 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 Middle Georgia
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 Middle Georgia 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. 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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MIDDLE GEORGIA
Middle Georgia hereby represents and warrants to FLAG as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Middle Georgia 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.
Middle Georgia 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 Middle Georgia
Material Adverse Effect. The minute book and other organizational documents for
Middle Georgia have been made available to FLAG for its review and, except as
disclosed in Section 5.1 of the Middle Georgia 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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5.2 AUTHORITY OF MIDDLE GEORGIA; NO BREACH BY AGREEMENT.
(a) Middle Georgia 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 Middle Georgia, subject to the approval of this Agreement by the holders
of a majority of the outstanding shares of Middle Georgia Common Stock,
which is the only shareholder vote required for approval of this Agreement
and consummation of the Merger by Middle Georgia. Subject to such requisite
shareholder approval, this Agreement represents a legal, valid, and binding
obligation of Middle Georgia, enforceable against Middle Georgia 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).
(b) Neither the execution and delivery of this Agreement by Middle
Georgia, nor the consummation by Middle Georgia of the transactions
contemplated hereby, nor compliance by Middle Georgia with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of Middle Georgia's Articles of Incorporation or Bylaws or the
certificate or articles of incorporation or bylaws of any Middle Georgia
Subsidiary or any resolution adopted by the board of directors or the
shareholders of any Middle Georgia Entity, or (ii) except as disclosed in
Section 5.2 of the Middle Georgia 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 Middle Georgia Entity under,
any Contract or Permit of any Middle Georgia Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Middle Georgia 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 Middle Georgia
Entity or any of their respective material Assets (including any FLAG
Entity or any Middle Georgia Entity becoming subject to or liable for the
payment of any Tax or any of the Assets owned by any FLAG Entity or any
Middle Georgia 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 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 Middle Georgia Material Adverse Effect, no notice to,
filing with, or Consent of, any public body or authority is necessary for
the consummation by Middle Georgia of the Merger and the other transactions
contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Middle Georgia consists of
1,000,000 shares of Middle Georgia Common Stock, of which 64,272 shares are
issued and outstanding. All of the issued and outstanding shares of capital
stock of Middle Georgia 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 Middle Georgia has been issued in violation of any
preemptive rights of the current or past shareholders of Middle Georgia.
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the Middle Georgia Disclosure Memorandum, there are no shares of
capital stock or other equity securities of Middle Georgia outstanding and
no outstanding Equity Rights relating to the capital stock of Middle
Georgia.
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5.4 MIDDLE GEORGIA SUBSIDIARIES. Middle Georgia has disclosed in Section
5.4 of the Middle Georgia Disclosure Memorandum all of the Middle Georgia
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 Middle Georgia
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 5.4 of the Middle Georgia
Disclosure Memorandum, Middle Georgia or one of its wholly-owned Subsidiaries
owns all of the issued and outstanding shares of capital stock (or other equity
interests) of each Middle Georgia Subsidiary. No capital stock (or other equity
interest) of any Middle Georgia Subsidiary is or may become required to be
issued (other than to another Middle Georgia Entity) by reason of any Equity
Rights, and there are no Contracts by which any Middle Georgia Subsidiary is
bound to issue (other than to another Middle Georgia Entity) additional shares
of its capital stock (or other equity interests) or Equity Rights or by which
any Middle Georgia Entity is or may be bound to transfer any shares of the
capital stock (or other equity interests) of any Middle Georgia Subsidiary
(other than to another Middle Georgia Entity). There are no Contracts relating
to the rights of any Middle Georgia Entity to vote or to dispose of any shares
of the capital stock (or other equity interests) of any Middle Georgia
Subsidiary. All of the shares of capital stock (or other equity interests) of
each Middle Georgia Subsidiary held by a Middle Georgia Entity are fully paid
and (except pursuant to 12 USC 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 Middle Georgia Entity free and
clear of any Lien. Except as disclosed in Section 5.4 of the Middle Georgia
Disclosure Memorandum, each Middle Georgia Subsidiary is either a bank, a
savings association, or a corporation, and each such Subsidiary 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 Middle Georgia
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 Middle Georgia
Material Adverse Effect. Each Middle Georgia Subsidiary that is a depository
institution is an "insured institution" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder, and the deposits in which
are insured by the Bank Insurance Fund. The minute book and other organizational
documents for each Middle Georgia Subsidiary have been made available to FLAG
for its review, and, except as disclosed in Section 5.4 of the Middle Georgia
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 Middle Georgia 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 Middle
Georgia 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.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Middle Georgia Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Middle Georgia Material Adverse Effect, except Liabilities which
are accrued or reserved against in the consolidated balance sheets of Middle
Georgia as of December 31, 1996 and June 30, 1997, included in the Middle
Georgia Financial Statements delivered prior to the date of this Agreement or
reflected in the notes thereto. No Middle Georgia Entity has incurred or paid
any Liability since June 30, 1997, 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
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the aggregate, a Middle Georgia 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, 1996, except
as disclosed in the Middle Georgia Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 5.7 of the Middle Georgia
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 Middle Georgia Material Adverse Effect, and (ii) the Middle Georgia
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 Middle Georgia provided in Article 7.
5.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of the
Middle Georgia 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, 1996, 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 Middle Georgia 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 Middle Georgia Material Adverse Effect,
except as reserved against in the Middle Georgia Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section
5.8 of the Middle Georgia 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 Middle Georgia Entities, except for any
such Liens which are not reasonably likely to have a Middle Georgia
Material Adverse Effect or with respect to which the Taxes are not yet due
and payable.
(b) None of the Middle Georgia 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
Middle Georgia Entities for the period or periods through and including the
date of the respective Middle Georgia Financial Statements that has been
made and is reflected on such Middle Georgia Financial Statements is
sufficient to cover all such Taxes.
(d) Deferred Taxes of the Middle Georgia Entities have been provided
for in accordance with GAAP.
(e) Except as disclosed in Section 5.8 of the Middle Georgia
Disclosure Memorandum, none of the Middle Georgia Entities is a party to
any Tax allocation or sharing agreement and none of the Middle Georgia
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 Middle Georgia) or has any Liability for Taxes of any Person (other
than Middle Georgia 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 Middle Georgia 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
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omissions as are not reasonably likely to have, individually or in the
aggregate, a Middle Georgia Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the Middle Georgia
Disclosure Memorandum, none of the Middle Georgia 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 280G 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 the Middle Georgia
Entities that occurred during or after any Taxable Period in which the
Middle Georgia Entities incurred a net operating loss that carries over to
any Taxable Period ending after December 31, 1996.
(i) No Middle Georgia 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 Middle
Georgia 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
Middle Georgia included in the most recent Middle Georgia Financial Statements
dated prior to the date of this Agreement was, and the Allowance shown on the
consolidated balance sheets of Middle Georgia included in the Middle Georgia
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 Middle Georgia
Entities and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the Middle Georgia Entities as of
the dates thereof, except where the failure of such Allowance to be so adequate
is not reasonably likely to have a Middle Georgia Material Adverse Effect.
5.10 ASSETS.
(a) Except as disclosed in Section 5.10 of the Middle Georgia
Disclosure Memorandum or as disclosed or reserved against in the Middle
Georgia Financial Statements delivered prior to the date of this Agreement,
the Middle Georgia 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 Middle
Georgia Material Adverse Effect. All tangible properties used in the
businesses of the Middle Georgia Entities are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with Middle Georgia's past practices.
(b) All Assets which are material to Middle Georgia's business on a
consolidated basis, held under leases or subleases by any of the Middle
Georgia 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.
(c) The Middle Georgia Entities currently maintain insurance similar
in amounts, scope, and coverage to that maintained by other peer banking
organizations. None of the Middle Georgia Entities has received 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
notices of claims in excess of such amounts have been given by any Middle
Georgia Entity under such policies.
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(d) The Assets of the Middle Georgia Entities include all Assets
required to operate the business of the Middle Georgia Entities as
presently conducted.
5.11 INTELLECTUAL PROPERTY. Each Middle Georgia Entity owns or has a
license to use all of the Intellectual Property used by such Middle Georgia
Entity in the course of its business. Each Middle Georgia Entity is the owner of
or has a license to any Intellectual Property sold or licensed to a third party
by such Middle Georgia Entity in connection with such Middle Georgia Entity's
business operations, and such Middle Georgia Entity has the right to convey by
sale or license any Intellectual Property so conveyed. No Middle Georgia Entity
is in Default under any of its Intellectual Property licenses. No proceedings
have been instituted, or are pending or to the Knowledge of Middle Georgia
threatened, which challenge the rights of any Middle Georgia Entity with respect
to Intellectual Property used, sold or licensed by such Middle Georgia 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 Middle Georgia
Entities does not infringe any Intellectual Property of any other person. Except
as disclosed in Section 5.11 of the Middle Georgia Disclosure Memorandum, no
Middle Georgia Entity is obligated to pay any recurring royalties to any Person
with respect to any such Intellectual Property. Except as disclosed in Section
5.11 of the Middle Georgia Disclosure Memorandum, no officer, director or
employee of any Middle Georgia 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 Middle Georgia Entity.
5.12 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 5.12 of the Middle Georgia
Disclosure Memorandum, to the Knowledge of Middle Georgia, each Middle
Georgia 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 Middle Georgia Material Adverse Effect.
(b) To the Knowledge of Middle Georgia, there is no Litigation pending
or threatened before any court, governmental agency, or authority or other
forum in which any Middle Georgia Entity or any of its Operating Properties
or Participation Facilities (or Middle Georgia 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 Middle Georgia 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, a Middle Georgia Material Adverse
Effect, nor, to the Knowledge of Middle Georgia, 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
Middle Georgia Material Adverse Effect.
(c) Except as disclosed in Section 5.12 of the Middle Georgia
Disclosure Memorandum, during the period of (i) any Middle Georgia Entity's
ownership or operation of any of their respective current properties, (ii)
any Middle Georgia Entity's participation in the management of any
Participation Facility, or (iii) any Middle Georgia Entity's holding of a
security interest in a 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
Middle Georgia Material Adverse Effect. Except as disclosed in Section 5.12
of the Middle Georgia Disclosure Memorandum, prior to the period of (i) any
Middle Georgia Entity's ownership or operation of any of their respective
current properties, (ii) any Middle Georgia Entity's participation in the
management of any Participation Facility, or (iii) any Middle Georgia
Entity's holding of a security interest in a Operating Property, to the
Knowledge of Middle Georgia, there were no releases, discharges, spillages,
or disposals of Hazardous Material in, on, under, or affecting any such
property, Participation Facility or
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Operating Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Middle Georgia Material Adverse Effect.
5.13 COMPLIANCE WITH LAWS. Middle Georgia is duly registered as a bank
holding company under the BHC Act. Each Middle Georgia 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
Middle Georgia 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 Middle Georgia Material Adverse Effect.
Except as disclosed in Section 5.13 of the Middle Georgia Disclosure Memorandum,
none of the Middle Georgia 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, a
Middle Georgia Material Adverse Effect; or
(c) since January 1, 1993, 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 Middle Georgia 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 Middle Georgia Material Adverse Effect, (ii) threatening
to revoke any Permits, the revocation of which is reasonably likely to
have, individually or in the aggregate, a Middle Georgia Material Adverse
Effect, or (iii) requiring any Middle Georgia 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, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to FLAG.
5.14 LABOR RELATIONS. No Middle Georgia Entity is the subject of any
Litigation asserting that it or any other Middle Georgia 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 Middle Georgia Entity
to bargain with any labor organization as to wages or conditions of employment,
nor is any Middle Georgia Entity party to any collective bargaining agreement,
nor is there any strike or other labor dispute involving any Middle Georgia
Entity, pending or threatened, or to the Knowledge of Middle Georgia, is there
any activity involving any Middle Georgia Entity's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
5.15 EMPLOYEE BENEFIT PLANS.
(a) Middle Georgia has disclosed in Section 5.15 of the Middle Georgia
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 Middle Georgia 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 "Middle
Georgia Benefit Plans"). Any of the Middle Georgia Benefit Plans which is
an "employee pension benefit plan," as that term is defined in
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Section 3(2) of ERISA, is referred to herein as a "Middle Georgia ERISA
Plan." Each Middle Georgia ERISA Plan which is also a "defined benefit
plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "Middle Georgia Pension Plan." No Middle Georgia
Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(b) All Middle Georgia 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 Middle Georgia Material Adverse
Effect. Each Middle Georgia 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 Middle Georgia
is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of Middle Georgia, no
Middle Georgia Entity has engaged in a transaction with respect to any
Middle Georgia Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any Middle Georgia
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 Middle Georgia Material Adverse Effect.
(c) No Middle Georgia 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 Middle Georgia
Pension Plan, (ii) no change in the actuarial assumptions with respect to
any Middle Georgia Pension Plan, and (iii) no increase in benefits under
any Middle Georgia 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 Middle Georgia Material Adverse Effect or materially
adversely affect the funding status of any such plan. Neither any Middle
Georgia Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any
Middle Georgia Entity, or the single-employer plan of any entity which is
considered one employer with Middle Georgia under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether
or 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 a Middle
Georgia Material Adverse Effect. No Middle Georgia Entity has provided, or
is required to provide, security to a Middle Georgia 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 Middle Georgia 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
Middle Georgia Material Adverse Effect. No Middle Georgia 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 Middle Georgia 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 Middle Georgia 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 Middle Georgia
Disclosure Memorandum, no Middle Georgia Entity has any Liability for
retiree health and life benefits under any of the Middle Georgia Benefit
Plans and there are no restrictions on the rights of such Middle Georgia
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 Middle Georgia Material Adverse Effect.
(f) Except as disclosed in Section 5.15 of the Middle Georgia
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
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otherwise) becoming due to any director or any employee of any Middle
Georgia Entity from any Middle Georgia Entity under any Middle Georgia
Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any Middle Georgia 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 Middle Georgia 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 Middle Georgia 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 Middle Georgia Financial
Statements to the extent required by and in accordance with GAAP.
5.16 MATERIAL CONTRACTS. Except as disclosed in Section 5.16 of the
Middle Georgia Disclosure Memorandum or otherwise reflected in the Middle
Georgia Financial Statements, none of the Middle Georgia 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 Middle Georgia Entity or the guarantee
by any Middle Georgia 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 Middle Georgia 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 Middle Georgia
Entities, (v) any Contract relating to the provision of data processing, network
communication, or other technical services to or by any Middle Georgia 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 Middle
Georgia with the SEC (assuming Middle Georgia 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 "Middle Georgia
Contracts"). With respect to each Middle Georgia Contract and except as
disclosed in Section 5.16 of the Middle Georgia Disclosure Memorandum: (i) the
Contract is in full force and effect; (ii) no Middle Georgia Entity is in
Default thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Middle Georgia Material Adverse Effect;
(iii) no Middle Georgia 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 Middle Georgia, in Default in any respect, other than Defaults
which are not reasonably likely to have, individually or in the aggregate, a
Middle Georgia Material Adverse Effect, or has repudiated or waived any material
provision thereunder. All of the indebtedness of any Middle Georgia Entity for
money borrowed is prepayable at any time by such Middle Georgia Entity without
penalty or premium.
5.17 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
to the Knowledge of Middle Georgia, 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 Middle Georgia Entity, or
against any director, employee or employee benefit plan of any Middle Georgia
Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Middle Georgia
Material Adverse Effect, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any Middle
Georgia Entity, that are reasonably likely to have, individually or in the
aggregate, a Middle Georgia Material Adverse Effect. Section 5.17 of the Middle
Georgia Disclosure Memorandum contains a summary of all Litigation as of the
date of this Agreement to which any Middle Georgia Entity is a party and which
names a Middle Georgia Entity as a defendant or cross-defendant or for which any
Middle Georgia Entity has any potential Liability.
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5.18 REPORTS. Since January 1, 1993, or the date of organization if
later, each Middle Georgia 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 Middle Georgia 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 Middle Georgia Entity or
any Affiliate thereof 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
Middle Georgia Entity or any Affiliate thereof for inclusion in the Registration
Statement to be filed by FLAG with the SEC will, when the Registration Statement
becomes effective, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any Middle
Georgia Entity or any Affiliate thereof for inclusion in the Joint Proxy
Statement to be mailed to each Party's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by a Middle Georgia
Entity or any Affiliate thereof with any Regulatory Authority in connection with
the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Joint Proxy Statement, when first
mailed to the shareholders of Middle Georgia and FLAG, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or, in the case of the Joint Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Shareholders'
Meetings, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meetings. All documents that any Middle Georgia Entity or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
5.20 ACCOUNTING, TAX AND REGULATORY MATTERS. No Middle Georgia Entity or
any Affiliate thereof 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 or 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 Middle Georgia 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 Articles of
Incorporation, Bylaws or other governing instruments of any Middle Georgia
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 Middle Georgia Entity that may be directly or indirectly acquired
or controlled by them.
5.22 BOARD RECOMMENDATION. The Board of Directors of Middle Georgia, 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, including the Merger, are
fair to and in the best interests of the shareholders and (ii) resolved to
recommend that the holders of the shares of Middle Georgia Common Stock approve
this Agreement.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF FLAG
FLAG hereby represents and warrants to Middle Georgia 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 Middle Georgia 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, subject to the approval of the issuance of the shares of FLAG
Common Stock pursuant to the Merger by a majority of the votes cast at the
FLAG Shareholders' Meeting (assuming for such purpose that the votes cast
in respect of such proposal represent a majority of the outstanding FLAG
Common Stock), which is the only shareholder vote required for approval of
this Agreement and consummation of the Merger by FLAG. Subject to such
requisite shareholder approval, 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, 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 certificate or articles of incorporation or
bylaws of any FLAG Subsidiary or any resolution adopted by the board of
directors or the shareholders of any FLAG Entity, or (ii) except as
disclosed in Section 6.2 of the FLAG 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 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
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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 2,036,990 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 Middle
Georgia 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
Middle Georgia Common Stock upon consummation of the Merger will be, issued
in violation of any preemptive rights of the current or past shareholders
of FLAG.
(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 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
Middle Georgia 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 Middle Georgia all SEC
Documents required to be filed by FLAG since December 31, 1992 (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, 1996 and
June 30, 1997, 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 June 30, 1997, 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, 1996, 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.
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, 1996, 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
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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
yet 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 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
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) Except as disclosed in Section 6.8 of the FLAG Disclosure
Memorandum, 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
280G or 162(m) of the Internal Revenue Code.
(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, 1996.
(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.
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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.
(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 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 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
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owned, leased, or operated by any FLAG 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, 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 (iii) any
FLAG Entity's holding of a security interest in a 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 (iii) any FLAG Entity's holding of a
security interest in a 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. FLAG is duly registered as a savings and loan
holding company under the HOLA. 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, 1993, 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, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to Middle
Georgia.
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
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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 Middle Georgia 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"). Any of the FLAG Benefit Plans which is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "FLAG ERISA Plan." Each FLAG ERISA Plan which is
also a "defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code) is referred to herein as a "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.
(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 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 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
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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.
(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 Middle Georgia 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, 1996, or in an SEC
Document and identified to Middle Georgia (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.
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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
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, or the date of organization if
later, 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 or any
Affiliate thereof to Middle Georgia 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 or any Affiliate thereof for inclusion in the
Registration Statement to be filed by FLAG with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any FLAG Entity or any Affiliate thereof for inclusion in the Joint
Proxy Statement to be mailed to each Party's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by any FLAG Entity
or any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Joint Proxy Statement,
when first mailed to the shareholders of Middle Georgia and FLAG, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the Joint Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Shareholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meetings. All documents that any FLAG Entity or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.20 ACCOUNTING, TAX AND REGULATORY MATTERS. No FLAG Entity or any
Affiliate thereof 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 or 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.
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 Articles of Incorporation,
Bylaws or other governing instruments of any FLAG Entity or restrict or impair
the ability of FLAG or any of its
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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 RECOMMENDATION. 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) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
fair to and in the best interests of the shareholders and (ii) resolved to
recommend that the holders of the shares of FLAG Common Stock approve the
issuance of shares of FLAG Common Stock pursuant to this Agreement.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF MIDDLE GEORGIA. 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, Middle Georgia 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 MIDDLE GEORGIA. 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, Middle Georgia 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 Middle Georgia Entity, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Middle Georgia Entity to
another Middle Georgia Entity) in excess of an aggregate of $100,000 (for
the Middle Georgia Entities on a consolidated basis) except in the ordinary
course of the business of Middle Georgia Subsidiaries consistent with past
practices (which shall include, for Middle Georgia 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 Middle Georgia 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 the Middle Georgia 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 Middle Georgia Entity, or declare or pay any
dividend or make any other distribution in respect of Middle Georgia's
capital stock, provided that Middle Georgia may (to the extent legally and
contractually permitted to do so), but shall not be obligated to, declare
and pay regular annual cash dividends on the shares of Middle Georgia
Common Stock at a rate not in excess of $1.00 per share with usual and
regular record and payment dates in accordance with past practice disclosed
in Section 7.2(c) of the Middle Georgia Disclosure Memorandum and such
dates may not be changed without the prior written consent of FLAG; or
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(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
Middle Georgia 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 Middle Georgia Common Stock or any
other capital stock of any Middle Georgia 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
Middle Georgia Entity or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Middle Georgia
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 Middle Georgia Subsidiary (unless any
such shares of stock are sold or otherwise transferred to another Middle
Georgia Entity); or
(f) 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 Middle Georgia 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
(g) grant any increase in compensation or benefits to the employees or
officers of any Middle Georgia Entity, except in accordance with past
practice disclosed in Section 7.2(g) of the Middle Georgia 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
Middle Georgia Disclosure Memorandum; and enter into or amend any severance
agreements with officers of any Middle Georgia Entity; grant any material
increase in fees or other increases in compensation or other benefits to
directors of any Middle Georgia Entity except in accordance with past
practice disclosed in Section 7.2(g) of the Middle Georgia 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 Middle
Georgia Entity and any Person having a salary thereunder in excess of
$50,000 per year (unless such amendment is required by Law) that the Middle
Georgia 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 Middle Georgia Entity
or terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Middle Georgia 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 Middle Georgia
Disclosure Memorandum, settle any Litigation involving any Liability of any
Middle Georgia Entity for material money damages or restrictions upon the
operations of any Middle Georgia 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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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 Middle Georgia 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
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 Middle Georgia shall have been obtained, and except as
otherwise expressly contemplated herein, FLAG 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 or Bylaws of FLAG in any
manner adverse to the holders of Middle Georgia Common Stock, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a FLAG Entity to another FLAG
Entity) in excess of an aggregate of $100,000 (for the FLAG Entities on a
consolidated basis) except in the ordinary course of the business of FLAG
Subsidiaries consistent with past practices (which shall include, for FLAG
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 FLAG 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 the FLAG 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 FLAG Entity, or declare or pay any dividend or
make any other distribution in respect of FLAG'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 7.4(d) of the
FLAG 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 FLAG Common Stock or any other capital stock of any
FLAG Entity, or any stock appreciation rights, or any option, warrant, or
other Equity Right; or
(e) adjust, split, combine or reclassify any shares of FLAG Capital
Stock or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of FLAG Capital 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 FLAG Subsidiary (unless any such shares of stock are sold or
otherwise transferred to another FLAG Entity); or
(f) make any material investment, either by purchase of stock of
securities, contributions to capital, Asset transfers, or purchase of any
Assets, in any Person other than a wholly owned FLAG 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
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Subsidiary in its fiduciary capacity, or (iii) the creation of new
Subsidiaries organized to conduct or continue activities otherwise
permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any FLAG Entity, except in accordance with past practice
disclosed in Section 7.4(g) of the FLAG 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 7.4(g) of the FLAG
Disclosure Memorandum or the provisions of any applicable program or plan
adopted by its Board of Directors prior to the date of this Agreement;
enter into or amend any severance agreements with officers of any FLAG
Entity; grant any material increase in fees or other increases in
compensation or other benefits to directors of any FLAG Entity except in
accordance with past practice disclosed in Section 7.4(g) of the FLAG
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 FLAG
Entity and any Person having a salary thereunder in excess of $50,000 per
year (unless such amendment is required by Law) that the FLAG 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;
(i) adopt any new employee benefit plan of any FLAG Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any FLAG 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 applicable Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice or settle any Litigation involving any Liability of any FLAG
Entity for material money damages or restrictions upon the operations of
any FLAG 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.
7.5 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Middle Georgia 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 Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. 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.
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ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER APPROVAL. As
soon as reasonably 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. Middle Georgia 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. Middle Georgia 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. FLAG 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 the issuance of shares of FLAG Common
Stock pursuant to the Merger and such other related matters as it deems
appropriate. In connection with the Shareholders' Meetings, (i) Middle Georgia
and FLAG shall prepare a Joint Proxy Statement and mail such Joint Proxy
Statement to their respective shareholders, (ii) the Parties shall furnish to
each other all information concerning them that they may reasonably request in
connection with such Joint Proxy Statement, (iii) the Board of Directors of
Middle Georgia and FLAG shall recommend to their respective shareholders the
approval of the matters submitted for approval (subject to the Board of
Directors of Middle Georgia and FLAG, as applicable, 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 Middle Georgia's shareholders or FLAG's
shareholders, as the case may be, under applicable law), and (iv) the Board of
Directors and officers of Middle Georgia and FLAG shall use their reasonable
efforts to obtain such shareholders' approval (subject to the Board of Directors
of Middle Georgia and FLAG, as applicable, 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 Middle Georgia's shareholders or
FLAG's shareholders, as the case may be, under applicable law). FLAG and Middle
Georgia 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 Middle Georgia 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 APPLICATIONS. FLAG shall promptly prepare and file, and Middle
Georgia shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement 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.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, FLAG shall execute and file the Certificate of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws 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
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satisfied the conditions 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.
8.6 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 other Party reasonably requests, provided that such investigation
shall be reasonably related to the transactions contemplated hereby and,
after November 14, 1997, shall not interfere unnecessarily with normal
operations. No investigation by a Party shall affect the representations
and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to
it by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time,
each Party shall promptly return or certify the destruction of all
documents and copies thereof, and all work papers containing confidential
information received from the other Party.
(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 a Middle Georgia Material Adverse Effect or a FLAG Material
Adverse Effect, as applicable.
8.7 PRESS RELEASES. Prior to the Effective Time, Middle Georgia 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 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, no Middle Georgia Entity and no FLAG Entity
nor any Affiliate thereof nor any Representatives thereof retained by any Middle
Georgia Entity or FLAG Entity shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent the Board of Directors
of Middle Georgia or FLAG, as the case may be, after having consulted with and
considered the advice of outside 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 Middle Georgia's
shareholders or FLAG's shareholders, as the case may be, under applicable law,
no Middle Georgia Entity and no FLAG Entity nor any Affiliate or Representative
thereof shall furnish any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into any Contract with
respect to, any Acquisition Proposal, but Middle Georgia or FLAG, as the case
may be, 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. Each Party shall promptly advise the other
Party following the receipt of any Acquisition Proposal and the details thereof,
and advise the other Party of any developments with respect to such Acquisition
Proposal promptly upon the occurrence thereof. Each Party 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
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foregoing, and (ii) direct and use its reasonable efforts to cause all of its
Affiliates and Representatives not to engage in any of the foregoing.
8.9 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger, and to take no action
which would cause the Merger not, to qualify for treatment as a pooling of
interests for accounting purposes or as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 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 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 (including Middle Georgia and its
Subsidiaries) to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of any Middle Georgia Entity or any FLAG Subsidiary that may
be directly or indirectly acquired or controlled by them.
8.11 AGREEMENTS OF AFFILIATES.
(a) Middle Georgia has disclosed in Section 8.11 of the Middle Georgia
Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Middle Georgia for purposes of Rule 145 under the 1933 Act.
Middle Georgia 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 Middle Georgia 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, if the Merger is accounted for by the
pooling-of-interests method of accounting, until such time as financial
results covering at least 30 days of combined operations of FLAG and Middle
Georgia have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies. If the Merger is
accounted for using the pooling-of-interests method of accounting, shares
of FLAG Common Stock issued to such affiliates of Middle Georgia in
exchange for shares of Middle Georgia Common Stock shall not be
transferable until such time as financial results covering at least 30 days
of combined operations of FLAG and Middle Georgia have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided
the written agreement referred to in this Section 8.11 (and FLAG shall be
entitled to place restrictive legends upon certificates for shares of FLAG
Common Stock issued to affiliates of Middle Georgia pursuant to this
Agreement to enforce the provisions of this Section 8.11). 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.
(b) FLAG has disclosed in Section 8.11 of the FLAG Disclosure
Memorandum all Persons whom it reasonably believes is an "affiliate" of
FLAG for purposes of Rule 144 under the 1933 Act. FLAG 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 2, providing that, if the Merger is
accounted for by the pooling-of-interests method of accounting, such Person
will not sell, pledge, transfer, or otherwise dispose of the shares of FLAG
Common Stock held by such Person except as contemplated by such agreement
until such time as financial results covering at least 30 days of combined
operations of FLAG and Middle Georgia have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies.
8.12 EMPLOYEE BENEFITS AND CONTRACTS. Following the Effective Time, FLAG
shall either (i) continue to provide to officers and employees of the Middle
Georgia Entities employee benefits under Middle Georgia's existing employee
benefit and welfare plans or, (ii) if FLAG shall determine to provide to
officers and employees of the Middle Georgia Entities employee benefits under
other employee benefit plans and welfare plans, provide generally to officers
and employees of the Middle Georgia Entities employee benefits under
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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 Middle Georgia shall be treated as service under FLAG's
defined benefit benefit plan, if any, (ii) service under any qualified defined
contribution plans of Middle Georgia shall be treated as service under FLAG's
qualified defined contribution plans, and (iii) service under any other employee
benefit plans of Middle Georgia shall be treated as service under any similar
employee benefit plans maintained by FLAG. With respect to officers and
employees of the Middle Georgia 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 Middle Georgia Entities, FLAG shall cause each comparable employee
welfare benefit plan which is substituted for a Middle Georgia 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 Corporation
and its Subsidiaries to honor in accordance with their terms all employment,
severance, consulting and other compensation Contracts disclosed in Section 8.12
of the Middle Georgia Disclosure Memorandum to FLAG between any Middle Georgia
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 Middle Georgia Benefit Plans.
8.13 INDEMNIFICATION.
(a) Subject to the conditions set forth in paragraph (b) below, for a
period of six years after the Effective Time, FLAG shall, as the Surviving
Corporation, indemnify, defend and hold harmless each person entitled to
indemnification from a Middle Georgia 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
Middle Georgia'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 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 8.13, upon learning of any such Liability or
Litigation, shall promptly notify FLAG thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) FLAG
shall have the right to assume the defense thereof 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.
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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 Middle Georgia 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 (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 either 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, a Middle
Georgia 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 either
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 or makes illegal consummation of the transactions contemplated by
this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of 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) POOLING LETTERS. Each of the Parties shall have received letters,
dated as of the date of filing of the Registration Statement with the SEC
and as of the Effective Time, addressed to FLAG and Middle Georgia, in form
and substance reasonably acceptable to FLAG and Middle Georgia, from Porter
Keadle Moore LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
(h) TAX MATTERS. Each Party shall have received a written opinion of
counsel from Alston & Bird 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
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Code, (ii) the exchange in the Merger of Middle Georgia Common Stock for
FLAG Common Stock will not give rise to gain or loss to the shareholders of
Middle Georgia with respect to such exchange (except to the extent of any
cash received), and (iii) none of Middle Georgia or 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 Middle
Georgia and FLAG reasonably satisfactory in form and substance to such
counsel.
(i) EMPLOYMENT AGREEMENTS. John S. Holle, Ellison C. Rudd, J. Daniel
Speight, Jr. and Patti S. Davis shall have each negotiated an employment
agreement with FLAG, as the Surviving Corporation, on terms mutually
satisfactory to the Parties and the individual executing the employment
agreement (collectively, the "Employment Agreements").
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 Middle
Georgia 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 Middle Georgia 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, a Middle Georgia
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 Middle Georgia 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. Middle Georgia 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 chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to Middle Georgia and in
Section 9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Middle Georgia'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 Powell
Goldstein Frazer & Murphy LLP, counsel to Middle Georgia, dated as of the
Closing, in form reasonably satisfactory to FLAG, as to the matters set
forth in Exhibit 3.
(e) AFFILIATES AGREEMENTS. FLAG shall have received from each
affiliate of Middle Georgia and FLAG the affiliates letter referred to in
Section 8.11, to the extent necessary to assure in the reasonable judgment
of FLAG that the transactions contemplated hereby will qualify for
pooling-of-interests accounting treatment.
(f) CLAIMS LETTERS. Each of the directors and officers of Middle
Georgia and Citizens shall have executed and delivered to FLAG letters in
substantially the form of Exhibit 4.
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9.3 CONDITIONS TO OBLIGATIONS OF MIDDLE GEORGIA. The obligations of
Middle Georgia 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 Middle Georgia 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 of FLAG set forth in Section 6.20 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 Section 6.20)
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 Middle Georgia (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to FLAG and in Section
9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by FLAG'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
Middle Georgia and its counsel shall request.
(d) OPINION OF COUNSEL. Middle Georgia shall have received an opinion
of Alston & Bird LLP, counsel to FLAG, dated as of the Effective Time, in
form reasonably acceptable to Middle Georgia, as to the matters set forth
in Exhibit 5.
(e) AFFILIATES AGREEMENTS. FLAG shall have received from each
affiliate of Middle Georgia and FLAG the affiliates letter referred to in
Section 8.11, to the extent necessary to assure in the reasonable judgment
of Middle Georgia that the transactions contemplated hereby will qualify
for pooling-of-interests accounting treatment.
(f) CLAIMS LETTERS. Each of the directors and officers of FLAG and
First Federal shall have executed and delivered to FLAG letters in
substantially the form of Exhibit 6.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of Middle
Georgia and FLAG or both, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual consent of FLAG and Middle Georgia; 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,
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individually or in the aggregate, a Middle Georgia 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
nonappealable 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 Middle Georgia or FLAG fail to vote their approval of the
matters relating to this Agreement and the transactions contemplated hereby
at the Shareholders' Meetings where such matters were presented to such
shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by June 30, 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); or
(f) By the Board of Directors of FLAG, at any time prior to 5:00 p.m.
Eastern time, on November 14, 1997, without any Liability if it determines
in its reasonable good faith judgment that the Asset quality of Middle
Georgia, the status of litigation involving Middle Georgia (or any other
liability or undisclosed contingency of Middle Georgia), or any information
in the Middle Georgia Disclosure Memorandum are materially less favorable
to FLAG than as set forth in materials previously disclosed or provided to
FLAG by Middle Georgia; or
(g) By the Board of Directors of Middle Georgia, at any time prior to
5:00 p.m. Eastern time, on November 14, 1997, without any Liability if it
determines in its reasonable good faith judgment that the Asset quality of
FLAG, the status of litigation involving FLAG (or any other liability or
undisclosed contingency of FLAG), or any information in the FLAG Disclosure
Memorandum are materially less favorable to Middle Georgia than as set
forth in materials previously disclosed or provided to Middle Georgia by
FLAG.
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 8.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c) or
10.1(f) 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 8.11.
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.
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"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 delivered pursuant hereto and incorporated herein by
reference.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
executed by FLAG and filed with the Secretary of State of the State of
Georgia relating to the Merger as contemplated by Section 1.1.
"CITIZENS" shall mean Citizens Bank, a Georgia bank and a Middle
Georgia Subsidiary.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit,
(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.
"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 6, 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 5:00 p.m., Eastern time, on November 7, 1997 to Middle Georgia
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.
"FLAG ENTITIES" shall mean, collectively, FLAG and all FLAG
Subsidiaries.
"FLAG FINANCIAL STATEMENTS" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of FLAG as of
June 30, 1997, and as of December 31, 1996 and 1995, 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, 1997, and for each of the three fiscal years ended December 31,
1996, 1995 and 1994, as filed by FLAG in SEC Documents, and (ii) the
consolidated statements of condition 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, 1997.
"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 of FLAG to perform its 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 and their holding companies, and (c) actions and
omissions of FLAG (or any of its Subsidiaries) taken with the prior
informed written Consent of Middle Georgia 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.
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"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).
"HOLA" shall mean the Home Owners' Loan Act of 1933, as amended.
"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,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, 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.
"JOINT PROXY STATEMENT" shall mean the proxy statement used by Middle
Georgia and FLAG to solicit the approval of their respective shareholders
of the transactions contemplated by this Agreement, which shall include the
prospectus of FLAG relating to the issuance of the FLAG Common Stock to
holders of Middle Georgia Common Stock.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person 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 Person.
"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, criminal prosecution, governmental or other examination
or investigation, hearing, 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.
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"MATERIAL" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"MIDDLE GEORGIA COMMON STOCK" shall mean the $1.00 par value common
stock of Middle Georgia.
"MIDDLE GEORGIA DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Middle Georgia Bankshares, Inc. Disclosure
Memorandum" delivered prior to 5:00 p.m., Eastern time, on November 7, 1997
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.
"MIDDLE GEORGIA ENTITIES" shall mean, collectively, Middle Georgia and
all Middle Georgia Subsidiaries.
"MIDDLE GEORGIA FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Middle
Georgia as of June 30, 1997, and as of December 31, 1996 and 1995, 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, 1997, and for each of the three fiscal years ended December
31, 1996, 1995 and 1994, and (ii) the consolidated balance sheets of Middle
Georgia (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, 1997.
"MIDDLE GEORGIA 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 Middle Georgia and its Subsidiaries,
taken as a whole, or (ii) the ability of Middle Georgia to perform its
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 banks and their holding companies, and (c) actions
and omissions of Middle Georgia (or any of its Subsidiaries) taken with the
prior informed written Consent of FLAG in contemplation of the transactions
contemplated hereby.
"MIDDLE GEORGIA SUBSIDIARIES" shall mean the Subsidiaries of Middle
Georgia, which shall include the Middle Georgia Subsidiaries described in
Section 5.4 and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Middle Georgia in the future and
held as a Subsidiary by Middle Georgia at the Effective Time.
"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 or in which
such Party or Subsidiary holds a security interest or other interest
(including an interest in a fiduciary capacity), 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 Middle Georgia or FLAG, and "Parties" shall
mean both Middle Georgia 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 Middle Georgia 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.
"SHAREHOLDERS' MEETINGS" shall mean the respective meetings of the
shareholders of Middle Georgia and FLAG to be held pursuant to Section 8.1,
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.
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"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, imposes 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.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
<TABLE>
<S> <C>
Allowance................................................... Section 5.9
Certificates................................................ Section 4.1
Closing..................................................... Section 1.2
Effective Time.............................................. Section 1.3
Employment Agreements....................................... Section 9.1(i)
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 Contracts.............................................. Section 6.16
FLAG ERISA Plan............................................. Section 6.15(a)
FLAG Pension Plan........................................... Section 6.15(a)
FLAG SEC Reports............................................ Section 6.5(a)
Merger...................................................... Section 1.1
Middle Georgia Benefit Plans................................ Section 5.15(a)
Middle Georgia Contracts.................................... Section 5.16
Middle Georgia ERISA Plan................................... Section 5.15(a)
Middle Georgia Pension Plan................................. Section 5.15(a)
Tax Opinion................................................. Section 9.1(h)
</TABLE>
(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 of the
Parties shall bear and pay all direct costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and
fees and expenses of its own financial or other consultants, investment
bankers, accountants, and counsel.
(b) 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. 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
Middle Georgia or by FLAG, each of Middle Georgia 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
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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 Middle Georgia Common Stock, there shall be made no amendment 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;
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 Middle Georgia Common Stock will be exchanged for shares of FLAG
Common Stock shall not be amended after the Shareholders' Meetings 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 Middle Georgia, to waive or extend the time for the compliance
or fulfillment by Middle Georgia 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.
(b) Prior to or at the Effective Time, Middle Georgia, 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 Middle Georgia 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 Middle Georgia.
(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.
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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:
<TABLE>
<S> <C>
Middle Georgia: Middle Georgia Bankshares, Inc.
2233 Pine Street
Unadilla, GA 31091
Telecopy Number: (912) 627-3209
Attention: J. Daniel Speight, Jr.
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
FLAG: FLAG Financial Corporation
101 North Greenwood St.
LaGrange, GA 30240
Telecopy Number: (706) 845-5155
Attention: John S. Holle
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Telecopy Number: (404) 881-7777
Attention: M. Hill Jeffries
</TABLE>
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
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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.
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/ JOHN S. HOLLE
------------------------------------
John S. Holle
President
MIDDLE GEORGIA BANKSHARES, INC.
By: /s/ J. DANIEL SPEIGHT, JR.
------------------------------------
J. Daniel Speight, Jr.
Chief Executive Officer
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<PAGE> 146
EXHIBIT 1
AFFILIATE AGREEMENT
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
Attention: John S. Holle
Gentlemen:
The undersigned is a shareholder of Middle Georgia Bankshares, Inc.
("Middle Georgia"), 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 October
28, 1997 (the "Agreement"), by and between FLAG and Middle Georgia. Under the
terms of the Agreement, Middle Georgia will be merged into and with FLAG (the
"Merger"), and the shares of the $1.00 par value common stock of Middle Georgia
("Middle Georgia 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
Middle Georgia 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.
(a) 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 Middle Georgia
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. The
undersigned understands that ASR 130 and 135 relate to publication of
financial results of post-Merger combined operations of FLAG and Middle
Georgia. 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.
(b) Except as provided in this subsection, for two (2) years following
the Effective Time, 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 Middle
Georgia Common Stock will be converted upon consummation of the Merger.
Subject to the other provisions of this Affiliate Agreement, the
undersigned may dispose of all or a portion of his FLAG Common Stock during
such two (2) year period; provided, (i) the undersigned has given FLAG
written notice of any such contemplated disposition not less than twenty
(20) business days prior to such contemplated disposition and (ii) FLAG
consents to such contemplated disposition, which consent shall not be
unreasonably withheld or delayed if, after considering any cash received in
exchange of Middle Georgia Common Stock, cash received in lieu of
fractional shares, cash received by dissenters, and any prior dispositions
of FLAG Common Stock received in the Merger by such Shareholder and by
other holders of Middle Georgia Common Stock, the disposition in respect of
which consent is being sought will not reduce the Middle Georgia
shareholders' ownership of the shares of FLAG Common Stock issued in the
Merger to a number of shares having in the aggregate a value at the time of
the Merger of less than 40% of the total
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<PAGE> 147
fair market value of the Middle Georgia Common Stock outstanding
immediately prior to the Merger. For this purpose, any shares of Middle
Georgia Common Stock held by such shareholders and redeemed in
contemplation of the Merger will be considered outstanding immediately
prior to the Merger. If any contemplated disposition would reduce such
ownership below 40%, FLAG's consent may be given only upon the receipt by
FLAG of an opinion from Alston & Bird LLP to the effect that the
contemplated disposition will not cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code").
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) At any meeting of shareholders of Middle Georgia 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 vote (or cause to be voted)
the Shareholder's Shares in favor of the Merger, the execution and delivery
by Middle Georgia 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 Middle Georgia 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 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
Middle Georgia Common Stock beneficially owned by the undersigned as of the
record date for determination of shareholders entitled to vote at the
Shareholders' Meeting of Middle Georgia 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. The undersigned
acknowledges that Section 1.368-1(b) of the Income Tax Regulations requires
"continuity of interest" on the part of the Middle Georgia shareholders in
order for the Merger to be treated as tax-free under Section 368 of the
Code. This requirement is satisfied if, taking into account those Middle
Georgia shareholders who receive cash in exchange for their stock, who
receive cash in lieu of fractional shares, or who dissent from the Merger,
there is no plan or intention on the part of the Middle Georgia
shareholders to sell or otherwise dispose of a number of shares of FLAG
Common Stock to be received in the Merger
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<PAGE> 148
that will reduce such shareholders' ownership of FLAG Common Stock to a
number of shares having, in the aggregate, a value at the time of the
Merger of less than 40% of the total fair market value of the Middle
Georgia Common Stock outstanding immediately prior to the Merger. For this
purpose, shares of Middle Georgia Common Stock held by such shareholders
and redeemed in contemplation of the Merger will be considered outstanding
immediately prior to the Merger. The undersigned has no prearrangement,
plan or intention to sell or otherwise dispose of an amount of his FLAG
Common Stock to be received in the Merger which would cause the foregoing
requirement not to be satisfied.
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 not an affiliate of FLAG) or (ii) Rule 144 (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. In
addition, the shares represented by this certificate were issued
pursuant to a business combination that was intended for federal income
tax purposes to qualify as a tax-free reorganization described in
Section 368(a) of the Internal Revenue Code of 1986, as amended, and may
not be sold, nor may the owner reduce his risks relative thereto in any
way, without the advance written consent of FLAG, during the two (2)
year period following consummation of such business combination."
Such legend will also be placed on any certificate representing FLAG securities
issued subsequent to the original issuance of the 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 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 Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and 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 Middle Georgia.
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
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the SEC as the same are presently in effect will be available to the undersigned
in the event the undersigned desires to transfer any shares of 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 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
Crisp, Dooley, Macon or Pulaski 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, Middle Georgia 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, Middle Georgia
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 to
an appropriate federal or state regulatory authority for approval to
organize.
(c) The term "major shareholder" shall refer to the beneficial
ownership of 5% or more of any class of voting securities of such company
or the ownership of 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 Middle Georgia 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 Middle
Georgia 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 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
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<PAGE> 150
relative collectively own at least 10% of any class of equity securities or of
the equity interest. The undersigned further recognizes that, in the event that
the undersigned is a director or officer of 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 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.
This Affiliate Agreement is executed as of the day of ,
19 .
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
, 19
FLAG FINANCIAL CORPORATION
By:
- --------------------------------------
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AFFILIATE AGREEMENT
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
Attention: John S. Holle
Gentlemen:
The undersigned is a shareholder of Middle Georgia Bankshares, Inc.
("Middle Georgia"), 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 October
28, 1997 (the "Agreement"), by and between FLAG and Middle Georgia. Under the
terms of the Agreement, Middle Georgia will be merged into and with FLAG (the
"Merger"), and the shares of the $1.00 par value common stock of Middle Georgia
("Middle Georgia 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
Middle Georgia 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 Middle Georgia 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.
The undersigned understands that ASR 130 and 135 relate to publication of
financial results of post-Merger combined operations of FLAG and Middle Georgia.
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.
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) At any meeting of shareholders of Middle Georgia 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 vote (or cause to be voted)
the Shareholder's Shares in favor of the Merger, the execution and delivery
by Middle Georgia 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
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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) During the 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
Middle Georgia Common Stock beneficially owned by the undersigned as of the
record date for determination of shareholders entitled to vote at the
Shareholders' Meeting of Middle Georgia held to approve the Merger.
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 not an affiliate of FLAG) or (ii) Rule 144 (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 the 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 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 Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and 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 Middle Georgia.
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
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the SEC as the same are presently in effect will be available to the undersigned
in the event the undersigned desires to transfer any shares of 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. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of Middle
Georgia 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 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 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 months following the effective time of the Merger may
subject the undersigned to liability pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
between 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.
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This Affiliate Agreement is executed as of the day of
, 19 .
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
, 19
FLAG FINANCIAL CORPORATION
By:
- ----------------------------------------------------
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EXHIBIT 2
AFFILIATE AGREEMENT
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
Attention: John S. Holle
Gentlemen:
The undersigned is 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 October 28, 1997 (the "Agreement"), by and between
FLAG and Middle Georgia Bankshares, Inc., a Georgia corporation ("Middle
Georgia"), Middle Georgia will be merged into and with FLAG (the "Merger"), and
the shares of the $1.00 par value common stock of Middle Georgia ("Middle
Georgia 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 held by the undersigned.
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
FLAG 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 Restriction 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 held by the undersigned
during the period beginning 30 days prior to the Effective Time of the Merger
and ending at 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. The undersigned understands that ASR 130 and 135 relate to publication of
financial results of post-Merger combined operations of FLAG and Middle Georgia.
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.
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that 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 5 hereof to, have all shares of Middle Georgia 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.
4. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and 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 FLAG.
5. Certain Actions. The undersigned covenants and agrees with FLAG that
for a period of two 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
Troup County, Georgia. It is expressly understood that the covenants contained
in this paragraph 5 do not apply to (i) "management official" positions which
the undersigned holds with financial institutions (other than FLAG, Middle
Georgia and their subsidiaries) as of the date of this Agreement, (ii)
securities holdings which cause the undersigned to be deemed a major
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shareholder of a financial institution (other than FLAG, Middle Georgia 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
5, 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 to
an appropriate federal or state regulatory authority for approval to
organize.
(c) The term "major shareholder" shall refer to the beneficial
ownership of 5% or more of any class of voting securities of such company
or the ownership of 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 Middle Georgia 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.
6. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of 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 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 10% of any class of equity securities or of
the equity interest.
7. 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.
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This Affiliate Agreement is executed as of the day of ,
19 .
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
, 19
FLAG FINANCIAL CORPORATION
By:
- --------------------------------------
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EXHIBIT 3
MATTERS AS TO WHICH POWELL GOLDSTEIN FRAZER & MURPHY LLP WILL OPINE
1. Middle Georgia 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 Middle Georgia or, to our knowledge but without any
independent investigation, result in any conflict with, breach of, or default or
acceleration under any Contract, Law, Order or Permit to which Middle Georgia is
a party or by which Middle Georgia is bound.
3. The Agreement has been duly and validly executed and delivered by Middle
Georgia and, assuming valid authorization, execution and delivery by FLAG,
constitutes a valid and binding agreement of Middle Georgia 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 Middle Georgia consists of 1,000,000
shares of Middle Georgia Common Stock, of which 64,272 shares were issued and
outstanding as of , 19 . The shares of Middle Georgia 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 5.3 of the Middle Georgia
Disclosure Memorandum, as of , 19 , there were no shares of
capital stock or other equity securities of Middle Georgia outstanding and no
outstanding Equity Rights relating to the capital stock of Middle Georgia.
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EXHIBIT 4
, 19
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
Attn: John S. Holle
Re: Middle Georgia Bankshares, Inc. and Citizens Bank
Gentlemen:
This letter is delivered pursuant to Section 9.2(f) of the Agreement and
Plan of Merger, dated as of October 28, 1997, by and between FLAG Financial
Corporation ("FLAG") and Middle Georgia Bankshares, Inc. ("Middle Georgia").
As a result of the proposed merger (the "Merger") of Middle Georgia into
and with FLAG, Middle Georgia will cease to exist as a separate entity.
Concerning claims which I may have against Middle Georgia or its subsidiary,
Citizens Bank ("Citizens"), in my capacity as an officer or director, I hereby
affirm the following:
(a) FLAG shall assume all liability (to the extent Middle Georgia was
so liable) for claims for indemnification arising under Middle Georgia's
Articles of Incorporation or Bylaws as existing on October 28, 1997, or as
may be afforded by the laws of the State of Georgia or the United States,
and for claims for salaries, wages or other compensation, employee
benefits, reimbursement of expenses or worker's compensation arising out of
employment through the effective date of the Merger;
(b) Citizens shall retain all liability (to the extent it was so
liable) for claims for indemnification arising under its Articles of
Incorporation or Bylaws as existing on October 28, 1997, or as may be
afforded by the laws of the State of Georgia or the United States, and for
claims for salaries, wages or other compensation, employee benefits,
reimbursement of expenses or worker's compensation arising out of
employment through the effective date of the Merger;
(c) In my capacity as an officer or a director, I do not have, and am
not aware of, any claims I might have (other than those referred to in
paragraphs (a) or (b) above) against Middle Georgia or Citizens; and
(d) I hereby release Middle Georgia and Citizens from any and all
claims which I may now or hereafter possess against Middle Georgia or
Citizens in my capacity as an officer or a director, other than those
referred to in paragraphs (a) or (b) above.
By executing this letter on behalf of FLAG, you shall acknowledge the
assumption by FLAG of the liabilities described in paragraph (a) above.
Sincerely,
--------------------------------------
Signature of Officer or Director
--------------------------------------
Name of Officer or Director
On behalf of FLAG, I hereby acknowledge receipt of this letter and affirm
the assumption by FLAG of the liabilities described in paragraph (a) above, as
of this day of , 19 .
FLAG FINANCIAL CORPORATION
By:
--------------------------------------
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EXHIBIT 5
MATTERS AS TO WHICH ALSTON & BIRD LLP WILL OPINE
1. 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, any Law or Order 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 Middle Georgia,
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 2,036,990 shares are issued and outstanding as of
, 19 , and (ii) 10,000,000 shares of FLAG Preferred Stock, of which
no shares are issued and outstanding as of , 19 . 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 , 19 , 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 Middle Georgia 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.
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EXHIBIT 6
, 19
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, GA 30240
Attn: John S. Holle
Re: FLAG Financial Corporation and First Federal Savings Bank of
LaGrange
Gentlemen:
This letter is delivered pursuant to Section 9.3(f) of the Agreement and
Plan of Merger, dated as of October 28, 1997, by and between FLAG Financial
Corporation ("FLAG") and Middle Georgia Bankshares, Inc. ("Middle Georgia").
As a result of the proposed merger (the "Merger") of Middle Georgia into
and with FLAG, FLAG will continue to exist as the surviving entity resulting
from the Merger. Concerning claims which I may have against FLAG or its
subsidiary, First Federal Savings Bank of LaGrange ("First Federal"), in my
capacity as an officer or director, I hereby affirm the following:
(a) FLAG shall retain all liability (to the extent it was so liable)
for claims for indemnification arising under FLAG's Articles of
Incorporation or Bylaws as existing on October 28, 1997, or as may be
afforded by the laws of the State of Georgia or the United States, and for
claims for salaries, wages or other compensation, employee benefits,
reimbursement of expenses or worker's compensation arising out of
employment through the effective date of the Merger;
(b) First Federal shall retain all liability (to the extent it was so
liable) for claims for indemnification arising under its Charter or Bylaws
as existing on October 28, 1997, or as may be afforded by the laws of the
United States, and for claims for salaries, wages or other compensation,
employee benefits, reimbursement of expenses or worker's compensation
arising out of employment through the effective date of the Merger;
(c) In my capacity as an officer or a director, I do not have, and am
not aware of, any claims I might have (other than those referred to in
paragraphs (a) or (b) above) against FLAG or First Federal; and
(d) I hereby release FLAG and First Federal from any and all claims
which I may now or hereafter possess against FLAG or First Federal in my
capacity as an officer or a director, other than those referred to in
paragraphs (a) or (b) above.
By executing this letter on behalf of FLAG, you shall acknowledge the
retention by FLAG of the liabilities described in paragraph (a) above.
Sincerely,
--------------------------------------
Signature of Officer or Director
--------------------------------------
Name of Officer or Director
On behalf of FLAG, I hereby acknowledge receipt of this letter and affirm
the retention by FLAG of the liabilities described in paragraph (a) above, as of
this day of , 19 .
FLAG FINANCIAL CORPORATION
By:
--------------------------------------
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APPENDIX B
EXCERPTS FROM THE GEORGIA BUSINESS CORPORATION CODE
RELATING TO DISSENTING SHAREHOLDERS
TITLE 14, CHAPTER 2, ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(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
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<PAGE> 163
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
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PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
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 certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
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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 by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing
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under subsection (a) of this Code section within 30 days after the corporation
offered payment for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
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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