POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E.
SIXTEENTH FLOOR
ATLANTA, GEORGIA 30303
(404 572-6600)
June 4, 1999
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: FLAG Financial Corporation - Registration Statement on Form S-4
Ladies and Gentlemen:
As counsel to FLAG Financial Corporation, a Georgia corporation (the
"Company"), we enclose for filing with the Commission under the Securities Act
of 1933, as amended, the Company's Registration Statement on Form S-4
registering 1,175,000 shares of its common stock for issuance in connection with
the proposed merger of Thomaston Federal Savings Bank, Thomaston, Georgia.
No distribution of the Registration Statement or the related Proxy
Statement/Prospectus will be made prior to effectiveness of the Registration
Statement, except that, as noted below, copies will be furnished to certain bank
regulatory agencies pursuant to their filing requirements.
The transactions described in the Registration Statement are also
subject to certain filings with and approvals by the Federal Reserve Bank of
Atlanta, the Georgia Department of Banking and Finance and the Office of Thrift
Supervision. We will advise you promptly if a favorable approval is not obtained
from any of these entities, although we expect no difficulty in obtaining such
approvals.
If you have any questions or comments concerning the Registration
Statement, please call me at 404/572-6641 or Kathryn L. Knudson at 404/572-6952.
Our fax number is 404/572-5954 or 404/572-6999.
Sincerely,
/s/ Maureen A. FitzGerald
For POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
Enclosures
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------
FLAG FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Georgia 6060 58-2094179
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
101 NORTH GREENWOOD STREET
LAGRANGE, GEORGIA 30240
(706) 845-5000
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
J. Daniel Speight, Jr.
President and Chief Executive Officer
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
(706) 845-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service) with copies to:
Walter G. Moeling, IV David M. Calhoun
Powell, Goldstein, Frazer & Murphy LLP Long Aldridge & Norman LLP
Suite 1600 303 Peachtree St., N.E.
191 Peachtree Street, N.E. Suite 5300
Atlanta, Georgia 30303 Atlanta, GA 30308
(404) 572-6600 (404) 527-4947
--------------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____________________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|_________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------ -------------- -------------------- -------------------- ---------------
Title of Each Class Proposed Maximum Proposed Maximum
of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered (1) Per Unit Offering Price (2) Registration
Fee
- ------------------------------ -------------- -------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Common Stock, $1.00 par value 1,175,000 N/A 8,706,750 $2,425.00
============================== ============== ==================== ==================== ===============
</TABLE>
(1) This Registration Statement covers the maximum number of shares of the
common stock of the Registrant which is expected to be issued in
connection with the merger.
(2) Pursuant to Rule 457(f)(2), the registration fee was computed on the
basis of the aggregate book value of the common stock of FLAG Financial
Corporatino to be issued in the merger.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
206 North Church Street
Thomaston, Georgia 30286
To the Shareholders of __________ __, 1999
Thomaston Federal Savings Bank
I am pleased to invite you to attend the Annual Meeting of Shareholders
of Thomaston Federal Savings Bank to be held at the main office of the Bank,
located at 206 North Church Street, Thomaston, Georgia, on _________,
______________, 1999, at 2:00 p.m.
At the Annual Meeting, you will be asked to approve the Agreement and
Plan of Merger between Thomaston Federal and FLAG Financial Corporation (the
"Merger Agreement"). The Merger Agreement provides that FLAG will acquire
Thomaston Federal through the merger of a newly formed, wholly-owned subsidiary
of FLAG with and into Thomaston Federal. As a result of the merger, each
outstanding share of common stock of Thomaston Federal (except for shares held
by Thomaston Federal, FLAG or their subsidiaries, and shares held by
shareholders of Thomaston Federal who exercise their dissenters' rights) will be
exchanged for 1.7275 shares of FLAG common stock. FLAG will pay shareholders of
Thomaston Federal cash instead of issuing any fractional shares in the merger.
Your Board believes that the merger will have many benefits. We believe
that the combined company will have greater financial strength and greater
opportunity and flexibility to expand and diversify. Your Board of Directors
unanimously approved the Merger Agreement and recommends that you approve the
Merger Agreement. Consummation of the merger is subject to certain conditions,
including approval of the Merger Agreement by the affirmative vote of holders of
two-thirds of the outstanding common stock of Thomaston Federal and approval of
the merger by various regulatory agencies.
At the Annual Meeting, you will also be asked to elect two directors of
Thomaston Federal.
This Proxy Statement/Prospectus provides detailed information about the
proposed merger and the election of directors. You should read this entire
document carefully. You can also get information about FLAG from the SEC.
Whether or not you plan to attend the Annual Meeting, you are urged to
complete, sign, and promptly return the enclosed proxy card. If you attend the
Annual Meeting, you may vote in person if you wish, even if you previously have
returned your proxy card. The proposed merger is a significant step for
Thomaston Federal and your vote on this matter is of great importance.
On behalf of the Board of Directors, I strongly urge you to vote FOR
approval of the Merger Agreement and the transactions contemplated therein and
FOR the election of the nominees for director by marking the enclosed proxy card
"FOR" item one and "FOR" item two.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Robert G. Cochran
President and Chief Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under this
Proxy Statement/Prospectus or determined if this Proxy Statement/Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The securities offered hereby are not savings accounts or deposit accounts or
other obligations of any bank or savings association and they are not insured by
the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings
Association Insurance Fund, or any other government agency.
- --------------------------------------------------------------------------------
This Proxy Statement/Prospectus is dated ____________ __, 1999 and was first
mailed to shareholders on __________________ __, 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT FLAG
FLAG files annual, quarterly and special reports, proxy statements and
other information with the SEC. You can receive copies of such reports, proxy
and information statements, and other information, at prescribed rates, from the
SEC by addressing written requests to the Public Reference Section of the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
you can read such reports, proxy and information statements, and other
information at the public reference rooms at the regional offices of the SEC,
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. The SEC
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants such as FLAG that file
electronically with the SEC. The address of the SEC Web site is
http://www.sec.gov.
FLAG has filed with the SEC a Registration Statement on Form S-4 to
register the shares that FLAG will issue to Thomaston Federal shareholders. This
document is a part of the Registration Statement. This Proxy
Statement/Prospectus does not include all of the information contained in the
Registration Statement. For further information about FLAG and the securities
offered in this Proxy Statement/ Prospectus, you should review the Registration
Statement. You can inspect or copy the Registration Statement, at prescribed
rates, at the SEC's public reference facilities at the addresses listed above.
The SEC allows FLAG to "incorporate by reference" information into the
Proxy Statement/Prospectus, which means that FLAG can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered part of this
Proxy Statement/Prospectus, except for any information superseded by information
contained directly in this Proxy Statement/Prospectus or in later filed
documents incorporated by reference in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that FLAG previously filed with the SEC. These documents contain
important information about FLAG and its finances. Some filings have been
amended by later filings, which are also listed.
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; and
(3) Current Reports on Form 8-K dated January 8, 1999, January 11, 1999,
March 2, 1999, March 18, 1999, April 7, 1999, and May 10, 1999.
FLAG also incorporates by reference additional documents that it may
file with the SEC between the date of this Proxy Statement/Prospectus and the
completion of the merger or the termination of the Merger Agreement. These
additional documents include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
proxy statements.
We are providing you with a copy of FLAG's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and a copy of FLAG's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999. These documents
provide more information about FLAG and its finances.
Shareholders may obtain documents incorporated by reference in this
Proxy Statement/Prospectus by requesting them 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, you should make a request
for documents no later than __________, 1999.
<PAGE>
Neither FLAG nor Thomaston Federal has authorized anyone to give any
information or make any representation about the merger or our company or
savings association that differs from, or adds to, the information in the Proxy
Statement/Prospectus or in documents that are publicly filed with the SEC.
Therefore, if anyone does give you different or additional information, you
should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange
or sell, or to ask for offers to exchange or buy, the securities offered by this
Proxy Statement/Prospectus or to ask for proxies, or if you are a person to whom
it is unlawful to direct such activities, then the offer presented by this Proxy
Statement/Prospectus does not extend to you.
The information contained in this Proxy Statement/Prospectus speaks
only as of its date unless the information specifically indicates that another
date applies.
Information in this Proxy Statement/Prospectus about FLAG Financial
Corporation has been supplied by FLAG, and information about Thomaston Federal
has been supplied by Thomaston Federal.
A Warning About Forward-Looking Statements
FLAG and Thomaston Federal make forward-looking statements in this
document that are subject to risks and uncertainties. FLAG's public documents
also contain forward-looking statements. These forward-looking statements
include information about possible or assumed future results of operations or
the performance of FLAG after the merger. When we use words such as "believes,"
"anticipates," "expects," "intends," "targeted," and similar expressions, we are
making forward-looking statements. Many possible events or factors could affect
the financial results and performance of each of the parties. This could cause
results or performances to differ materially from those expressed in our
forward-looking statements.
You should consider these risks and uncertainties when you vote on the
merger. These possible events or factors include the following:
(1) our cost savings from the merger are less than we expect, or we are
unable to obtain those cost savings as soon as we expect;
(2) we lose more deposits, customers, or business than we expect;
(3) competition in the banking industry increases significantly;
(4) our restructuring costs are higher than we expect or our operating
costs after the merger are greater than we expect;
(5) technological changes and systems integration are harder to make or
more expensive than we expect;
(6) changes in the interest rate environment reduce our margins;
(7) general economic or business conditions are worse than we expect;
(8) legislative or regulatory changes occur which adversely affect our
business;
(9) changes occur in business conditions and inflation;
(10) changes occur in the securities markets; and
(11) we have more trouble obtaining regulatory approvals for the merger
than we expect.
See also "RISK FACTORS" in this Proxy Statement/Prospectus, page 13.
<PAGE>
PROPOSED MERGER OF THOMASTON FEDERAL SAVINGS BANK WITH A
SUBSIDIARY OF FLAG FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _________________, 1999
Thomaston Federal Savings Bank ("Thomaston Federal") will hold its
Annual Meeting of Shareholders at its main office, located at 206 North Church
Street, Thomaston, Georgia, on __________, ___________, 1999, at 2:00 p.m., to
vote on:
1. The Agreement and Plan of Merger (the "Merger Agreement"), dated as
of May 7, 1999, between Thomaston Federal and FLAG Financial Corporation
("FLAG"). The Merger Agreement provides that a newly formed, wholly-owned
subsidiary of FLAG will merge with Thomaston Federal. Thomaston Federal will be
the surviving savings association in the merger, and will continue to operate as
a federally-chartered savings association under the name "Thomaston Federal
Savings Bank."
Each outstanding share of Thomaston Federal common stock at the
effective time of the merger will be exchanged for 1.7275 shares of FLAG common
stock, as more fully described in the accompanying Proxy Statement/Prospectus. A
copy of the Merger Agreement is attached to the Proxy Statement/Prospectus as
Appendix A.
2. The election of two directors of Thomaston Federal.
3. Any other business as may come properly before the Annual Meeting,
or any adjournments or postponements. The Board of Directors of Thomaston
Federal is not aware of any other business to be presented to a vote of the
shareholders at the Annual Meeting.
Only shareholders who hold their stock at the close of business on
____________, 1999, will be entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof. Approval of the Merger
Agreement and the transactions contemplated therein requires the affirmative
vote of two-thirds of the issued and outstanding shares of Thomaston Federal
common stock. The affirmative vote of the holders of a plurality of the shares
of Thomaston Federal common stock represented in person or by proxy at the
Annual Meeting is required to elect directors of Thomaston Federal.
The Board of Directors of Thomaston Federal unanimously recommends that
shareholders vote FOR approval of the Merger Agreement and the transactions
contemplated thereby and FOR each of the nominees for director.
BY ORDER OF THE BOARD OF DIRECTORS
Thomaston, Georgia
_____________ __, 1999
Robert G. Cochran
President and Chief Executive Officer
Whether or not you plan to attend the Annual Meeting, please complete,
date, and sign the enclosed form of proxy and
promptly return it in the enclosed postage paid return envelope in order to
ensure that your shares will be represented at the Annual Meeting.
--------------------
Each shareholder has the right to dissent from the Merger Agreement and
demand payment of the fair value of his or her shares in cash if the merger is
consummated. The right of any shareholder to receive such payment is contingent
upon strict compliance with the requirements of Title 12, Code of Federal
Regulations, Section 552.14. We have included the full text of 12 CFR Section
552.14 that describes the right to dissent as Appendix B to the accompanying
Proxy Statement/Prospectus. See "DESCRIPTION OF MERGER--Dissenters' Rights" in
the accompanying Proxy Statement/Prospectus, page 28.
<PAGE>
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION ABOUT FLAG
Page
----
SUMMARY........................................................................1
THE PARTIES.................................................................1
PROPOSAL 1 - APPROVAL OF THE MERGER AGREEMENT...............................1
THE MERGER...............................................................1
OUR REASONS FOR THE MERGER...............................................2
PROPOSAL 2 -ELECTION OF DIRECTORS...........................................3
RECOMMENDATION TO THOMASTON FEDERAL SHAREHOLDERS............................3
THOMASTON FEDERAL ANNUAL SHAREHOLDER MEETING................................3
RECORD DATE FOR ANNUAL SHAREHOLDER MEETING..................................3
VOTE REQUIRED...............................................................3
WHAT THOMASTON FEDERAL SHAREHOLDERS WILL RECEIVE............................4
REGULATORY APPROVALS........................................................4
CONDITIONS TO THE MERGER....................................................4
TERMINATION OF THE MERGER AGREEMENT.........................................5
DISSENTERS' RIGHTS..........................................................5
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
THAT ARE DIFFERENT FROM YOURS.............................................5
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.....................6
ACCOUNTING TREATMENT OF THE MERGER..........................................6
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS.................................6
COMPARATIVE MARKET PRICES OF COMMON STOCK...................................6
DIVIDENDS AFTER THE MERGER..................................................7
LISTING OF FLAG COMMON STOCK................................................7
COMPARATIVE PER SHARE DATA..................................................8
SELECTED FINANCIAL DATA.....................................................9
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA...................10
RECENT DEVELOPMENTS IN FLAG'S BUSINESS.....................................12
RISK FACTORS..................................................................13
THERE IS LIMITED MARKET FOR SHARES OF FLAG COMMON STOCK....................13
THERE ARE RESTRICTIONS ON FLAG'S ABILITY TO PAY DIVIDENDS..................13
THERE MAY BE POSSIBLE COSTS ASSOCIATED WITH THE
INTEGRATION OF FLAG'S PENDING MERGERS....................................13
FLAG IS SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION.......................13
THE FINANCIAL INSTITUTION INDUSTRY IS VERY COMPETITIVE.....................13
MANAGEMENT OF FLAG HOLDS A LARGE PORTION OF FLAG COMMON STOCK..............14
FLAG'S ARTICLES OF INCORPORATION AND BYLAWS MAY PREVENT
TAKEOVER BY ANOTHER COMPANY..............................................14
YEAR 2000 ISSUES...........................................................14
MEETING OF THOMASTON FEDERAL SHAREHOLDERS.....................................14
DATE, PLACE, TIME, AND PURPOSE.............................................14
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND REVOCABILITY OF PROXIES.....14
PARTICIPANTS IN THE THOMASTON FEDERAL PROFIT SHARING PLAN..................16
PROPOSAL 1 - APPROVAL OF THE MERGER...........................................16
i
<PAGE>
DESCRIPTION OF THE MERGER.....................................................16
GENERAL....................................................................17
BACKGROUND OF AND REASONS FOR THE MERGER...................................18
OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC..............................21
EFFECTIVE DATE OF THE MERGER...............................................24
DISTRIBUTION OF FLAG CERTIFICATES..........................................25
CONDITIONS TO CONSUMMATION OF THE MERGER...................................26
REGULATORY APPROVALS.......................................................27
WAIVER, AMENDMENT, AND TERMINATION.........................................27
DISSENTERS' RIGHTS.........................................................29
CONDUCT OF BUSINESS PENDING THE MERGER.....................................31
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS
OF CERTAIN PERSONS IN THE MERGER.........................................33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................34
ACCOUNTING TREATMENT.......................................................36
EXPENSES AND FEES..........................................................37
RESALES OF FLAG COMMON STOCK...............................................37
DESCRIPTION OF FLAG COMMON STOCK..............................................38
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS................................38
AUTHORIZED CAPITAL STOCK...................................................39
AMENDMENT OF ARTICLES OF INCORPORATION, CHARTER AND BYLAWS.................40
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING.............41
REMOVAL OF DIRECTORS.......................................................41
INDEMNIFICATION............................................................42
SPECIAL MEETINGS OF SHAREHOLDERS...........................................42
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING..................................43
MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS...............................43
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS..........................44
DIVIDENDS..................................................................45
COMPARATIVE MARKET PRICES AND DIVIDENDS.......................................46
BUSINESS OF THOMASTON FEDERAL.................................................47
GENERAL....................................................................47
MANAGEMENT STOCK OWNERSHIP.................................................47
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF THOMASTON FEDERAL..........49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................51
BUSINESS OF FLAG..............................................................62
GENERAL....................................................................62
DIRECTORS AND EXECUTIVE OFFICERS...........................................62
MANAGEMENT STOCK OWNERSHIP.................................................65
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF FLAG.......................67
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................................68
ii
<PAGE>
PROPOSAL 2 - ELECTION OF DIRECTORS............................................75
NOMINEES...................................................................75
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS....................76
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS..........................77
DIRECTOR COMPENSATION......................................................78
EXECUTIVE COMPENSATION.....................................................78
LONG TERM STOCK INCENTIVE PLAN.............................................79
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES...................................................80
SALARY REVIEW COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...............80
SALARY REVIEW COMMITTEE REPORT ON EXECUTIVE COMPENSATION...................81
CERTAIN TRANSACTIONS OF MANAGEMENT WITH THOMASTON FEDERAL..................82
SHAREHOLDER PROPOSALS.........................................................82
EXPERTS.......................................................................83
LEGAL MATTERS.................................................................83
OTHER MATTERS.................................................................83
INDEX TO THOMASTON FEDERAL FINANCIAL DATA....................................F-1
APPENDIX A --AGREEMENT AND PLAN OF MERGER BY AND BETWEEN FLAG
FINANCIAL CORPORATION AND THOMASTON FEDERAL SAVINGS
BANK............................................................A-1
APPENDIX B --DISSENTORS' RIGHTS..............................................B-1
APPENDIX C --FAIRNESS OPINION................................................C-1
iii
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus. Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire Proxy
Statement/Prospectus and its appendices carefully before you decide to vote.
The Parties (Page 47 for Thomaston Federal, Page 62 for FLAG)
Thomaston Federal Savings Bank
206 North Church Street
Thomaston, Georgia 30286
706-647-6601
Thomaston Federal is a federally-chartered savings association with its
main, full-service office located in Thomaston, Georgia. Thomaston Federal also
operates loan production offices in Columbus and Macon, Georgia and in Phenix
City and Opelika, Alabama. Thomaston Federal is a community based financial
institution that offers a broad range of banking and banking-related products
and services. Thomaston Federal is principally engaged in the business of
attracting deposits from the general public and using these funds, loan
repayments and other borrowings to originate residential mortgage loans as well
as making residential construction loans, consumer loans and commercial loans.
As of March 31, 1999, Thomaston Federal had total consolidated assets of
approximately $55.3 million, total consolidated deposits of approximately $49.1
million, and total consolidated shareholders' equity of approximately $5.6
million.
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30240
706-845-5000
FLAG is a bank holding company headquartered in LaGrange, Georgia. FLAG
is the sole shareholder of Citizens Bank, Vienna, Georgia, and First Flag Bank,
LaGrange, Georgia. Through its subsidiaries, FLAG offers a full array of deposit
accounts and retail and commercial banking services, engages in small business
lending, residential and commercial real estate lending, mortgage banking
services, brokerage services and performs real estate appraisal services. As of
March 31, 1999, FLAG's total assets were about $531.5 million, deposits were
about $421.6 million and shareholders' equity was about $48.6 million.
Proposal 1 - Approval of the Merger Agreement
The Merger (Page 16)
The Merger Agreement provides for the acquisition of Thomaston Federal
by FLAG in a merger transaction. After the merger, Thomaston Federal will be a
wholly-owned subsidiary of FLAG.
A copy of the Merger Agreement is included as Appendix A to this Proxy
Statement/Prospectus. We encourage you to read the Merger Agreement because it
is the legal document that governs the merger.
1
<PAGE>
Our Reasons for the Merger (Page 17)
The Thomaston Federal Board of Directors unanimously approved the
Merger Agreement. In deciding to approve the Merger Agreement, the Thomaston
Federal Board of Directors considered a number of factors, including:
(1) The financial and other terms of the Merger Agreement;
(2) The alternatives to the merger, including Thomaston Federal remaining
as an independent savings association;
(3) The liquidity of the FLAG common stock;
(4) The business, operations, earnings, financial condition and future
prospects of FLAG;
(5) The demographic, economic and financial characteristics of the markets
in which FLAG operates;
(6) The local autonomy that FLAG provides its subsidiary banking
operations;
(7) The results of Thomaston Federal's due diligence review of FLAG and a
variety of factors affecting and relating to the overall strategic focus of
Thomaston Federal, including Thomaston Federal's desire to expand into markets
outside the general vicinity of its core market;
(8) The additional support and resources provided by FLAG in the areas of
technology, compliance and new product development;
(9) The vision shared by Thomaston Federal and FLAG relating to future
expansion;
(10) The likelihood of the merger being approved by applicable regulatory
authorities without undue conditions or delay;
(11) The fact that the merger qualifies as a tax-free reorganization to the
shareholders of Thomaston Federal; and
(12) The fairness opinion of The Robinson-Humphrey Company, Inc. delivered
to Thomaston Federal with respect to the merger.
The FLAG Board of Directors believes that the merger is in the best
interests of FLAG and its shareholders. The FLAG Board of Directors unanimously
approved the Merger Agreement. In deciding to approve the Merger Agreement and
the issuance of shares of FLAG common stock to Thomaston Federal shareholders in
the merger, the FLAG Board of Directors considered a number of factors,
including:
(1) The financial condition of Thomaston Federal;
(2) The likelihood of regulators approving the merger without undue
conditions or delay;
(3) The financial and nonfinancial terms of the merger; and
2
<PAGE>
(4) The compatibility and the community bank orientation of FLAG and its
subsidiaries, and Thomaston Federal.
The Boards of Directors of Thomaston Federal 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 Thomaston Federal and FLAG
will provide greater ability for the company to compete in the changing and
competitive financial services industry.
Proposal 2 - Election of Directors (Page 75)
The Thomaston Federal Board has nominated two individuals for the
position of director of Thomaston Federal. You are being asked to elect these
two directors at the Annual Meeting.
Recommendation to Thomaston Federal Shareholders
The Thomaston Federal Board believes that the merger of Thomaston
Federal with FLAG is in the best interests of Thomaston Federal and Thomaston
Federal's shareholders. The Thomaston Federal Board unanimously recommends that
you vote FOR the merger. The Thomaston Federal Board also recommends that you
vote FOR the nominees for director of Thomaston Federal.
Thomaston Federal Annual Shareholder Meeting (Page 14)
The Annual Meeting will be held at Thomaston Federal's main office,
located at 206 North Church Street, Thomaston, Georgia, on __________,
_________, 1999, at 2:00 p.m. The Thomaston Federal Board of Directors is
soliciting proxies for use at the Annual Meeting of Thomaston Federal
shareholders. At the Annual Meeting, the Thomaston Federal Board of Directors
will ask the Thomaston Federal shareholders to vote on a proposal to approve the
Merger Agreement and the transactions contemplated therein and a proposal to
elect two Thomaston Federal directors.
Record Date for Annual Shareholder Meeting (Page 14)
You may vote at the Annual Meeting if you owned Thomaston Federal
common stock as of the close of business on ____________, 1999. You will have
one vote for each share of Thomaston Federal common stock you owned on
____________, 1999. You may revoke your proxy at any time prior to the vote at
the Annual Meeting.
Vote Required (Page 14)
In order to approve the merger, shareholders holding two-thirds of the
outstanding shares of Thomaston Federal common stock must approve the Merger
Agreement. As of the Thomaston Federal Record Date, all directors and executive
officers of Thomaston Federal as a group (eight persons) could vote
approximately 278,658 shares of Thomaston Federal common stock, constituting
approximately 43% of the total number of shares of Thomaston Federal common
stock outstanding at that date. The Thomaston Federal directors and executive
officers have committed to vote their shares of Thomaston Federal common stock
in favor of the merger. As of the Record Date, FLAG held no shares of Thomaston
Federal common stock.
In order to elect the directors of Thomaston Federal, the affirmative
vote of the holders of a plurality of the shares of Thomaston Federal common
stock represented in person or by proxy at the Annual Meeting is required.
3
<PAGE>
What Thomaston Federal Shareholders will Receive (Page 24)
Under the terms of the Merger Agreement, FLAG will pay Thomaston
Federal shareholders 1.7275 shares of FLAG common stock for each share of
Thomaston Federal common stock that they own. Thomaston Federal shareholders
will not receive fractional shares of FLAG common stock. Instead, they will
receive a check in payment for any fractional shares based on the market value
of FLAG common stock. The market value is determined by the last sale price of
FLAG common stock on the Nasdaq National Market (as reported by The Wall Street
Journal) on the last trading day before the merger becomes effective.
Once the merger is complete, FLAG's transfer agent will mail to you
materials and instructions for the exchange of your Thomaston Federal stock
certificates for FLAG stock certificates.
Thomaston Federal shareholders should not send in their stock
certificates until they are instructed to do so after the merger.
Regulatory Approvals (Page 27)
We cannot complete the merger until we receive the approval of the
Federal Reserve Bank of Atlanta (the "Federal Reserve"), the Georgia Department
of Banking and Finance (the "GDBF") and the Office of Thrift Supervision (the
"OTS"). FLAG and Thomaston Federal have filed applications with the Federal
Reserve, the GDBF and the OTS seeking approval of the merger. It is possible
that the approvals of the bank regulators will impose conditions or restrictions
that FLAG or Thomaston Federal believe to materially adversely affect the
economic or business benefits of the merger.
Conditions to the Merger (Page 26)
The completion of the merger depends upon FLAG and Thomaston Federal
satisfying a number of conditions, including:
(1) The holders of two-thirds of Thomaston Federal common stock must
approve the Merger Agreement;
(2) FLAG and Thomaston Federal must receive a legal opinion confirming the
tax-free nature of the merger;
(3) FLAG must receive a letter from FLAG's independent accountants stating
that the merger will qualify for pooling of interests accounting treatment; and
(4) FLAG and Thomaston Federal must receive all required regulatory
approvals and any waiting periods required by law must have passed.
Termination of the Merger Agreement (Page 27)
Either FLAG or Thomaston Federal may terminate the Merger Agreement
without completing the merger if, among other things, any of the following
occurs:
(1) The merger is not completed by October 31, 1999;
4
<PAGE>
(2) The holders of two-thirds of Thomaston Federal common stock do not
approve the Merger Agreement; or
(3) The other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the Merger Agreement.
Thomaston Federal will be required to pay FLAG $100,000 if, prior to
the consummation of merger, Thomaston Federal agrees to be acquired by another
person or entity. If the merger is not consummated, FLAG will continue to
operate as a bank holding company under its present management, and Thomaston
Federal will continue to operate as a federally-chartered savings association
under its present management.
Dissenters' Rights (Page 28 and Appendix B)
Title 12, Code of Federal Regulations, Section 552.14 provides that a
Thomaston Federal shareholder may receive cash for the "fair value" of his or
her shares if the Thomaston Federal shareholder does not vote in favor of the
merger and complies with certain notice requirements and other procedures. If
you wish to dissent, you must follow specific procedures to exercise the right
to dissent or the right to dissent may be lost. The procedures to exercise
dissenters' rights are described in this Proxy Statement/Prospectus and the
provisions of 12 CFR Section 552.14 that describe the procedures are attached as
Appendix B. If the holders of more than 9% of the outstanding shares of
Thomaston Federal common stock properly seek to exercise their dissenters'
rights, FLAG and/or Thomaston Federal may terminate the Merger Agreement.
Interests of Officers and Directors in the Merger that are Different from Yours
(Page 33)
Certain members of Thomaston Federal's management and Board of
Directors have interests in the merger that are in addition to their interests
as shareholders of Thomaston Federal. The Merger Agreement states that, as a
condition to completing the merger, FLAG will enter into employment/separation
agreements with Robert G. Cochran, President and Chief Executive Officer of
Thomaston Federal, and Joel Dudley, Manager of Thomaston Federal's loan
production offices. The employment/separation agreements provide that if the
employee is involuntarily terminated, he will receive severance payments. In
addition, the employment/separation agreements provide that the employee agrees
not to compete with FLAG during the term of the employment/separation agreement
and for one year after the termination of the employment/separation agreement or
the termination of the individual's employment at FLAG. The Merger Agreement
provides that Mr. Cochran will be appointed to the Board of Directors of FLAG
when the merger is complete.
The Merger Agreement also states that FLAG will indemnify the Thomaston
Federal directors and officers to the extent permitted by OTS regulations. FLAG
also has agreed to provide the officers and employees of Thomaston Federal with
certain employee benefits that FLAG already provides to its officers and
employees. The FLAG and Thomaston Federal Boards of Directors were aware of
these interests and took them into account in approving the Merger Agreement.
Important Federal Income Tax Consequences of the Merger (Page 34)
We expect that FLAG, Thomaston Federal and their shareholders will not
recognize any gain or loss for U.S. federal income tax purposes from the merger,
except where Thomaston Federal shareholders receive cash instead of fractional
shares. Both parties have received a legal opinion that this will be the case.
This legal opinion is filed as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus is a part. However, the opinion does not bind
the Internal Revenue Service, which could take a different view. In addition,
this tax treatment will not apply to any Thomaston Federal shareholder who
5
<PAGE>
exercises dissenters' rights. Determining the actual tax consequences of the
merger to you as an individual taxpayer can be complicated. The tax treatment
also may depend upon facts that are unique to your specific situation.
Accordingly, you should consult your own tax advisor for a full understanding of
the tax consequences of the merger.
Accounting Treatment of the Merger (Page 36)
FLAG and Thomaston Federal intend for the merger to be accounted for as
a "pooling of interests," which means that, for accounting and financial
reporting purposes, we will treat Thomaston Federal and FLAG as if Thomaston
Federal had always been a wholly-owned subsidiary of FLAG. FLAG has the right
not to complete the merger if it does not receive a letter from FLAG's
independent public accountants that the merger will qualify as a "pooling of
interests."
Certain Differences in Shareholders' Rights (Page 38)
The rights of FLAG shareholders differ from the rights of Thomaston
Federal shareholders in certain important respects. For example, FLAG's
governing documents contain certain anti-takeover provisions.
Comparative Market Prices of Common Stock (Page 46)
FLAG common stock is traded on the Nasdaq National Market under the
symbol "FLAG." Thomaston Federal common stock is not traded in any established
market. On March 11, 1999, the last day prior to public announcement of the
merger, the last reported sale price per share of FLAG common stock on the
Nasdaq National Market was $10.50. The resulting equivalent pro forma price per
share of Thomaston Federal common stock (based on the 1.7275 exchange ratio) was
$18.14.
On _________, 1999, the latest practicable date prior to the mailing of
this Proxy Statement/Prospectus, the last reported sale price per share of FLAG
common stock on the Nasdaq National Market was $________. The resulting
equivalent pro forma price per share of Thomaston Federal common stock was
$______. The equivalent pro forma per share price of a share of Thomaston
Federal common stock at each specified date represents the closing sale price of
a share of FLAG common stock on that date multiplied by the exchange ratio of
1.7275.
To the knowledge of Thomaston Federal, the most recent trade of
Thomaston Federal common stock prior to March 11, 1999, the last day prior to
public announcement of the merger between FLAG and Thomaston Federal, was on
August 27, 1996 of 14,690 shares for a purchase price of $8.00 per share. To the
knowledge of Thomaston Federal, 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.
Dividends after the Merger (Page 44)
Thomaston Federal's practice is to declare annual dividends to its
shareholders in December, with dividends paid in March of the next year. FLAG
has paid cash dividends to its shareholders every quarter since 1987. Although
FLAG currently plans to continue to pay quarterly cash dividends, FLAG cannot
assure that it will always pay dividends.
6
<PAGE>
Listing of FLAG Common Stock (Page 37)
FLAG will list the shares of FLAG common stock to be issued in
connection with the merger on the Nasdaq National Market.
Risk Factors (Page 13)
In determining whether to approve the Merger Agreement, you should
consider the various risks associated with an investment in FLAG common stock.
These risks include the following:
(1) There is a limited market for shares of FLAG common stock;
(2) FLAG's only sources of income are dividends and other payments from its
subsidiaries;
(3) FLAG may have difficulties integrating new banks into FLAG;
(4) FLAG and its subsidiaries must comply with extensive governmental
regulations;
(5) The financial industry is very competitive;
(6) Before the merger, FLAG's management controls about 21% of FLAG common
stock;
(7) FLAG's Articles of Incorporation and Bylaws contain provisions that
will make it difficult for another company to obtain control of FLAG; and
(8) FLAG may experience some problems and losses as a result of Year 2000
technology problems.
7
<PAGE>
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 Thomaston Federal; (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 Thomaston Federal common stock, giving effect to the
merger. The Thomaston Federal and FLAG pro forma combined information and the
Thomaston Federal pro forma equivalent information give effect to the merger on
a pooling of interests accounting basis and reflect the exchange ratio of 1.7275
shares of FLAG common stock for each share of Thomaston Federal 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.
Comparative Per Share Data
<TABLE>
<CAPTION>
As of and for the
Three Months Ended
March 31, Year Ended December 31,
--------- -----------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Per common share
FLAG historical .16 .23 .30 .66 .26
Thomaston Federal historical .16 .26 .97 .98 .64
FLAG and Thomaston Federal pro forma combined (1) .15 .21 .36 .65 .28
Thomaston Federal pro forma equivalent (2) .26 .36 .62 1.12 .48
Dividends Declared Per common share
FLAG historical .06 .04 .20 .13 .13
Thomaston Federal historical .12 .10 .10 .09 .08
FLAG and Thomaston Federal pro forma combined (1) (4) .06 .04 .20 .13 .13
Thomaston Federal pro forma equivalent (3) .10 .07 .35 .22 .22
Book Value Per common share (period end)
FLAG historical 7.41 7.30 7.30 6.91 6.24
Thomaston Federal historical 8.63 8.07 8.84 7.97 7.07
FLAG and Thomaston Federal pro forma combined (1) 7.09 6.93 6.99 6.58 6.00
Thomaston Federal pro forma equivalent (2) 12.25 11.97 12.08 11.37 10.37
</TABLE>
(1) Represents the pro forma combined information of FLAG and Thomaston Federal
as if the merger was consummated at the beginning of the period, and was
accounted for as a pooling of interests.
(2) Represents the pro forma combined per common share amounts multiplied by the
exchange ratio of 1.7275 shares of FLAG common stock for each share of
Thomaston Federal common stock.
(3) Represents historical dividends declared per share by FLAG multiplied by the
exchange ratio of 1.7275 shares of FLAG common stock for each share of
Thomaston Federal 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>
Selected Financial Data
The following tables present certain selected historical financial information
for FLAG and Thomaston Federal and are derived from the respective consolidated
financial statements of FLAG and Thomaston Federal, 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
Thomaston Federal contained or incorporated by reference herein. Interim
unaudited data for the three month periods ended March 31, 1999 and 1998 of FLAG
and Thomaston Federal reflect, in the opinion of the respective managements of
FLAG and Thomaston Federal, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
three month periods ended March 31, 1999 and 1998 are not necessarily indicative
of results which may be expected for any other interim period or for the year as
a whole.
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31, As of and for the Year Ended December 31,
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
FLAG
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets 531,514 530,530 550,782 512,087 435,976 407,361 381,250
Loans, net 395,074 363,515 377,359 348,774 298,124 265,563 244,949
Deposits 421,618 419,889 446,798 412,454 367,036 329,799 296,583
Stockholders' equity 48,595 46,765 47,865 45,075 41,198 39,563 34,989
Statement of Earnings Data
Net interest income 5,857 5,431 22,823 20,106 18,235 16,877 14,400
Provision for loan losses 345 252 3,382 1,596 4,475 1,490 634
Noninterest income 2,106 2,488 7,439 6,144 5,216 4,148 3,320
Noninterest expense 6,091 5,534 24,617 18,523 16,825 13,867 11,489
Net earnings 1,051 1,480 1,960 4,311 1,700 4,007 3,863
Per Share Data
Book value (period end) 7.41 7.30 7.30 6.91 6.24 6.24 5.49
Net earnings .16 .23 .30 .66 .26 .62 .60
Dividends .06 .04 .20 .13 .13 .13 .12
Total shares outstanding 6,562 6,547 6,560 6,524 6,516 6,341 6,374
Weighted average shares outstanding 6,561 6,533 6,555 6,519 6,481 6,448 6,406
Ratios
Return on average assets .78% 1.14% .36% .93% .41% 1.02% 1.06%
Return on average stockholders' equity 8.72% 12.89% 4.19% 9.97% 4.24% 10.55% 7.13%
Average equity to average assets 8.91% 8.81% 8.64% 9.31% 9.70% 9.67% 9.41%
Average loans to average deposits 88.95% 85.58% 88.87% 83.44% 81.76% 82.97% 82.16%
</TABLE>
9
<PAGE>
Summary Consolidated Financial Information
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31, As of and For the Year Ended December 31,
--------------- -----------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Thomaston Federal
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets 55,261 53,528 53,619 52,164 54,080 47,418 46,943
Loans, net 30,772 30,504 31,306 31,623 33,901 36,127 34,996
Deposits 49,112 47,751 47,054 46,621 45,494 41,452 39,326
Stockholders' equity 5,627 5,119 5,567 5,018 4,455 4,159 3,681
Statement of Earnings Data
Net interest income 405 404 1,629 1,657 1,599 1,526 1,480
Provision for loan losses - - - - 37 25 50
Noninterest income 466 547 2,246 2,129 2,168 1,713 1,740
Noninterest expense 713 687 2,960 2,851 3,094 2,418 2,275
Net earnings 101 163 611 617 405 526 584
Per Share Data
Book value (period end) 8.63 8.07 8.84 7.97 7.07 6.49 5.73
Net earnings .16 .26 .97 .98 .64 .82 .91
Dividends .12 .10 .10 .09 .08 .07 .04
Total shares outstanding 652 634 630 630 630 641 642
Weighted average shares outstanding 630 630 630 630 630 635 641
Ratios
Return on average assets .74% 1.23% 1.16% 1.16% .80% 1.11% 1.31%
Return on average stockholders' equity 7.22% 12.86% 11.54% 13.03% 8.55% 13.42% 17.19%
Average equity to average assets 10.28% 9.59% 10.01% 8.92% 9.33% 8.31% 7.62%
Average loans to average deposits 73.23% 72.39% 75.27% 80.08% 85.67% 88.05% 87.46%
</TABLE>
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.
10
<PAGE>
Selected Pro Forma Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended For the Year Ended
March 31, December 31,
--------- ------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Data
Interest income 11,903 11,706 48,602 42,560 38,305
Interest expense 5,641 5,871 24,149 20,796 18,472
Net interest income 6,262 5,835 24,319 21,764 19,833
Provision for loan losses 345 252 3,382 1,596 4,513
Noninterest income 2,572 3,035 9,684 8,272 7,384
Noninterest expense 6,803 6,220 27,575 21,376 19,921
Income taxes 534 755 607 2,138 682
Net earnings 1,152 1,643 2,438 4,926 2,101
Earnings per common share .15 .22 .32 .65 .28
</TABLE>
As of
March 31, 1999
--------------
Balance Sheet Data
Total assets 586,775
Federal funds sold 2,000
Investment securities 89,253
Loans, net 425,846
Deposits 470,731
Other borrowings 51,432
Stockholders' equity 54,222
11
<PAGE>
Recent Developments in FLAG's Business
On June 1, 1999, FLAG and First Hogansville Bankshares, Inc.
("Hogansville"), a Georgia bank holding company with assets of $31 million,
entered into an Agreement and Plan of Merger to merge Hogansville with and into
FLAG. In the merger, FLAG will exchange 6.08466 shares of FLAG common stock for
each share of Hogansville common stock outstanding. FLAG expects to issue
approximately 575,000 shares of FLAG common stock to Hogansville shareholders.
The parties expect the merger to be accounted for as a pooling of interests and
expect to consummate the transaction in the third quarter of 1999. The merger of
Hogansville with FLAG is subject to approval of Hogansville shareholders,
approval of various regulatory authorities, and other customary conditions of
closing.
Hogansville is a bank holding company located in Hogansville, Georgia
and is the sole shareholder of The Citizens Bank, which has two bank offices in
Hogansville, Georgia.
On March 31, 1999, FLAG and Abbeville Capital Corporation
("Abbeville"), a South Carolina bank holding company with assets of $58 million,
entered into an Agreement and Plan of Merger to merge Abbeville with and into
FLAG. In the merger, FLAG will exchange 3.48 shares of FLAG common stock for
each share of Abbeville common stock outstanding. FLAG expects to issue
approximately 826,900 shares of FLAG common stock to Abbeville shareholders. The
parties expect the merger to be accounted for as a pooling of interests and
expect to consummate the transaction during the third quarter of 1999. The
merger of Abbeville with FLAG is subject to approval of Abbeville shareholders,
approval of various regulatory authorities, and other customary conditions of
closing.
Abbeville is a bank holding company located in Abbeville, South
Carolina and is the sole shareholder of The Bank of Abbeville, which has one
office in Abbeville, South Carolina.
You can find additional information about the Hogansville and Abbeville
transactions in FLAG's Current Reports on Form 8-K dated March 2, 1999, April 7,
1999, and June ___, 1999 (the "FLAG 8-Ks"). The FLAG 8-Ks include or incorporate
by reference certain forward-looking statements, estimates, and projections
concerning the transactions with Hogansville and Abbeville. The parties made
certain assumptions in making estimates and projections concerning the future
financial performance of FLAG following the transactions with Hogansville and
Abbeville. You should consider the estimates and projections only as estimates
and understand that they are uncertain and may be inaccurate. Future events may
cause FLAG's actual experience to differ materially from such estimates and
projections.
12
<PAGE>
RISK FACTORS
In deciding whether to approve the Merger Agreement, you should
consider the various risks associated with an investment in FLAG common stock,
including, but not limited to the following:
There is a Limited Market for Shares of FLAG Common Stock
While FLAG common stock is listed and traded on the Nasdaq National
Market, there has only been limited trading activity in FLAG common stock. The
average daily trading volume of FLAG common stock over the three-month period
ending March 31, 1999 was approximately 4,281 shares, and on some days the
trading volume for shares of FLAG common stock was zero. FLAG does not
anticipate that the merger will cause any significant change in the trading of
FLAG common stock.
There are Restrictions on FLAG's Ability to Pay Dividends
FLAG must comply with Georgia corporate law and rules and regulations
of bank regulators before it may pay any dividends. The Board of Directors of
FLAG must authorize FLAG to pay any dividends and FLAG must have sufficient
funds to pay dividends. FLAG's only sources of income are dividends and other
payments that First Flag Bank, Citizens Bank, and any other subsidiaries of FLAG
make to FLAG. Certain statutes and regulations restrict the ability of FLAG's
subsidiaries to pay dividends to FLAG.
There may be Possible Costs Associated with the Integration of FLAG's Pending
Mergers
The ability of FLAG, as the parent corporation, to perform with
financial success is dependent upon the integration of Abbeville, Hogansville,
Thomaston Federal, and their subsidiaries into FLAG. There may be significant,
unanticipated costs associated with the integration of these companies with
FLAG. See "SUMMARY - Recent Developments in FLAG's Business."
FLAG is Subject to Extensive Governmental Regulation
FLAG and its subsidiaries are subject to extensive governmental
regulation. FLAG, as a bank holding company, is regulated primarily by the
Federal Reserve. Citizens Bank is regulated by the FDIC and the GDBF. First Flag
Bank, as a federal savings association, is regulated by the OTS. However, First
Flag Bank has regulatory approval to convert to a Georgia commercial bank, and
plans to do so in June, 1999. The federal and state bank regulators of these
entities have the ability, should the situation require, to place significant
regulatory and operational restrictions upon FLAG and its subsidiaries. Any such
restrictions imposed by federal and state bank regulators could affect the
profitability of FLAG and its subsidiaries.
The Financial Institution Industry is Very Competitive
FLAG and its subsidiaries compete directly with financial institutions
that are well established. Many of FLAG's competitors have significantly greater
resources and lending limits than FLAG and its subsidiaries. As a result of
those greater resources, the large financial institutions that FLAG competes
with may be able to provide a broader range of services to their customers than
FLAG and may be able to afford newer and more sophisticated technology than
FLAG. The long-term success of FLAG will be dependent on the ability of FLAG's
subsidiaries to compete successfully with other financial institutions in their
service areas.
13
<PAGE>
Management of FLAG holds a large portion of FLAG common stock
The directors and executive officers of FLAG beneficially own about
1,379,739 shares of FLAG common stock, or 21%, of the total outstanding shares
of FLAG. As a result, FLAG's management has significant control of FLAG.
FLAG's Articles of Incorporation and Bylaws may Prevent Takeover by Another
Company
FLAG's Articles of Incorporation permit the Board of Directors of FLAG
to issue preferred stock without shareholder action. The ability to issue
preferred stock could discourage a company from attempting to obtain control of
FLAG by means of a tender offer, merger, proxy contest or otherwise.
Additionally, 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 make it more difficult for a company to acquire
control of FLAG. FLAG is also subject to certain provisions of the Georgia
Business Corporation Code and the FLAG Articles of Incorporation which relate to
business combinations with interested shareholders.
Year 2000 Issues
FLAG's and Thomaston Federal's current computer systems, software
products or other business systems, or those of FLAG's or Thomaston Federal's
suppliers or customers, may not process date information in the years 1999, 2000
or thereafter without error or interruption. FLAG and Thomaston Federal have
reviewed their business systems, including their computer systems, to identify
how any problems in processing date information could affect their systems. In
addition, FLAG and Thomaston Federal are asking all software vendors from whom
they have purchased or may purchase software for assurance that the software
will process all date information without error or interruption. FLAG and
Thomaston Federal also are asking their customers and suppliers to identify and
address any problems that their data processing systems could have as the year
2000 approaches and is reached. However, FLAG and Thomaston Federal cannot
assure that they will identify all potential problems in their processing of
date information, or that they will be able to remedy identified problems before
they occur. The expenses of FLAG's and Thomaston Federal's efforts to identify
and address Year 2000 problems, and the expenses of any Year 2000 problems that
occur, could have a material adverse effect on FLAG's results of operations and
financial condition.
MEETING OF THOMASTON FEDERAL SHAREHOLDERS
Date, Place, Time, and Purpose
The Thomaston Federal Board of Directors is sending you this Proxy
Statement/Prospectus in connection with the solicitation by the Thomaston
Federal Board of Directors of proxies for use at the Annual Meeting. At the
Annual Meeting, the Thomaston Federal Board of Directors will ask you to vote on
a proposal to approve the Merger Agreement and on a proposal to elect two
directors of Thomaston Federal. Thomaston Federal will pay the costs associated
with the solicitation of proxies for the Annual Meeting. The Annual Meeting will
be held at the main office of Thomaston Federal, located at 206 North Church
Street, Thomaston, Georgia, on __________________, _____________, 1999, at 2:00
p.m.
14
<PAGE>
Record Date, Voting Rights, Required Vote, and Revocability of Proxies
Thomaston Federal has set the close of business on _____________, 1999,
as the Record Date for determining holders of outstanding shares of Thomaston
Federal common stock entitled to notice of and to vote at the Annual Meeting.
Only holders of Thomaston Federal common stock of record on the books of
Thomaston Federal at the close of business on the Record Date are entitled to
notice of and to vote at the Annual Meeting. As of the Record Date, there were
652,089 shares of Thomaston Federal common stock issued and outstanding and
entitled to vote at the Annual Meeting, which shares were held by 130 holders of
record. FLAG holds no shares of Thomaston Federal common stock.
The presence, in person or by proxy, of a majority of the outstanding
shares of Thomaston Federal common stock is necessary to constitute a quorum at
the Annual Meeting. Shares as to which votes are withheld or abstained will be
treated as present for the purposes of determining a quorum and shares held by a
broker that are not voted ("broker non-votes") will not be treated as present
for purposes of a quorum.
You are entitled to one vote on each proposal for each share of
Thomaston Federal common stock you own on the Record Date. The vote required for
the approval of the Merger Agreement (Proposal 1) is two-thirds of the issued
and outstanding shares of Thomaston Federal common stock entitled to vote at the
Annual Meeting. The affirmative vote of the holders of a plurality of the shares
of Thomaston Federal common stock represented in person or by proxy at the
Annual Meeting is required in order to elect directors of Thomaston Federal
(Proposal 2). Consequently, abstentions and broker non-votes, as well as
instructions to withhold authority to vote, will have the same effect as a vote
"against" the Merger Agreement and the election of directors.
The designated proxy holder will vote shares of Thomaston Federal
common stock, if such proxies are properly executed, received in time and not
revoked, in accordance with the instructions on the proxies. If the proxy does
not contain instructions of how to vote, the proxy holders will vote for
approval of the Merger Agreement. Additionally, if you do not include
instructions with your proxy, the proxy holder will vote the shares represented
by a signed proxy card "FOR" the election of the two nominees named in Proposal
2. Further, if you do not include instructions with your proxy as to how to vote
at the Annual Meeting, you will not be entitled to assert dissenters' rights. If
any other matters properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters according to their judgment. If necessary,
the proxy holder may vote in favor of a proposal to adjourn the Annual Meeting
in order to permit further solicitation of proxies in the event there are not
sufficient votes to approve the proposals at the time of the Annual Meeting. No
proxy that is voted against the approval of the Merger Agreement will be voted
in favor of an adjournment of the Annual Meeting in order to permit further
solicitation of proxies.
- --------------------------------------------------------------------------------
Failure either to vote by proxy or in person at the Annual Meeting will
have the effect of a vote cast against approval of the Merger Agreement and
against the election of the directors.
- --------------------------------------------------------------------------------
A Thomaston Federal shareholder who has given a proxy may revoke it at
any time prior to its exercise at the Annual Meeting by:
(1) Giving written notice of revocation to the Secretary of Thomaston
Federal;
(2) Properly submitting to Thomaston Federal a duly executed proxy bearing
a later date; or
(3) Attending the Annual Meeting and voting in person.
15
<PAGE>
All written notices of revocation and other communications with
respect to revocation of proxies should be addressed as follows: Thomaston
Federal Savings Bank, 206 North Church Street, Thomaston, Georgia, 30286;
Attention: Robert G. Cochran.
As of the Record Date, all directors and executive officers of
Thomaston Federal as a group (eight persons) were entitled to vote approximately
278,658 shares of Thomaston Federal common stock, constituting approximately 43%
of the total number of shares of Thomaston Federal common stock outstanding at
that date, and have committed to vote their shares of Thomaston Federal common
stock in favor of the Merger Agreement. See "BUSINESS OF THOMASTON FEDERAL --
Management."
Participants in the Thomaston Federal Profit Sharing Plan
Separate proxy cards are being transmitted to all persons who have
shares of Thomaston Federal common stock allocated to their accounts as
participants or beneficiaries under the Thomaston Federal Savings Bank Profit
Sharing Plan. These proxy cards appoint C. Ronald Barfield, who acts as Trustee
for the Profit Sharing Plan, to vote the shares held for the accounts of the
participants or their beneficiaries in the Profit Sharing Plan in accordance
with the instructions noted thereon. In the event that no proxy card is received
from a participant or beneficiary or a proxy card is received without
instructions, the Trustee will vote the shares of stock of the participant and
any unallocated shares "FOR" the Merger Agreement and the transactions
contemplated thereby and "FOR" the nominees for director. The Trustee does not
know of any other business to be brought before the Annual Meeting, but it is
intended that, if any other matters properly come before the Annual Meeting, the
Trustee as proxy will vote upon such matters according to his judgment.
Any Profit Sharing Plan participant or beneficiary who executes and
delivers a proxy card to the Trustee may revoke it at any time prior to its use
by executing and delivering to the Trustee a duly executed proxy card bearing a
later date or by giving written notice to the Trustee at the following address:
C. Ronald Barfield, Trustee, Atwater Building, 106 North Center Street, P. O.
Drawer 671, Thomaston, Georgia 30286. Under the terms of the Profit Sharing
Plan, only the Trustee(s) of the Profit Sharing Plan can vote the shares
allocated to the accounts of participation, even if such participants or their
beneficiaries attend the Annual Meeting in person.
PROPOSAL 1 - APPROVAL OF THE MERGER
DESCRIPTION OF THE MERGER
The following information describes certain aspects of the merger. This
description may not contain all of the information that is important to you. The
Merger Agreement is attached as Appendix A to this Proxy Statement/Prospectus
and is incorporated in this Proxy Statement/Prospectus by reference. You are
urged to read the Appendices.
General
The Merger Agreement provides that FLAG will acquire Thomaston Federal
by merging a newly formed, wholly-owned subsidiary of FLAG into Thomaston
Federal. Thomaston Federal will survive the merger and will be a wholly-owned
subsidiary of FLAG. On the effective date of the merger, each share of Thomaston
Federal common stock then issued and outstanding will be converted into and
exchanged for the right to receive 1.7275 shares of FLAG common stock. Shares
held by Thomaston Federal, FLAG, or their subsidiaries, other than shares held
in a fiduciary capacity or in satisfaction of debts previously contracted, will
not be converted to FLAG common stock. Shares held by Thomaston Federal
shareholders who perfect their dissenters' rights will not be converted to FLAG
common stock.
16
<PAGE>
FLAG will not adjust the exchange ratio based on changes in the market
value of FLAG common stock before the effective date of the merger. The market
value of the FLAG common stock that shareholders of Thomaston Federal will
receive may vary significantly between the date of this Proxy
Statement/Prospectus and the effective date of the merger. Because FLAG and
Thomaston Federal must satisfy certain conditions, including receipt of
necessary regulatory approvals, the merger may not be consummated until a
substantial period of time following the Annual Meeting. During the time between
the date of the Annual Meeting and the effective date of the merger,
shareholders of Thomaston Federal who do not properly perfect their dissenters'
rights, or who do not sell their shares of Thomaston Federal common stock before
the effective date of the merger, will be subject to the risk of a decline in
the market value of FLAG common stock.
FLAG will not issue fractional shares. FLAG will pay cash without
interest instead of issuing any fractional share to which any Thomaston Federal
shareholder would otherwise be entitled upon consummation of the merger. FLAG
will calculate the cash value of any fractional shares as the amount equal to
the 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 date of the
merger.
As of the Record Date, Thomaston Federal had 652,089 shares of
Thomaston Federal common stock issued and outstanding. Based on the number of
shares of Thomaston Federal common stock outstanding on the Record Date and the
Exchange Ratio of 1.7275, FLAG anticipates that it will issue approximately
1,126,484 shares of FLAG common stock to holders of Thomaston Federal common
stock once the merger is complete. Accordingly, FLAG would then have issued and
outstanding approximately 7,688,363 shares of FLAG common stock based on the
number of shares of FLAG common stock issued and outstanding on the Record Date.
Following the merger, and assuming no exercise of dissenters' rights, the
current shareholders of Thomaston Federal will beneficially own approximately
15% of the FLAG common stock. If FLAG completes the mergers with Hogansville and
Abbeville, the current shareholders of Thomaston Federal will beneficially own
approximately 12% of the FLAG common stock. See "SUMMARY -- Recent Developments
in FLAG's Business."
The Merger Agreement permits FLAG to pursue and consummate other
mergers, acquisitions or securities distributions. If FLAG issues or agrees to
issue additional shares of FLAG common stock between the date of this Proxy
Statement/Prospectus and the effective date of the merger in connection with a
business acquisition or other securities distribution, the aggregate percentage
of FLAG common stock that the Thomaston Federal shareholders will receive in the
merger will be decreased. Additionally, if FLAG pursues and consummates other
mergers, acquisitions or securities distributions, the value of the FLAG common
stock that the Thomaston Federal shareholders receive in the merger may be
reduced and the consummation of the merger may be delayed substantially.
Background of And Reasons for the Merger
Background of the Merger. In the latter part of 1998, the Board of
Directors of Thomaston Federal began developing a strategic business plan for
Thomaston Federal for the purpose of enhancing shareholder value, improving
liquidity in the Thomaston Federal common stock and enhancing the services
available to Thomaston Federal's customers. Faced with increased costs
associated with compliance, technology and new product development, the
Thomaston Federal Board of Directors began to look for opportunities that would
allow it to find the support it needed to ensure the growth of Thomaston
Federal, including increasing market share and providing a favorable return on
equity and assets, and still retain Thomaston Federal's autonomy. As part of the
strategic planning process, the Board of Directors considered a number of
alternatives, including remaining an independent savings association and
entering into a possible strategic business combination.
17
<PAGE>
In mid-October, 1998, management of FLAG met with management of
Thomaston Federal to discuss FLAG's concept of growing through "partnerships"
with community banks. At that meeting, Thomaston Federal management expressed an
interest in FLAG's concept, and asked FLAG to make a formal presentation of the
concept to the Thomaston Federal Board of Directors. On November 9, 1998, the
Board of Directors of Thomaston Federal met to listen to FLAG's presentation and
to consider a possible merger transaction with FLAG. FLAG representatives
discussed the "partnership" concept whereby Thomaston Federal would become a
wholly-owned subsidiary of FLAG. They explained that FLAG is a multi-bank
holding company consisting of independently operated community banks operating
in the traditional community bank environment with the parent holding company
providing support in such areas as data processing, asset/liability management,
internet banking, compliance, quality control, training, trust services,
accounts payable and purchasing. The Thomaston Federal Board believes that this
structure will allow Thomaston Federal to meet its goals with regard to the
growth of Thomaston Federal and at the same time retain its charter, its name,
its staff and its Board of Directors.
On January 11, 1999, the Thomaston Federal Board of Directors met with
its legal advisors and with representatives of The Robinson-Humphrey Company,
LLC, an investment banking firm with significant experience in the community
bank market. At the meeting, Robinson-Humphrey and the Board of Directors
discussed the current operating environment for community banks and savings
associations, the current status of Thomaston Federal's operations, possible
merger partners and the potential financial benefit of such a merger to the
shareholders of Thomaston Federal. The Board of Directors of Thomaston Federal
subsequently engaged Robinson-Humphrey to assist it in pursuing a merger
transaction with FLAG.
On January 25, 1999, and on February 22, 1999, the Thomaston Federal
Board of Directors again met, along with legal counsel, to discuss the merits of
engaging in a merger transaction, and specifically of seeking a merger with
FLAG. At the latter meeting, Robinson-Humphrey presented a detailed report on
the suitability of FLAG as a merger partner. The report indicated that FLAG was
an excellent merger candidate because of its business philosophy for smaller
community banks, its future earnings potential and the fact that its stock was
trading at below what was perceived as its real value. Consequently, the Board
of Directors of Thomaston Federal authorized Robinson-Humphrey to undertake
negotiations with the appropriate representatives of FLAG to determine if the
parties could reach agreement on the terms of a strategic merger that would be
in the best interests of the shareholders of Thomaston Federal.
In negotiating the final exchange ratio, Thomaston Federal and FLAG
considered the relative book value and earnings of each entity, as well as their
historical performance, market growth potential, ancillary businesses and future
growth plans. Thomaston Federal and FLAG did not follow a precise formula in the
negotiation of the final exchange ratio, which was based on arms-length
negotiation between the parties.
During the period from February 22, 1999 to March 11, 1999,
representatives of Thomaston Federal and FLAG negotiated the terms of a Letter
of Intent outlining the basic terms of the merger. On March 11, 1999, the Board
of Directors of Thomaston Federal met with its legal advisors and
representatives of Robinson-Humphrey to discuss the proposed merger with FLAG.
After carefully reviewing the proposed Letter of Intent, the Thomaston Federal
Board of Directors approved the Letter of Intent and authorized the President of
Thomaston Federal to execute and deliver the Letter of Intent on the behalf of
Thomaston Federal.
18
<PAGE>
In the period following the execution of the Letter of Intent, FLAG and
Thomaston Federal each conducted a due diligence review of the material
financial, operating and legal information relating to the other party and began
negotiating the terms of the definitive Merger Agreement. On April 13, 1999, the
Board of Directors of FLAG unanimously approved the proposed Merger Agreement
and the transactions contemplated therein, and authorized FLAG's president to
execute the Merger Agreement.
The Board of Directors of Thomaston Federal, along with its legal
advisors and representatives of Robinson-Humphrey, met on May 6, 1999, to
discuss the proposed Merger Agreement and related agreements. Robinson-Humphrey
and counsel discussed the due diligence review of FLAG, outlining the procedures
used and summarizing the results of the review. The Board then reviewed with
counsel the provisions of the proposed definitive Merger Agreement.
Robinson-Humphrey also reviewed its financial analysis of the transaction and
delivered its opinion that the Merger Agreement and the transactions
contemplated thereby are fair to the shareholders of Thomaston Federal from a
financial point of view. After review of the proposed transaction, the Board of
Directors of Thomaston Federal unanimously approved the Merger Agreement and
authorized the President of Thomaston Federal to take the appropriate actions
necessary to execute the Merger Agreement.
On May 7, 1999, FLAG and Thomaston Federal executed the Merger
Agreement.
Thomaston Federal's Reasons for the Merger and Recommendation of
Directors. The Thomaston Federal Board of Directors, with the assistance of
outside financial and legal advisors, evaluated the financial, legal and market
considerations bearing on the decision to recommend the merger to the
shareholders of Thomaston Federal. In reaching its conclusion that the Merger
Agreement is in the best interests of Thomaston Federal and its shareholders,
the Thomaston Federal Board of Directors carefully considered the following
material factors:
(1) The financial and other terms of the Merger Agreement;
(2) The alternatives to the merger, including Thomaston Federal remaining
as an independent savings association in light of current economic conditions in
its market area;
(3) The liquidity of the FLAG common stock as compared to the Thomaston
Federal common stock;
(4) 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;
(5) The demographic, economic and financial characteristics of the markets
in which FLAG operates, including the similarity to the markets in which
Thomaston Federal operates, existing competition, history of the market areas
with respect to financial institutions, and average demand for credit, on an
historical and prospective basis;
(6) The local autonomy that FLAG provides its subsidiary banking
operations;
(7) The results of Thomaston Federal's due diligence review of FLAG and a
variety of factors affecting and relating to the overall strategic focus of
Thomaston Federal, including Thomaston Federal's desire to expand into markets
outside the general vicinity of its core markets;
(8) The additional support and resources provided by FLAG in the areas of
technology, compliance and new product development;
19
<PAGE>
(9) The vision shared by Thomaston Federal and FLAG relating to future
expansion;
(10) The likelihood of the merger being approved by applicable regulatory
authorities without undue conditions or delay;
(11) The fact that the merger qualifies as a tax-free reorganization to the
shareholders of Thomaston Federal; and
(12) The fairness opinion of Robinson-Humphrey delivered to Thomaston
Federal with respect to the merger.
While each member of the Thomaston Federal Board of Directors
individually considered the foregoing and other factors, the Thomaston Federal
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 Thomaston Federal 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 Thomaston Federal
shareholders.
The terms of the merger, including the exchange ratio, were the result
of arms-length negotiations between representatives of Thomaston Federal and
representatives of FLAG. Based upon its consideration of the foregoing factors,
the Board of Directors of Thomaston Federal approved the Merger Agreement and
the merger as being in the best interests of Thomaston Federal and its
shareholders.
The Thomaston Federal Board of Directors unanimously recommends that
Thomaston Federal shareholders vote "FOR" approval of the Merger Agreement.
FLAG's Reasons for the Merger. Since the completion of the merger of
Middle Georgia Bankshares, Inc. with FLAG in March 1998, FLAG has explored
opportunities that would further FLAG's goal of building a strong presence,
primarily in Georgia, through a partnership of community banks. The FLAG Board
of Directors evaluated the financial, legal and market considerations relating
to the merger. In reaching its conclusion that the Merger Agreement with
Thomaston Federal is in the best interests of FLAG and its shareholders, the
FLAG Board of Directors carefully considered the following material factors:
(1) The information presented to the directors by the management of FLAG
concerning the business, operations, earnings, asset quality, and financial
condition of Thomaston Federal, including the composition of the earning assets
portfolio of Thomaston Federal;
(2) 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 Thomaston Federal common stock;
(3) The nonfinancial terms of the merger, including the treatment of the
merger as a tax-free exchange of Thomaston Federal common stock for FLAG common
stock for federal income tax purposes;
(4) The likelihood of the merger being approved by applicable regulatory
authorities without undue conditions or delay;
20
<PAGE>
(5) The opportunity for reducing the noninterest expense of the operations
of Thomaston Federal and the ability of the operations of Thomaston Federal
after the effective date of the merger to contribute to the earnings of FLAG;
(6) The attractiveness of the Thomaston Federal franchise, the market
position of Thomaston Federal in Thomaston, Georgia, the compatibility of the
franchise of Thomaston Federal with the operations of FLAG and the ability of
Thomaston Federal to contribute to the business strategy of FLAG;
(7) The compatibility of the community bank orientation of the operations
of Thomaston Federal to that of FLAG; and
(8) 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 considers as appropriate, that the merger is in the
best interests of the FLAG shareholders.
The terms of the merger, including the exchange ratio, were the result
of arm's-length negotiations between representatives of FLAG and representatives
of Thomaston Federal. 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.
Opinion of The Robinson-Humphrey Company, LLC
General. Thomaston Federal retained Robinson-Humphrey to act as its
financial advisor in connection with the merger. Robinson-Humphrey has rendered
an opinion to Thomaston Federal's Board of Directors that, based on the matters
set forth therein, consideration to be received pursuant to the merger is fair,
from a financial point of view, to Thomaston Federal shareholders. The text of
such opinion is set forth in Appendix C to this Proxy Statement/Prospectus and
should be read in its entirety by shareholders of Thomaston Federal.
The consideration to be received by Thomaston Federal's shareholders in
the merger was determined by Thomaston Federal and FLAG in their negotiations.
No limitations were imposed by the Board of Directors or management of Thomaston
Federal upon Robinson-Humphrey with respect to the investigations made or the
procedures followed by Robinson-Humphrey in rendering its opinion. In addition,
Thomaston Federal did not authorize Robinson-Humphrey to solicit, and
Robinson-Humphrey did not solicit, any indications of interest from any third
party with respect to the purchase of all or a part of Thomaston Federal's
business.
In connection with rendering its opinion to Thomaston Federal's Board
of Directors, Robinson-Humphrey performed a variety of financial analyses.
However, the preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description.
Robinson-Humphrey, in conducting its analysis and in arriving at its opinion,
has not conducted a physical inspection of any of the properties or assets of
Thomaston Federal, and has not made or obtained any independent valuation or
appraisals of any properties, assets or liabilities of Thomaston Federal.
Robinson-Humphrey has assumed and relied upon the accuracy and completeness of
the financial and other information that was provided to it by Thomaston Federal
or that was publicly available. Its opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to it as of, the date of its analyses.
21
<PAGE>
Valuation Methodologies. In connection with its opinion on the merger
and the presentation of that opinion to Thomaston Federal's Board of Directors,
Robinson-Humphrey performed two valuation analyses with respect to Thomaston
Federal: (i) an analysis of comparable prices and terms of recent transactions
involving financial institutions acquiring thrifts; and (ii) a discounted cash
flow analysis. Both of these methodologies are discussed briefly below.
Comparable Transaction Analysis. Robinson-Humphrey performed three
analyses of premiums paid for selected thrifts with comparable
characteristics to Thomaston Federal. Comparable transactions were
considered to be: (i) transactions since January 1, 1997, where the
seller was a thrift with total assets between $50 million and $250
million; (ii) transactions since January 1, 1997, where the seller was
a thrift located in the Southeast with total assets between $50 million
and $250 million, and (iii) transactions since January 1, 1997 where
the seller was a thrift located in Georgia.
(1) Based on the first of the foregoing transactions
since January 1, 1997, where the seller was a thrift
with total assets between $50 million and $250
million, the analysis yielded a range of transaction
values to book value of 0.90 times to 3.20 times,
with a mean of 1.72 times and a median of 1.62 times.
These compare to a transaction value for the merger
of 2.15 times Thomaston Federal's book value as of
March 31, 1999.
The analysis yielded a range of transaction values as
a percentage of tangible book value for the
comparable transactions ranging from 0.90 times to
3.20 times, with a mean of 1.73 times and a median of
1.62 times. These compare to a transaction value to
tangible book value at March 31, 1999 of 2.15 times
for the merger.
The analysis yielded a range of transaction values as
a multiple of trailing twelve month earnings per
share. These values ranged from 13.04 times to 58.07
times, with a mean of 26.40 times and a median of
21.09 times. These compare to a transaction value to
the March 31, 1999 trailing twelve month earnings per
share of 22.06 times for the merger.
Lastly, the analysis yielded a range of transaction
values as a percentage of total assets for the
comparable transactions ranging from 5.07 percent to
37.16 percent, with a mean of 17.48 percent and a
median of 17.86 percent. These compare to a
transaction value to total assets at March 31, 1999
of approximately 22.84 percent for the merger.
(2) Based on transactions since January 1, 1997, where
the seller was a thrift located in the Southeast with
total assets between $50 million and $250 million,
the analysis yielded a range of transaction values to
book value of 1.02 times to 3.20 times, with a mean
of 1.76 times and a median of 1.57 times. These
compare to a transaction value for the merger of 2.15
times Thomaston Federal's book value as of March 31,
1999.
22
<PAGE>
The analysis yielded a range of transaction values as
a percentage of tangible book value for the
comparable transactions ranging from 1.02 times to
3.20 times, with a mean of 1.76 times and a median of
1.57 times. These compare to a transaction value to
tangible book value at March 31, 1999 of 2.15 times
for the merger.
The analysis yielded a range of transaction values as
a multiple of trailing twelve month earnings per
share. These values ranged from 18.18 times to 58.07
times, with a mean of 32.07 times and a median of
24.01 times. These compare to a transaction value to
the March 31, 1999 trailing twelve month earnings per
share of 22.06 times for the merger.
Lastly, the analysis yielded a range of transaction
values as a percentage of total assets for the
comparable transactions ranging from 6.48 percent to
37.16 percent, with a mean of 17.99 percent and a
median of 18.26 percent. These compare to a
transaction value to total assets at March 31, 1999
of approximately 22.84 percent for the merger.
(3) Based on transactions since January 1, 1997, where
the seller was a thrift located in Georgia, the
analysis yielded a range of transaction values to
book value of 1.36 times to 3.82 times, with a mean
of 2.63 times and a median of 2.51 times. These
compare to a transaction value for the merger of 2.15
times Thomaston Federal's book value as of March 31,
1999.
The analysis yielded a range of transaction values as
a multiple of tangible book value for the comparable
transactions ranging from 1.36 times to 4.14 times,
with a mean of 2.84 times and a median of 2.82 times.
These compare to a transaction value to tangible book
value at March 31, 1999 of 2.15 times for the merger.
The analysis yielded a range of transaction values as
a multiple of trailing twelve month earnings per
share. These values ranged from 17.98 times to 53.02
times, with a mean of 28.52 times and a median of
23.43 times. These compare to a transaction value to
the March 31, 1999 trailing twelve months earnings
per share of 22.06 times for the merger.
Lastly, the analysis yielded a range of transaction
values as a percentage of total assets for the
comparable transactions ranging from 11.26 percent to
32.86 percent, with a mean of 24.63 percent and a
median of 27.02 percent. These compare to a
transaction value to total assets at March 31, 1999
of 22.84 percent for the merger.
No company or transaction used in the comparable transaction analyses
is identical to Thomaston Federal. Accordingly, an analysis of the
foregoing necessarily involves complex considerations and judgments, as
well as other factors that affect the public trading value or the
acquisition value of the company to which it is being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the future stream of
after-tax cash flows that Thomaston Federal could produce through 2003,
under various circumstances, assuming that Thomaston Federal performed
in accordance with the earnings/return projections of management at the
time that Thomaston Federal entered into acquisition discussions in
January 1999. Robinson-Humphrey estimated the terminal value for
23
<PAGE>
Thomaston Federal at the end of the period by applying multiples of
earnings ranging from 14.0 times to 16.0 times and then discounting the
cash flow streams, dividends paid to shareholders and terminal value
using differing discount rates (ranging from 10.0 percent to 12.0
percent) chosen to reflect different assumptions regarding the required
rates of return of Thomaston Federal and the inherent risk surrounding
the underlying projections. This discounted cash flow analysis
indicated a reference range of $10.4 to $12.0 million, or $15.31 to
$17.64 per share, for Thomaston Federal.
Compensation of Robinson-Humphrey. Pursuant to an engagement letter
dated January 1999 between Thomaston Federal and Robinson-Humphrey, Thomaston
Federal agreed to pay a $50,000 Fairness Opinion Fee at the time of rendering
and 1.50 percent of the equity value of the transaction, less any previously
paid amounts, upon completion of the merger. In addition, Thomaston Federal has
agreed to reimburse Robinson-Humphrey for its reasonable out-of-pocket expenses,
subject to certain limitations, and to indemnify and hold harmless
Robinson-Humphrey and its officers and employees against certain liabilities in
connection with its services under the engagement letter, except for liabilities
resulting from the gross negligence of Robinson-Humphrey.
As part of its investment banking business, Robinson-Humphrey is
regularly engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Thomaston Federal's Board of Directors decided to retain
Robinson-Humphrey based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, particularly transactions in the
Southeastern region of the United States, and its knowledge of financial
institutions and Thomaston Federal in particular.
Effective Date of the Merger
The effective date of the merger will occur on the date and at the time
that the Articles of Combination reflecting the merger are approved by the OTS.
Unless Thomaston Federal and FLAG otherwise agree in writing, and subject to the
conditions to the obligations of FLAG and Thomaston Federal to effect the
merger, the parties will use their reasonable efforts to cause the effective
date of the merger to occur on or before the fifth business day following the
last to occur of (1) 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 (2) the date on which
the shareholders of Thomaston Federal approve the Merger Agreement.
FLAG and Thomaston Federal cannot assure that they can obtain the
necessary shareholder and regulatory approvals or that they can or will satisfy
other conditions precedent to the merger. FLAG and Thomaston Federal anticipate
that they will satisfy all conditions to consummation of the merger so that the
merger can be completed during the third quarter of 1999. However, delays in the
consummation of the merger could occur.
The Board of Directors of either FLAG or Thomaston Federal may
terminate the Merger Agreement if the merger is not consummated by October 31,
1999, 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 date of the merger, FLAG's exchange agent
will mail to each holder of record of Thomaston Federal common stock appropriate
transmittal materials and instructions for the exchange of Thomaston Federal
stock certificates for FLAG stock certificates. FLAG stock certificates will be
24
<PAGE>
exchanged for Thomaston Federal stock certificates, which, immediately prior to
the effective date of the merger, represented outstanding shares of Thomaston
Federal common stock.
Holders of Thomaston Federal common stock should NOT send in their
Thomaston Federal stock certificates until they receive the transmittal
materials and instructions.
After FLAG's exchange agent receives your Thomaston Federal stock
certificates and properly completed transmittal materials, the Exchange Agent
will issue and mail to you a FLAG stock certificate representing the number of
shares of FLAG common stock to which you are entitled. The Exchange Agent will
also send Thomaston Federal shareholders a check for the amount to be paid,
without interest, for any fractional shares and for all undelivered dividends or
distributions in respect of such shares.
After the effective date of the merger, to the extent permitted by law,
holders of Thomaston Federal common stock of record as of the effective date of
the merger will be entitled to vote at any meeting of FLAG shareholders the
number of whole shares of FLAG common stock they will receive in the merger,
regardless of whether such shareholders have surrendered their Thomaston Federal
stock certificates. Whenever FLAG declares a dividend or other distribution on
FLAG common stock, the record date for which is at or after the effective date
of the merger, the declaration will include dividends or other distributions on
all shares issuable pursuant to the Merger Agreement. FLAG will not pay any
dividend or other distribution payable after the effective date of the merger
with respect to FLAG common stock to the holder of any unsurrendered Thomaston
Federal stock certificate until the holder duly surrenders such Thomaston
Federal stock certificate. In no event will the holder of any surrendered
Thomaston Federal stock certificate(s) be entitled to receive interest on any
cash to be issued to such holder, except to the extent required in connection
with dissenters' rights. In no event will FLAG or the Exchange Agent be liable
to any holder of Thomaston Federal common stock for any amounts paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat, or similar law.
After the effective date of the merger, no transfers of shares of
Thomaston Federal common stock on Thomaston Federal's stock transfer books will
be recognized. If Thomaston Federal stock certificates are presented for
transfer after the effective date of the merger, 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.
After the effective date of the merger, holders of Thomaston Federal
stock certificates will have no rights with respect to the shares of Thomaston
Federal common stock other than the right to surrender such Thomaston Federal
stock certificates and receive in exchange the shares of FLAG common stock to
which such holders are entitled. After the effective date of the merger, holders
of Thomaston Federal stock certificates who have complied with the provisions of
12 CFR Section 552.14 relating to dissenters' rights will have the right to
demand payment of the fair or appraised value of their stock. See "Appendix B"
of this Proxy Statement/Prospectus.
If a Thomaston Federal shareholder wishes to have a FLAG certificate
issued in a name other than that in which the Thomaston Federal stock
certificate surrendered for exchange is issued, the surrendered Thomaston
Federal stock certificate shall be properly endorsed and otherwise in proper
form for transfer. The person requesting such exchange must include any
requisite stock transfer tax stamps to the Thomaston Federal stock certificates
surrendered, provide funds for the purchase of any stock transfer tax stamps, or
establish to the Exchange Agent's satisfaction that such taxes are not payable.
25
<PAGE>
Conditions to Consummation of the Merger
Consummation of the merger is subject to various conditions, including:
(1) Approval of the Merger Agreement by the holders of two-thirds of the
outstanding Thomaston Federal common stock;
(2) Receipt of certain regulatory approvals required for consummation of
the merger (see "-- Regulatory Approvals");
(3) 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;
(4) 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;
(5) The Registration Statement of which this Proxy Statement/Prospectus
forms a part being declared effective by the SEC 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;
(6) Approval of the shares of FLAG common stock issuable pursuant to the
Merger Agreement for listing on the Nasdaq National Market;
(7) Dissent to the merger by the holders of no more than 9% of the
outstanding shares of Thomaston Federal common stock;
(8) Negotiation by each of Robert G. Cochran, President and Chief Executive
Officer of Thomaston Federal, and Joel Dudley, manager of Thomaston Federal's
loan production offices, of a mutually satisfactory employment/separation
agreement with FLAG which will have an initial term of three years;
(9) Receipt of an opinion of Powell, Goldstein, Frazer & Murphy LLP as to
the qualification of the merger as a tax-free reorganization (see "-- Certain
Federal Income Tax Consequences");
(10) The accuracy, in all material respects, as of the date of the Merger
Agreement and as of the effective date of the merger, of the representations and
warranties of Thomaston Federal and FLAG as set forth in the Merger Agreement;
(11) The performance of all agreements and the compliance with all
covenants of Thomaston Federal and FLAG as set forth in the Merger Agreement;
(12) Receipt by FLAG of a letter from Porter Keadle Moore, LLP, independent
accountants, to the effect that the merger will qualify for pooling of interests
accounting treatment; and
(13) Satisfaction of certain other conditions, including the execution of
certain claims letters by the directors and officers of Thomaston Federal, the
receipt of certain opinion letters from counsel for FLAG and counsel for
Thomaston Federal, and receipt of various certificates from the officers of
Thomaston Federal and FLAG.
26
<PAGE>
FLAG and Thomaston Federal cannot assure you as to when, or if, all of
the conditions to the merger can or will be satisfied. In the event the merger
is not complete on or before October 31, 1999, the Merger Agreement may be
terminated and the merger abandoned by either Thomaston Federal 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
FLAG and Thomaston Federal cannot complete the merger until they
receive regulatory approvals from the Federal Reserve, the GDBF and the OTS.
These regulators will evaluate financial, managerial and competitive criteria,
as well as the supervisory history of the parties and the public benefits of the
merger. FLAG has filed all required regulatory applications. FLAG and Thomaston
Federal cannot assure when or whether they will receive the regulatory
approvals. Additionally, the parties cannot assure that the regulatory approvals
will impose no conditions or restrictions that in the reasonable judgment of
their Boards of Directors would so adversely impact the economic or business
benefits of the merger that, had such conditions or restrictions been known, the
parties would not have entered into the Merger Agreement.
FLAG and Thomaston Federal are not aware of any other material
governmental approvals or actions that are required for consummation of the
merger.
Waiver, Amendment, and Termination
To the extent permitted by applicable law, Thomaston Federal and FLAG
may amend the Merger Agreement by written agreement at any time before approval
of the Merger Agreement by the Thomaston Federal shareholders. After the
Thomaston Federal shareholders approve the Merger Agreement, no amendment shall
be made to the Merger Agreement that, pursuant to 12 C.F.R. Section 552.13(h) of
the OTS Regulations, requires further shareholder approval, without receiving
such shareholder approval. In addition, prior to or at the effective date of the
merger, either Thomaston Federal 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 Thomaston Federal or FLAG, as the
case may be.
FLAG and Thomaston Federal may terminate the Merger Agreement and
abandon the merger at any time prior to the effective date of the merger by:
(1) The mutual agreement of Thomaston Federal and FLAG; or
(2) By FLAG or Thomaston Federal:
(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 the
inaccuracy and which breach is reasonably likely, in
the opinion of the non-breaching party, to have,
individually or in the aggregate, a Thomaston Federal
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),
27
<PAGE>
(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 October 31, 1999,
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:
(i) 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
(ii) The shareholders of Thomaston Federal fail
to vote their approval of the matters
submitted for the approval by such
shareholders at the Annual Meeting.
In addition, Thomaston Federal may terminate the Merger Agreement prior
to the effective date of the merger if it enters into a definitive agreement
with respect to the sale of Thomaston Federal to any person or entity who or
which has made a proposal to acquire Thomaston Federal. If Thomaston Federal
terminates the Merger Agreement pursuant to this provision, Thomaston Federal
must pay FLAG $100,000 as reimbursement for the expenses FLAG incurred in
connection with the merger. See "-- Expenses And Fees."
If FLAG and/or Thomaston Federal terminate the merger as described in
this section, the Merger Agreement will become void and have no effect, except
that certain provisions of the Merger Agreement will survive, including those
relating to the obligations to maintain the confidentiality of certain
information. 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 becomes effective, any shareholder of Thomaston Federal
who properly dissents from the merger will be entitled to receive in cash the
fair value of such shareholder's shares of Thomaston Federal common stock
determined immediately prior to the merger, excluding any appreciation or
depreciation in anticipation of the merger.
28
<PAGE>
- --------------------------------------------------------------------------------
FAILURE TO COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW
WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
\-------------------------------------------------------------------------------
Any shareholder of Thomaston Federal entitled to vote on the Merger
Agreement has the right to receive payment of the fair value of his or her
shares of Thomaston Federal common stock upon compliance with the applicable
provisions of OTS regulations at 12 CFR Section 552.14. Any Thomaston Federal
shareholder intending to enforce the right to dissent:
(1) May not vote in favor of the Merger Agreement; and
(2) Must file a written notice of demand for payment for his or her shares
(the "Demand Notice") if the merger becomes effective.
A Thomaston Federal shareholder should send the Demand Notice to
Thomaston Federal Savings Bank, 206 North Church Street, Thomaston, Georgia
30286, Attention: Robert G. Cochran, before the vote on the proposal to approve
the Merger Agreement is taken at the meeting. The Demand Notice must state that
the shareholder demands payment for his or her shares of Thomaston Federal
common stock if the merger takes place. A vote against approval of the Merger
Agreement, in and of itself, will not constitute a Demand Notice satisfying the
requirements of 12 CFR Section 552.14.
If the Merger Agreement is approved by Thomaston Federal's shareholders
at the Annual Meeting, each shareholder who has properly filed a Demand Notice
and who has not voted in favor of the Merger Agreement will be notified by FLAG
of such approval within ten days of the effective date of the merger. Such
notice must:
(1) state the effective date of the merger;
(2) make a written offer to each shareholder to pay for dissenting shares
at a specified price deemed by FLAG to be the fair value for the shares; and
(3) inform the shareholder that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of 12 FR Section 552.14
(set out in the notice) must be satisfied. Such notice must also be accompanied
by:
(a) Thomaston Federal's balance sheet and statement of income for a
fiscal year ending not more than sixteen months before the
date of the notice, and
(b) the latest available interim financial statements.
Any shareholder who has made a Demand Notice shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distributions payable to, or a vote to be taken by any shareholders of record at
a date which is on or prior to, the effective date of the merger); however, if
any shareholder becomes unentitled to appraisal and payment of appraised value
with respect to such stock and accepts or is deemed to have accepted the terms
offered upon the merger, such shareholder shall thereupon be entitled to vote
and receive the distributions described above.
If within sixty days of the effective date of the merger the fair value
is agreed upon between FLAG and any shareholder who has complied with the
provisions of 12 CFR Section 552.14, payment for the shares shall be made within
29
<PAGE>
ninety days of the effective date of the merger. If a fair value cannot be
agreed upon between FLAG and any shareholder who has complied with the
provisions of 12 CFR Section 552.14 within sixty days of the effective date of
the merger, any such shareholder may file a petition with the OTS, with a copy
by registered or certified mail to FLAG, demanding a determination of the fair
market value of the stock of all such shareholders. A shareholder entitled to
file a petition who fails to file such petition within sixty days of the
effective date of the merger shall be deemed to have accepted the terms offered
under the merger.
Within sixty days of the effective date of the merger, each shareholder
demanding appraisal and payment under 12 CFR Section 552.14 shall submit to the
transfer agent his stock certificates for notation on the stock certificates
that an appraisal and payment have been demanded with respect to such stock and
that appraisal proceedings are pending. Any shareholder who fails to submit his
or her stock certificates for such notation shall no longer be entitled to
appraisal rights under 12 CFR Section 552.14 and shall be deemed to have
accepted the terms offered under the merger.
Notwithstanding the foregoing, at any time within sixty days after the
effective date of the merger, any shareholder shall have the right to withdraw
his or her demand for appraisal and to accept the terms offered upon the merger.
After demand for appraisal and payment has been made to the OTS, the
Director of the OTS shall either appoint one or more independent persons or
direct appropriate staff of the OTS to appraise the shares to determine their
fair market value, as of the effective date of the merger, exclusive of any
element of value arising from the accomplishment or expectation of the merger.
The Director, after consideration of the appraisal report and the advice of the
appropriate staff, shall, if he or she concurs in the valuation of the shares,
direct payment by FLAG of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the merger at a rate deemed
equitable by the Director. The costs and expenses of any proceeding under 12 CFR
Section 552.14 may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by 12 CFR
Section 552.14.
The foregoing summary of the applicable provisions of 12 CFR Section
552.14 is not intended to be a complete statement of such provisions, and is
qualified in its entirety by reference to such provisions, which are included as
Appendix B to this Proxy Statement/Prospectus. The provisions of the regulations
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 regulations 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
Thomaston Federal shareholders, except as indicated above or otherwise required
by law.
Any dissenting Thomaston Federal 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."
Conduct of Business Pending the Merger
FLAG and Thomaston Federal have agreed in the Merger Agreement that
unless the other party gives prior written consent, and except as otherwise
expressly contemplated in the Merger Agreement, each of FLAG and Thomaston
Federal will, and will cause its respective subsidiaries to:
30
<PAGE>
(1) Operate its business only in the usual, regular, and ordinary course;
(2) Preserve intact its business organization and assets and maintain its
rights and franchises; and
(3) 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 withou the imposition of certain conditions or
restrictions referred to in 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, Thomaston Federal has agreed that, from the date of the
Merger Agreement until the earlier of the effective date of the merger or the
termination of the Merger Agreement, unless FLAG has given prior written
consent, and except as otherwise expressly contemplated by the Merger Agreement,
Thomaston Federal 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:
(1) Amend its Charter or Bylaws;
(2) Incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $100,000 except in the ordinary
course of the business of Thomaston Federal consistent with past practices
(which shall include 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
Thomaston Federal 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 Thomaston Federal);
(3) Repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans) any shares,
or any securities convertible into any shares, of the capital stock of
Thomaston Federal, or declare or pay any dividend or make any other
distribution in respect of Thomaston Federal's capital stock other than as
consistent with past practice and as previously disclosed to FLAG by
Thomaston Federal;
(4) Except for the Merger Agreement, or pursuant to the exercise of
stock options outstanding as of the date thereof and pursuant to the terms
of such stock options in existence on the date thereof, or as previously
disclosed to FLAG by Thomaston Federal, 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 Thomaston Federal common stock, or
any stock appreciation rights, or any option, warrant, or other equity
right;
(5) Adjust, split, combine or reclassify any capital stock of
Thomaston Federal or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Thomaston Federal
31
<PAGE>
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 Thomaston Federal;
(6) Enter into or amend any employment contract between Thomaston
Federal and any person having a salary thereunder in excess of $50,000 per
year (unless such amendment is required by law) that Thomaston Federal 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 date of the merger;
(7) Except for loans made in the ordinary course of its business, make
any material investment, either by purchase of stock or securities,
contributions to capital, asset transfers, or purchase of any assets, in
any entity, 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;
(8) Grant any increase in compensation or benefits to the employees or
officers of Thomaston Federal, other than in the ordinary course of
business, provided that Thomaston Federal will not increase an officer's or
employee's compensation by more than 10 percent; 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 Thomaston Federal; enter into or amend any
severance agreements with officers of Thomaston Federal; grant any material
increase in fees or other increases in compensation or other benefits to
directors of Thomaston Federal except in accordance with past practice
previously disclosed to FLAG by Thomaston Federal; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits or other equity rights;
(9) Adopt any new employee benefit plan of Thomaston Federal or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of Thomaston Federal 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;
(10) 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;
(11) Commence any litigation other than in accordance with past
practice or except as previously disclosed to FLAG by Thomaston Federal, or
settle any litigation involving any liability of Thomaston Federal for
material money damages or restrictions upon the operations of Thomaston
Federal; or
32
<PAGE>
(12) 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 date of the merger or the
termination of the Merger Agreement, unless Thomaston Federal has given prior
written consent, and except as otherwise expressly contemplated by the Merger
Agreement, FLAG will not amend the Articles of Incorporation or Bylaws of FLAG
in any manner adverse to the holders of Thomaston Federal common stock or take
any action that will materially adversely impact the ability of the FLAG
entities to consummate the merger.
Management and Operations after the Merger; Interests of Certain Persons in the
Merger
Following the merger, Thomaston Federal will be a wholly-owned
subsidiary of FLAG. Certain members of Thomaston Federal's management and the
Thomaston Federal Board of Directors have interests in the merger in addition to
their interests as shareholders of Thomaston Federal 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 date of the merger, Robert G.
Cochran, President and Chief Executive Officer of Thomaston Federal, will become
a member of FLAG's Board of Directors. Additionally, the Merger Agreement
provides that Mr. Cochran and Joel Dudley, Manager of Thomaston Federal's loan
production offices, will sign employment/separation agreements with FLAG. As of
the Record Date, none of the directors and officers of Thomaston Federal
beneficially owned any shares of FLAG common stock.
Indemnification and Advancement of Expenses. The Merger Agreement
provides that FLAG will indemnify, defend and hold harmless each person entitled
to indemnification from a Thomaston Federal entity against all liabilities
arising out of actions or omissions occurring at or prior to the effective date
of the merger (including the transactions contemplated by the Merger Agreement)
to the fullest extent permitted under OTS Regulations and by Thomaston Federal's
Charter 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/separation agreement. The Merger Agreement provides, as a
condition to consummation of the merger, that Robert G. Cochran, President and
Chief Executive Officer of Thomaston Federal, and Joel Dudley, Manager of
Thomaston Federal's loan production offices, will each have negotiated a
mutually satisfactory employment/separation agreement with FLAG which will have
an initial term of three years. Employment/separation Agreements proposed by
FLAG for Messrs. Cochran and Dudley provide that:
(1) Each individual will receive severance payments equal to his
annual base salary and bonus paid over the previous three fiscal years in
the event that he is involuntarily terminated pursuant to certain Payment
Events, as that term is defined in the employment/separation agreement;
(2) Each individual will make certain covenants to maintain the
confidentiality of FLAG Confidential Information, as that term is defined
in the employment/separation agreement; and
33
<PAGE>
(3) Each individual will not compete with FLAG during the term of
the employment/separation agreement and for a 12-month period
following the termination of the employment/separation
agreement or the termination of the individual's status as an
employee of FLAG.
Other Matters Relating to Employee Benefit Plans. The Merger Agreement
also provides that, after the effective date of the merger, FLAG will either (1)
continue to provide to officers and employees of Thomaston Federal employee
benefits under Thomaston Federal's existing employee benefit and welfare plans
or, (2) if FLAG determines to provide to officers and employees of Thomaston
Federal employee benefits under other employee benefit plans and welfare plans,
provide generally to officers and employees of Thomaston Federal employee
benefits under employee benefit and welfare plans, on terms and conditions
which, when taken as a whole are substantially similar to those currently
provided by the FLAG entities to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) under FLAG's employee benefit plans, (1) service under any qualified
defined contribution plans of Thomaston Federal will be treated as service under
FLAG's qualified defined contribution plans, and (2) service under any other
employee benefit plans of Thomaston Federal will be treated as service under any
similar employee benefit plans maintained by FLAG. With respect to officers and
employees of Thomaston Federal who, at or after the effective date of the
merger, become employees of a FLAG entity and who, immediately prior to the
effective date of the merger, are participants in one or more employee welfare
benefit plans maintained by Thomaston Federal, FLAG will cause each comparable
employee welfare benefit plan which is substituted for a Thomaston Federal
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 Thomaston Federal between Thomaston Federal 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 date of the merger under the Thomaston Federal benefit plans.
Certain Federal Income Tax Consequences
The following section summarizes the material anticipated federal
income tax consequences of the merger. This summary is based on the federal
income tax laws now in effect; 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. 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, or
employees who may acquire their shares upon the exercise of employment-based
stock options). Nor does this summary address any consequences of the merger
under any state, local, estate, or foreign tax laws. You are urged to consult
your own tax advisors as to the specific tax consequences of the merger to you,
including tax return reporting requirements, the application and effect of
federal, foreign, state, local, and other tax laws, and the implications of any
proposed changes in the tax laws.
A federal income tax ruling as to the tax consequences of this
transaction has not been, nor will be requested from the Internal Revenue
Service ("IRS"). Instead, Powell, Goldstein, Frazer & Murphy LLP, counsel to
FLAG, will render an opinion to FLAG and Thomaston Federal concerning material
34
<PAGE>
federal income tax consequences of the proposed merger under federal income tax
law. It is such firm's opinion, based upon the assumption that the merger is
consummated in accordance with the Merger Agreement and the representations made
by the management of FLAG and Thomaston Federal, that the merger will constitute
a reorganization within the meaning of Section 368(a) of the Code.
Assuming the merger qualifies as a reorganization pursuant to Section
368(a) of the Code, the shareholders of Thomaston Federal will have the
following federal income tax consequences:
(1) The shareholders of Thomaston Federal will recognize no gain or
loss upon the exchange of all of their Thomaston Federal common stock
solely for shares of FLAG common stock;
(2) The aggregate tax basis of the FLAG common stock received by the
Thomaston Federal shareholders in the merger will, in each instance, be the
same as the aggregate tax basis of the Thomaston Federal common stock
surrendered in exchange therefor, less the basis of any fractional share of
FLAG common stock settled by cash payment;
(3) The holding period of the FLAG common stock received by the
Thomaston Federal shareholders will, in each instance, include the period
during which the Thomaston Federal common stock surrendered in exchange
therefor was held, provided that the Thomaston Federal common stock was
held as a capital asset on the date of the exchange;
(4) The payment of cash to Thomaston Federal 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 constitutes a capital asset in the hands of the exchanging
shareholder; and
(5) Where, pursuant to the exercise of dissenters' rights, a
shareholder receives cash in exchange for Thomaston Federal common stock,
the former Thomaston Federal 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 Thomaston
Federal common stock.
Each Thomaston Federal 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 Thomaston Federal common stock
exchanged, and the number of shares of FLAG common stock received in exchange
for Thomaston Federal 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:
(1) Gain or loss would be recognized by the holders of Thomaston
Federal common stock upon the exchange of such shares in the merger for
shares of FLAG common stock, the amount of such gain or loss will be equal
to the difference between the fair market value of the shares of FLAG
common stock received in the merger, plus any cash in lieu of fractional
shares, and your basis in the Thomaston Federal common stock surrendered in
the merger;
35
<PAGE>
(2) The tax basis of the FLAG common stock to be received by the
holders of Thomaston Federal common stock in the merger would be the fair
market value of such shares of FLAG common stock at the effective date of
the merger;
(3) The holding period of such shares of FLAG common stock to be
received by Thomaston Federal shareholders pursuant to the merger would
begin the day after the effective date of the merger; and
(4) No gain or loss would be recognized to Thomaston Federal as a
result of the merger.
If the condition of receiving this tax opinion is waived by Thomaston
Federal, Thomaston Federal will resolicit its shareholders prior to proceeding
with the merger.
Certain tax consequences of the merger may vary depending upon your
particular circumstances. You are urged to consult your own tax advisors to
determine the particular tax consequences of the merger to you (including the
application and effect of federal, state, local and foreign income and other tax
laws).
Accounting Treatment
FLAG and Thomaston Federal anticipate 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 Thomaston
Federal 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 Thomaston Federal
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 date of the merger.
There are certain conditions on the exchange of Thomaston Federal
common stock for FLAG common stock by affiliates of Thomaston Federal, and there
are certain restrictions on the transferability of the FLAG common stock
received by those affiliates in order, among other things, to ensure the
availability of pooling of interests accounting treatment for the merger. See
"-- Resales of FLAG Common Stock."
Expenses and Fees
The Merger Agreement provides that each of the parties will bear and
pay all direct costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated by the Merger Agreement, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
In the event that Thomaston Federal terminates the Merger Agreement by
entering into a definitive agreement with respect to the sale of Thomaston
Federal to any person or entity who or which has made a proposal to acquire
Thomaston Federal, Thomaston Federal will pay FLAG $100,000 as reimbursement for
the expenses of FLAG incurred in connection with the merger.
36
<PAGE>
Resales of FLAG Common Stock
The FLAG common stock issued to shareholders of Thomaston Federal in
connection with the merger will be registered under the Securities Act. The
shares of FLAG common stock that the holders of Thomaston Federal common stock
receive will be freely transferable by those shareholders of Thomaston Federal
and FLAG not considered to be "Affiliates" of Thomaston Federal or FLAG.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Thomaston Federal or FLAG at the
time of the Annual Meeting (generally, directors, executive officers and 10%
shareholders).
Rules 144 and 145 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 date of the merger, Affiliates of Thomaston Federal 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,
Affiliates of Thomaston Federal 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 in this
Proxy Statement/Prospectus generally will be subject to FLAG's having satisfied
its Exchange Act reporting requirements for specified periods prior to the time
of sale. Affiliates also would be permitted to resell FLAG common stock received
in the merger pursuant to an effective registration statement under the
Securities Act or an available exemption from the Securities Act registration
requirements. This Proxy Statement/Prospectus does not cover any resales of FLAG
common stock received by persons who may be deemed to be Affiliates of Thomaston
Federal or FLAG.
Each person who Thomaston Federal considers to be an Affiliate of
Thomaston Federal has signed and delivered to FLAG an 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 (1) except in compliance with
the Securities Act and the rules and regulations of the SEC and (2) in any case,
until financial results covering at least 30 days of post-merger combined
operations of FLAG have been published. The receipt of the Thomaston Federal
Affiliate Agreements by FLAG is also a condition to FLAG's obligations to
consummate the merger. Prior to publication of such results, FLAG will not
transfer on its books any shares of FLAG common stock received by an Affiliate
in the merger. The stock certificates representing FLAG common stock issued to
Affiliates in the merger may bear a legend summarizing these restrictions. See
"-- Conditions to Consummation of the Merger."
DESCRIPTION OF FLAG COMMON STOCK
FLAG's authorized capital stock consists of 20,000,000 shares of $1.00
par value common stock, and 10,000,000 shares of preferred stock. The holders of
the FLAG common stock have unlimited voting rights and are entitled to one vote
per share for all purposes. Subject to such preferential rights as may be
determined by the Board of Directors of FLAG in connection with the future
issuance of shares of FLAG preferred stock, holders of FLAG common stock are
entitled to such dividends, if any, as may be declared by the Board of Directors
of FLAG in compliance with the provisions of the Georgia Business Corporation
Code 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.
37
<PAGE>
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. Although such shares may be issued in
the future, FLAG has no present plans to issue any preferred stock. The FLAG
preferred stock was authorized for future flexibility, and could be issued in a
manner that could have an anti-takeover effect by discouraging a third party
from seeking to acquire FLAG. FLAG knows of no present attempts to acquire FLAG.
In order to approve certain "business combinations" with certain
"interested shareholders" (10% or more shareholders), or to amend the provisions
in the FLAG Articles of Incorporation relating to such business combinations,
the affirmative vote of two-thirds of the issued and outstanding shares of FLAG
common stock entitled to vote thereon is required, unless:
(1) at least two-thirds of the directors of FLAG approve a memorandum
of understanding with the interested shareholder regarding the business
combination prior to the date on which such shareholder became an
interested shareholder, or
(2) 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 Thomaston Federal common stock
will be exchanging their shares of a federally-chartered savings association,
which is governed by the rules and regulations of the OTS, Thomaston Federal's
Charter and Thomaston Federal's Bylaws, for shares of common stock of FLAG, a
Georgia corporation, which is governed by the Georgia Business Corporation Code,
FLAG's Articles of Incorporation (the "FLAG Articles") and FLAG's Bylaws.
Certain significant differences exist between the rights of Thomaston Federal
shareholders and those of FLAG shareholders. The differences that Thomaston
Federal and FLAG consider material 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
Georgia Business Corporation Code, and the rules and regulations of the OTS, as
well as to FLAG's Articles and Bylaws and Thomaston Federal's Charter 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 6,561,879 shares
were issued and outstanding as of March 31, 1999. The FLAG Articles also
authorize the issuance, in one or more series, of not more than 10,000,000
shares of 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. No shares of
preferred stock are issued and outstanding.
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.
38
<PAGE>
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, mergers, 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.
Thomaston Federal. Thomaston Federal's authorized capital stock
consists of 5,000,000 shares of Thomaston Federal common stock, $1.00 par value,
and 5,000,000 shares of serial preferred stock, $1.00 par value, of which
652,089 shares of common stock were issued and outstanding as of the Thomaston
Federal Record Date. Each share of Thomaston Federal common stock is entitled to
one vote per share for all purposes. Thomaston Federal's shareholders do not
have the preemptive right to purchase or subscribe to any unissued authorized
shares of Thomaston Federal common stock or any option or warrant for the
purchase thereof. In addition, the Board of Directors of Thomaston Federal has
the ability to increase the number of issued and outstanding shares of Thomaston
Federal common stock, within the maximum number of shares authorized by
Thomaston Federal's Charter, without the approval of the shareholders, unless
such approval is required by governing law, rule or regulation.
Amendment of Articles of Incorporation, Charter and Bylaws
FLAG. The FLAG Articles and Bylaws are generally silent with respect to
the issue of amending the FLAG Articles, and thus, the Georgia Business
Corporation Code dictates the requirements for making such an amendment. The
Georgia Business Corporation Code 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 Georgia Business Corporation Code 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 Georgia Business Corporation Code, 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 Annual Meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting, unless
two-thirds of certain "continuing directors" approve the proposed amendment. The
FLAG Articles also provide that the provisions regarding the election, term and
removal of FLAG Directors may only be amended or rescinded by the affirmative
39
<PAGE>
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 Annual
Meeting of the shareholders, and notice of any proposed change must be contained
in the notice of the meeting, unless two-thirds of the directors then serving
approve the proposed amendment.
The FLAG Bylaws generally provide that the Bylaws may be made, amended
or repealed by the FLAG Board of Directors unless the FLAG Articles or the
Georgia Business Corporation Code 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
Annual Meeting of the shareholders called for that purpose. Unless two-thirds of
the directors then serving approve, the provisions in the FLAG Bylaws relating
to the removal of FLAG directors by the FLAG shareholders may only be amended or
rescinded by the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of FLAG entitled to vote in an election of
directors or at any regular or Annual Meeting of the shareholders, and notice of
any proposed change must be contained in the notice of the meeting.
Thomaston Federal. The Thomaston Federal Charter provides that the
Charter may not be amended unless (i) first, the Board of Directors proposes the
amendment, (ii) second, the OTS approves the amendment and (iii) third, the
shareholders approve the amendment by a majority of the total votes eligible to
be cast at a legal meeting of the shareholders. The Board of Directors, acting
alone, has the authority to supplement the Charter to provide for the terms,
rights and preferences of any series of preferred stock.
The Thomaston Federal Bylaws provide that the Bylaws may be amended
in a manner consistent with OTS regulations at any time by a majority of the
Board of Directors or by a majority of the votes cast by the shareholders at any
legal meeting of the shareholders. OTS regulations provide that a savings
association must obtain prior OTS approval for any bylaw amendment that would
discourage or make more difficult a merger, tender offer, proxy contest,
assumption of control by a large shareholder or removal of incumbent management.
A savings association must also obtain approval for any bylaw amendment that
would be inconsistent with certain OTS regulations relating to shareholders,
directors, officers and share certificates, or with applicable laws, rules,
regulations or the association's charter. Finally, Thomaston Federal must obtain
OTS approval for any bylaw amendment that involves a significant issue of law or
policy, including indemnification, conflicts of interest or limitations on
director and officer liability. Thomaston Federal must submit every amendment,
even if it does not require prior OTS approval, to the OTS at least 30 days
prior to the date that such amendment is adopted.
Classified Board of Directors and Absence of Cumulative Voting
FLAG. FLAG's Bylaws generally provide that the number of directors
constituting the FLAG Board of Directors shall be between ten and twenty-five.
The Board of Directors fixes the precise number of directors. The number of
directors is currently set at twelve. The FLAG Board of Directors is classified.
The FLAG Articles and Bylaws provide that FLAG's Board of Directors is divided
into three classes, with each class to be as nearly equal in number as possible.
The directors in each class serve three-year terms of office. The effect of FLAG
having a classified Board of Directors is that only approximately one-third of
the members of the Board of Directors are elected each year, which effectively
requires two annual meetings for FLAG's shareholders to change a majority of the
members of the Board of Directors. The FLAG Bylaws provide that in the event of
a vacancy on the FLAG Board of Directors, including any vacancy created by
reason of an increase in the number of directors, such vacancy may be filled by
40
<PAGE>
the shareholders of FLAG, the FLAG Board of Directors, or, if the directors
remaining in office constitute fewer than a quorum of the Board of Directors, by
affirmative vote of a majority of the remaining directors. FLAG shareholders do
not have cumulative voting rights with respect to the election of directors. All
elections for directors are decided by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
Thomaston Federal. The Thomaston Federal Charter generally provides
that the Board of Directors may consist of between seven and fifteen members.
The Thomaston Federal Bylaws fix the number of directors at eight. The members
of the Board of Directors are divided into three classes as nearly equal in
number as possible. The members of each class are elected for the term of three
years and until their successors are elected and qualified, with one class
elected annually. The Thomaston Federal Bylaws state that in the event of a
vacancy on the Thomaston Federal Board of Directors, including a vacancy created
by an increase in the number of directors, such vacancy may be filled by the
affirmative vote of the majority of the remaining directors, although less than
a quorum of the Board of Directors. A director elected to fill a vacancy serves
until the next election of directors by the shareholders. The Thomaston Federal
Charter provides that each holder of shares of Thomaston Federal common stock
shall be entitled to one vote for each share held by such holder, including
votes for the election of directors. Thomaston Federal shareholders are not
entitled to cumulate votes.
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.
Thomaston Federal. The Thomaston Federal Bylaws provide that any
director may be removed for cause at a meeting of shareholders called expressly
for that purpose by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors. If less than the entire board is
to be removed, no one director may be removed if the votes cast against the
removal would be sufficient to elect a director if then cumulatively voted at an
election of the class of directors of which such director is a part. Whenever
the holders of the shares of any class are entitled to elect one or more
directors by the provisions of the Thomaston Federal Charter or supplemental
sections thereto, the removal provisions apply, in respect to the removal of a
director or directors so elected, to the vote of the holders of the outstanding
shares of that class and not to the vote of the outstanding shares as a whole.
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 Georgia Business
Corporation Code; provided, however, that FLAG will not indemnify any director
for any liability or expenses incurred by such director (1) for any
appropriation, in violation of his duties, of any business opportunity of FLAG;
(2) for any acts or omissions which involve intentional misconduct or a knowing
violation of law; (3) for the types of liability set forth in Section 14-2-832
of the Georgia Business Corporation Code or successor provisions; or (4) 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 Georgia
Business Corporation Code, 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
41
<PAGE>
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.
Thomaston Federal. The Thomaston Federal Charter and Bylaws are silent
with respect to the issue of indemnification of directors and officers, and thus
OTS regulations dictate the requirements for indemnification. OTS regulations
provide that federal savings associations must indemnify any person against whom
an action is brought or threatened because that person is an officer, director
or employee of the savings association for the amount for which that person
becomes liable and for reasonable costs and fees, including attorney's fees.
However, this indemnification is only required in certain circumstances. First,
the savings association must indemnify the individual if there is a final
judgment on the merits in the individual's favor. Second, if there is a
settlement, final judgment against the individual or final judgment in the
individual's favor other than on the merits, the savings association must only
provide indemnification if the majority of disinterested directors determine
that the individual was acting in good faith within the scope of the
individual's employment or authority and in what the individual reasonably
believed to be the best interests of the savings association. In addition, under
the latter conditions, the savings association must notify the OTS of its intent
to indemnify the individual at least 60 days in advance of such indemnification.
The savings association may also advance expenses if the majority of the board
of directors determines that the individual may ultimately be entitled to
indemnification and if that person agrees to repay the savings association if
determined not to be entitled to such indemnification. A savings association may
obtain insurance to protect it and its directors, officers and employees against
potential losses, but may not obtain insurance that provides for payment of
losses incurred as a consequence of an individual's willful or criminal
misconduct.
Special Meetings of Shareholders
FLAG. FLAG's Bylaws provide that Special Meetings of the shareholders
may be called at any time by a majority of the entire Board of Directors of
FLAG, the Chairman of the Board, the President, or, upon delivery to FLAG's
Secretary of a signed and dated written request setting out the purpose or
purposes for the meeting, the holders of a majority of the votes entitled to be
cast on any issue proposed to be considered at the proposed Special Meeting.
Thomaston Federal. The Thomaston Federal Bylaws provide that Special
Meetings of the shareholders may be called for any purpose, by the President,
Chairman of the Board of Directors, or a majority of the Board of Directors.
Thomaston Federal is required to call a Special Meeting when requested in
writing by not less than 10% of all shares of Thomaston Federal entitled to vote
at the meeting.
Actions by Shareholders Without a Meeting
FLAG. In accordance with Section 14-2-704 of the Georgia Business
Corporation Code, action required or permitted by the Georgia Business
Corporation Code to be taken at an annual or Annual Meeting may be taken without
a meeting if the action is taken by all the shareholders entitled to vote on the
action.
The provisions of the Georgia Business Corporation Code do not affect
the special voting requirements contained in the FLAG Articles or FLAG's 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
42
<PAGE>
and entitled to vote, unless (1) two-thirds of the directors of FLAG approve a
memorandum of understanding with the interested shareholder prior to the date
when such interested shareholder first became an interested shareholder, or (2)
the business combination is unanimously approved by the continuing directors of
FLAG.
Thomaston Federal. The Thomaston Federal Bylaws provide that any action
required to be taken at a meeting of the shareholders, or any other action which
may be taken at a meeting of shareholders, may be taken without a meeting if
consent in writing, setting forth the action so taken, is given by all of the
shareholders entitled to vote with respect to the subject matter.
Mergers, Consolidations, and Sales of Assets
FLAG. The FLAG Articles generally require the affirmative vote of the
holders of at least two-thirds of all the issued and outstanding shares (other
than shares held by an "interested shareholder") of FLAG common stock entitled
to vote to approve a "business combination" with an interested shareholder
(basically, a 10% or more shareholder of FLAG), unless (1) two-thirds of the
directors of FLAG approve a memorandum of understanding with the interested
shareholder regarding the business combination prior to the date such
shareholder became an interested shareholder, or (2) 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 Georgia Business Corporation Code 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 (1) 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 (2) 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 FLAG Articles. 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 would continue to apply
to any such business combinations.
The provisions of the FLAG Articles and FLAG's Bylaws relating to
business combinations and Sections 14-2-1110 through 14-2-1113 of the Georgia
Business Corporation Code 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.
Thomaston Federal. The Thomaston Federal Charter and Bylaws are silent
with respect to mergers, consolidations and sales of assets. OTS regulations,
however, provide that no savings association may enter into any of these types
of transactions except in accordance with such regulations. Pursuant to OTS
regulations, a savings association must satisfy a number of requirements in
order to enter into a merger, consolidation or sale of substantially all of its
assets. The savings association must comply with the notice and approval
provisions of the OTS regulations. Two-thirds of the board of directors of the
savings association must approve the transaction, and the savings association
must enter into a written agreement setting out the terms and conditions of the
agreement, including information specified in the regulations. The shareholders
also must approve the transaction by an affirmative vote of two-thirds of the
outstanding voting stock of the savings association, with the exception of
transactions entered into with an interim savings association solely to create a
savings and loan holding company or certain transactions involving little or no
change in the savings association. The OTS may require any disclosure in
connection with the transaction that it deems necessary or desirable for the
protection of investors.
43
<PAGE>
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 Georgia Business Corporation Code
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: (1) 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); (2) the shareholder describes with particularity his
or her purpose for the inspection and the documents which he wishes to inspect;
(3) the records requested for inspection by the shareholder are directly
connected with his or her stated purpose; and, (4) 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.
Thomaston Federal. With regard to the inspection of books and records,
the Thomaston Federal Bylaws provide that any shareholder may inspect the list
of shareholders entitled to vote at any meeting of the shareholders at any time
during usual business hours for the period of 20 days prior to such meeting. The
list must be kept on file at the Thomaston Federal home office for that 20 day
period and must be kept open and subject to inspection at the meeting. In
addition, OTS regulations provide that only shareholders who hold at least five
percent of the outstanding voting shares of the savings association, or who have
held at least one percent of the voting shares or voting shares having a cost of
at least $100,000 for a period of at least six months, can demand inspection of
nonconfidential books and records. Such shareholders must make a written demand
stating a proper purpose for such examination and must conduct the inspection
during reasonable times. Before permitting inspection, the savings association
may also require the inspecting shareholders to furnish an affidavit stating
that the inspection is not for any purpose in the interest of any business other
than that of the savings association. The savings association may also require
the affidavit to state that the shareholder has not sold in the preceding five
years, and will not now sell, any list of the shareholders of the savings
association or of any other corporation. Furthermore, no shareholder has the
right to inspect any portion of any books or records containing a list of
depositors or borrowers, their addresses, their record balances, or any other
documentation that would allow the shareholder to easily determine such
information.
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 Georgia Business Corporation
Code 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 Georgia Business Corporation Code
provides, generally, that no distribution, including dividends, may be made by a
corporation if, after giving the distribution effect: (1) the corporation would
not be able to pay its debts as they become due in the usual course of business;
or (2) 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.
44
<PAGE>
Thomaston Federal. The Thomaston Federal Charter provides that
Thomaston Federal may pay dividends on the common stock out of any assets
legally available for the payment of dividends, after having paid, or declared
and set aside for payment, the full amount of dividends or other required
payments to the holders of any preferred stock of Thomaston Federal. The Bylaws
state that, subject to the Charter and OTS regulations, the Thomaston Federal
Board of Directors may declare dividends on outstanding shares of common or
preferred stock. OTS regulations require savings associations to meet certain
capital requirements prior to paying dividends and to provide the OTS with
30-day advance written notice of all dividend payments.
45
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
FLAG common stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "FLAG." The following
table sets forth the high and low sale prices per share of FLAG common stock on
the Nasdaq National Market and the dividends paid per share of FLAG common stock
for the indicated periods. Effective June 3, 1998, FLAG declared a 3-for-2 stock
split. The amounts below have been adjusted to reflect the stock split.
Sale Price Per
Share of FLAG
Common Stock Dividends Declared
------------------ Per Share of FLAG
High Low Common Stock
--------- -------- -------------------
1996
First Quarter.......................... $ 9.67 $ 8.33 $0.042
Second Quarter......................... 9.00 8.00 0.034
Third Quarter.......................... 8.50 6.33 0.034
Fourth Quarter......................... 7.83 7.17 0.034
1997
First Quarter.......................... $ 8.67 $ 6.83 $0.046
Second Quarter......................... 9.75 7.50 0.034
Third Quarter.......................... 11.00 9.33 0.034
Fourth Quarter......................... 14.33 11.00 0.034
1998
First Quarter..........................$ 14.33 $ 11.92 $0.046
Second Quarter......................... 19.38 12.67 0.060
Third Quarter.......................... 19.38 12.50 0.060
Fourth Quarter......................... 14.62 10.25 0.060
1999
First Quarter.......................... 11.81 9.12 0.060
Second Quarter (through May 26, 1999).. 11.00 9.12 0.000
On March 11, 1999, the last day prior to the public announcement of
FLAG's proposed acquisition of Thomaston Federal, the last reported sale price
per share of FLAG common stock on the Nasdaq National Market was $10.50 as
adjusted for 3-for-2 stock split effective June 3, 1998, and the resulting
equivalent pro forma price per share of Thomaston Federal common stock (based on
the 1.7275 Exchange Ratio) was $18.14. On _____________, 1999, the latest
practicable date prior to the mailing of this Proxy Statement/Prospectus, the
last reported sale price per share of FLAG common stock on the Nasdaq National
Market was $______, and the resulting equivalent pro forma price per share of
Thomaston Federal common stock was $_____. The equivalent per share price of a
share of Thomaston Federal 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.
The market price of FLAG common stock on the effective date of the
merger may be higher or lower than the market price at the time the merger
proposal was announced, at the time the Merger Agreement was executed, at the
time of mailing of this Proxy Statement/Prospectus, or at the time of the Annual
Meeting. Holders of Thomaston Federal common stock are not assured of receiving
any specific market value of FLAG common stock on the effective date of the
merger, and such value may be substantially more or less than the current value
of FLAG common stock.
46
<PAGE>
There is no established public trading market for the Thomaston Federal
common stock. To the knowledge of Thomaston Federal, the most recent trade of
Thomaston Federal common stock prior to March 11, 1999, the last day prior to
the public announcement of the proposed merger between FLAG and Thomaston
Federal, was the sale of 14,690 shares on August 27, 1996 at $8.00 per share. To
the knowledge of Thomaston Federal, there have been no trades of Thomaston
Federal common stock since the announcement of the merger.
Thomaston Federal's practice is to declare annual dividends to its
shareholders in December, with dividends paid in March of the next year.
Thomaston Federal declared a dividend of $0.12 per share on December 28, 1998,
paid on March 15, 1999, and declared a dividend of $0.13 per share on December
22, 1997, paid on March 15, 1998.
The information regarding Thomaston Federal common stock is provided
for informational purposes only and, due to the absence of an active market for
Thomaston Federal's shares you should not view it as indicative of the actual or
market value of Thomaston Federal 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, FLAG cannot assure that its dividend policy will
not change after consummation of the merger. Whether FLAG declares and pays
dividends will depend upon business conditions, operating results, capital and
reserve requirements, and the Board of Directors' consideration of other
relevant factors. For information with respect to the provisions of the Merger
Agreement relating to FLAG's and Thomaston Federal's abilities to pay dividends
on their respective common stock during the pendency of the merger, see
"DESCRIPTION OF MERGER -- Conduct of the Business Pending the Merger."
FLAG is a legal entity separate and distinct from its subsidiaries and
its revenues depend in significant part on the payment of dividends from its
subsidiary depository institutions. FLAG's subsidiaries are subject to certain
legal restrictions on the amount of dividends they are permitted to pay.
BUSINESS OF THOMASTON FEDERAL
General
Thomaston Federal is a federally-chartered savings association with its
main, full-service office located in Thomaston, Georgia. Thomaston Federal also
operates loan production offices in Columbus and Macon, Georgia and in Phenix
City and Opelika, Alabama. Thomaston Federal is a community based financial
institution that offers a broad range of banking and banking-related products
and services. Thomaston Federal is principally engaged in the business of
attracting deposits from the general public and using these funds, loan
repayments and other borrowings to originate residential mortgage loans as well
as making residential construction loans, consumer loans and commercial loans.
As of March 31, 1999, Thomaston Federal had total consolidated assets of
approximately $55.3 million, total consolidated deposits of approximately $49.1
million, and total consolidated shareholders' equity of approximately $5.6
million.
Management Stock Ownership
The following table presents information about each of the directors
and executive officers of Thomaston Federal and all executive officers and
directors as a group. Unless otherwise indicated, each person has sole voting
and investment power over the indicated shares. Information relating to
beneficial ownership of the Thomaston Federal common stock is based upon
47
<PAGE>
"beneficial ownership" concepts set forth in rules promulgated under the
Securities Exchange Act of 1934, as currently in effect (the "Exchange Act").
Under such rules, a person is considered to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the power
to vote or to direct the voting of such security, or "investment power," which
includes the power to dispose or to direct the disposition of such security.
Under the rules, more than one person may be deemed to be a beneficial owner of
the same securities.
Number of Shares Percent
eneficially Owned at Of
Name the Record Date Class (%) (1)
---- --------------- -------------
(a) Directors
Samuel A. Brewton, Jr........... 30,342 4.65%
Robert G. Cochran............... 62,664 (2) 9.61%
David B. Dunaway................ 30,342 (2) 4.65%
Jere P. Greer................... 30,342 (2) 4.65%
George H. Hightower, Jr......... 30,342 4.65%
Calvin S. Hopkins, III.......... 33,942 (2) 5.21%
Norman S. Morris................ 30,342 4.65%
W. Wallace Rhodes............... 30,342 4.65%
(b) Executive Officers
Robert G. Cochran............... 62,664 (2) 9.61%
(c) Executive Officers and Directors
As a Group ( 8 persons)............. 278,658 42.73%
- ------------------
(1) Shares receivable upon the exercise of options are deemed outstanding for
purposes of computing the percentage ownership of the person or group
holding such shares, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person shown in the table.
Except as otherwise referenced in Note (2) below, the named person has sole
voting and investment power with regard to the shares shown as owned by
him.
(2) With regard to Mr. Cochran, the shares shown include 19,464 shares which
are held jointly with his wife, 30,000 shares allocated to his account in
Thomaston Federal's Profit Sharing Plan and 5,400 shares which may be
acquired upon the exercise of stock options within 60 days of the date of
this Proxy Statement, but do not include 3,600 shares underlying stock
options that are not vested but that become immediately exercisable upon a
change in control of Thomaston Federal; with regard to Mr. Dunaway, the
shares shown include 11,832 shares owned by his wife and 1,200 shares held
in trust for a minor child; with regard to Mr. Greer, the shares shown
include 27,264 shares which are held jointly with his wife; and with regard
to Mr. Hopkins, the shares shown include 13, 632 shares owned by his wife.
48
<PAGE>
Voting Securities and Principal Shareholders of Thomaston Federal
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
652,089 outstanding shares of Thomaston Federal common stock as of the Record
Date. Unless otherwise indicated, each person has sole voting and investment
powers over the indicated shares. Information relating to beneficial ownership
of the Thomaston Federal common stock is based upon "beneficial ownership"
concepts set forth in rules under the Exchange Act. Under such rules, a person
is considered 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 considered to be a beneficial owner of the same securities.
Number of Shares Percent
Beneficially Owned of
Name and Address at Record Date (1) Class (%)
- ---------------- ------------------ ---------
Robert G. Cochran 62,664 (2) 9.61%
206 North Church Street
Thomaston, Georgia 30286
Thomaston Federal Savings Bank 54,483 (3) 8.36%
Profit Sharing Plan
C. Ronald Barfield, Trustee
Atwater Building
106 N. Center Street
P.O. Drawer 671
Thomaston, Georgia 30286
C. Ronald Barfield, Trustee 48,264 (4) 7.40%
Atwater Building
106 N. Center Street
P.O. Drawer 671
Thomaston, Georgia 30286
George H. Hightower 39,000 (5) 5.98%
504 Avalon Road
Thomaston, Georgia 30286
Calvin S. Hopkins, III 33,942 (6) 5.21%
716 South Center Street
Thomaston, Georgia 30286
- --------------------
(1) Shares receivable upon the exercise of options are deemed outstanding for
purposes of completing the percentage ownership of the person holding such
shares, but are not deemed outstanding for purposes of completing the
percentage ownership of any other person shown in the table. Except as
otherwise referenced in Note (2) below, the named person has sole voting
and investment power with regard to the shares shown as owned by him.
(2) The shares shown include 19,464 shares which are held by Mr. Cochran
jointly with his wife, 30,000 shares allocated to his account in Thomaston
Federal's Profit Sharing Plan and 5,400 shares which may be acquired upon
the exercise of stock options within 60 days of the date of this Proxy
Statement. The shares shown do not include 3,600 shares underlying stock
options that are not currently vested but that become immediately
exercisable upon a change in control of Thomaston Federal.
49
<PAGE>
(3) All shares are allocated to participants' accounts in the Profit Sharing
Plan and are voted in accordance with the direction of the participants.
(4) The shares shown include 9,474 shares held by Mr. Barfield's wife and
21,000 shares held by a trust of which Mr. Barfield is a trustee. The
affairs of the trust are managed by a Board of Trustees consisting of five
members. The shares of Thomaston Federal held by the trust are voted in
accordance with the determination of the majority of the trustees. However,
the trustees have delegated to Mr. Barfield investment authority with
respect to the shares. The shares shown exclude 354 shares held by Mr.
Barfield's adult son, with respect to which Mr. Barfield expressly
disclaims beneficial ownership.
(5) The shares include 21,000 shares held by a trust of which Mr. Hightower is
a trustee. The affairs of the trust are managed by a Board of Trustees
consisting of five members. The shares of Thomaston Federal held by the
trust are voted in accordance with the determination of the majority of the
trustees. However, the trustees have delegated to Mr. Hightower investment
authority with respect to the shares. Mr. Hightower is the father of George
H. Hightower, Jr., a director of Thomaston Federal.
(6) The shares shown include 6,810 shares owned by Mr. Hopkins individually;
132 shares owned by Mr. Hopkins' wife, Idelia R. Hopkins; 13,500 shares
owned by Mr. Hopkins through his IRA with Dean Witter Reynolds, Custodian;
and 13,500 shares owned by Mr. Hopkins' wife through her IRA with Dean
Witter Reynolds, Custodian.
50
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General. Thomaston Federal Savings Bank is a federally chartered
savings bank formed in 1929. Thomaston Federal is principally engaged in the
business of attracting deposits from the general public and using these funds to
originate permanent residential mortgage loans as well as making residential
mortgage loans, residential construction loans, consumer loans, and commercial
loans. Thomaston Federal conducts its business through a full service office
located in Thomaston, Georgia and loan production offices in Columbus and Macon,
Georgia and Phenix City and Opelika, Alabama. Thomaston Federal considers its
primary market area for lending and savings activity to be in Upson County,
Georgia.
Year 2000 Considerations. Thomaston Federal is aware of the issues
associated with the programming code in existing computer systems as the
millennium (year 2000) approaches. The "year 2000" (Y2K) problem is pervasive
and complex as virtually every computer operation will be affected in some way
by the rollover of the two-digit value to 00. The issue is whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the Y2K compliance. As
of the second quarter of 1999, all mainframe systems have been Y2K certified,
and all testing has been completed. To date, confirmation has been received from
Thomaston Federal's primary processing vendors that plans are being developed to
address processing of transactions in the year 2000.
Management has not yet fully determined the Y2K compliance expense and
related potential effect on Thomaston Federal's earnings; however, direct costs
are not expected to be material to the consolidated results of operations and
will be expensed as incurred. Expenses in 1997 related to the Y2K issue were not
material to the financial results of operations.
Financial Condition 1998 Compared to 1997. During 1998, average total
assets decreased $230,000 or .43% from 1997. Average deposits decreased $708,000
or 1.6% in 1998 from 1997. Average loans, including mortgage loans held for sale
decreased $1.6 million or 4.5% during 1998.
Total assets at December 31, 1998, were $54 million, representing a
$1.5 million or 2.8% increase from December 31, 1997. Total deposits increased
$433,000 or .83% from 1997 to 1998 while loans, including mortgage loans held
for sale increased $821,000 or 2.4%. Time deposits increased $2 million from
1997 to 1998 while all other deposit accounts decreased $1.6 million.
Nonperforming assets at December 31, 1998 were $564,000 compared to $736,000 at
December 31, 1997. The majority of the decrease is attributable to a decrease of
nonaccrual loans. There were no related party loans which were considered
nonperforming at December 31, 1998.
Results of Operations 1998 Compared to 1997. Thomaston Federal's
earnings depend to a large degree on net interest income, which is the
difference between the interest income received from its interest earning assets
(such as loans, investment securities, federal funds sold, etc.) and the
interest expense which is paid on deposit liabilities.
Net interest income decreased by $28,000 or 1.7% in 1998, compared to
1997. Net interest income for the year ended December 31, 1998, was $1.63
million compared to $1.66 million in 1997. The decrease is primarily
attributable to the increase in interest expense on deposit accounts offset by
an increase in interest income on investment securities. The net interest margin
was 3.33% in 1998, compared to 3.37% in 1997.
51
<PAGE>
During 1997 and 1998 the Bank did not record a provision for loan
losses. The provision for loan losses continues to reflect management's estimate
of potential loan losses inherent in the loan portfolio and the creation of an
allowance for loan losses adequate to absorb such losses. The allowance for loan
losses represented approximately 1.11% and 1.32% of total loans outstanding at
December 31, 1998 and 1997, respectively. Net chargeoffs were $66,000 and
$21,000 during 1998 and 1997, respectively. Management believes that these
levels of allowance are appropriate based upon Thomaston Federal's loan
portfolio and the current economic conditions.
Other operating income was $2.2 million in 1998 and increased $116,000
or 5.5% over 1997. Other operating expenses increased $108,000 or 3.8% in 1998
over 1997 principally due to increases in compensation and data processing
costs.
Income taxes expressed as a percentage of earnings before income taxes
decreased from 34% in 1997 to 33% in 1998.
Financial Condition 1997 Compared to 1996. During 1997, average total
assets increased $2.4 million or 4.7% from 1996. Average deposits increased $2.3
million or 5.4% in 1997 from 1996. Average loans, including mortgage loans held
for sale, decreased $313,000 or .86% in 1997.
Total assets at December 31, 1997 were $52 million , representing a
$1.9 million or 3.5% decrease from December 31, 1996. Total deposits increased
$1.1 million or 2.5% from 1996 to 1997 while loans decreased $4 million or 10.6%
during 1997. Time deposits increased $613,000 from 1996 to 1997 while all other
deposit accounts increased $513,000. Nonperforming assets at December 31, 1997
were $736,000 compared to $674,000 at December 31, 1996. The majority of the
increase is attributable to an increase of loans greater than 90 days past due.
There were no related party loans which were considered nonperforming at
December 31, 1997.
Results of Operations 1997 Compared to 1996. Net interest income
increased by $58,000 or 36% in 1997. Net interest income at December 31, 1997
was $1.66 million compared to $1.60 million in 1996. The increase is primarily
attributable to the increase in interest and fees on loans offset by increases
in interest expense on time deposits. The net interest margin was 3.37% in 1997,
compared to 3.40% in 1996.
Thomaston Federal did not record a provision for loan losses in 1997
and recorded a provision of $38,000 in 1996. The provision for loan losses
continues to reflect management's estimate of potential loan losses inherent in
the portfolio and the creation of an allowance for loan losses adequate to
absorb such losses. The allowance for loan losses represented approximately 1.32
% and 1.24% of total loans outstanding at December 31, 1997 and 1996,
respectively. Net chargeoffs were $21,000 and $35,000 during 1997 and 1996,
respectively. Management believes that these levels of allowance are appropriate
based upon Thomaston Federal's loan portfolio and the current economic
conditions.
Other operating income totaled $2.13 million in 1997 compared to $2.17
million in 1996. Other operating expenses decreased $242,000 or 7.83% in 1997
compared to 1996 principally due to decrease in Federal deposit insurance
premiums.
Income taxes expressed as a percentage of earnings before income taxes
increased from 36% in 1996 to 34% in 1997.
52
<PAGE>
Table 1 - Consolidated Average Balances, Interest, and Rates - Taxable
Equivalent Basis (dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Interest Weighted Interest/Weighted Interest Weighted
Average Income/ Average Average Income Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $34,554 $2,881 8.34% $36,196 $3,034 8.38% $36,509 $2,979 8.16%
Taxable investment
securities............ 12,009 852 7.09% 10,413 655 6.29% 8,703 586 6.74%
Tax-free investment
securities............ 51 3 5.88% 103 8 7.77% 105 8 7.62%
Interest-bearing deposits
in other banks........ 2,300 134 5.83% 2,522 135 5.35% 1,773 126 7.11%
----- --- ---- ----- --- ---- ----- --- ----
Total interest-earning
assets................ $48,914 $3,870 7.91% $49,234 $3,832 7.78% $47,090 $3,699 7.86%
Other assets............. 2,978 3,888 3,659
----- ----- -----
Total assets............. $52,892 $53,122 $50,749
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 8,487 $200 2.36% $7,737 $ 179 2.31% $6,785 $ 153 2.26%
Savings deposits......... 4,882 163 3.34% 5,140 160 3.11% 5,014 166 3.31%
Other time deposits...... 32,536 1,859 5.71% 32,020 1,811 5.66% 30,815 1,760 5.71%
FHLB advances and other
borrowings............ 340 18 5.29% 501 22 4.39% 1,328 19 1,43%
--- -- ----- --- -- ----- ----- -- -----
Total interest-bearing
liabilities........... $46,245 $2,240 4.84% $45,398 $2,172 4.78% $43,942 $2,098 4.77%
Noninterest bearing
demand deposits.......... 988 1,160 860
Other liabilities........ 366 1,827 1,212
Stockholders' equity..... 5,293 4,737 4,737
----- ----- -----
Total liabilities and
stockholders' equity.. $52,892 $53,122 $50,749
======= ======= =======
Tax-equivalent adjustment 1 3 2
- - -
Net interest income...... $1,629 $1,657 $1,599
====== ====== ======
Interest rate spread..... 3.07% 3.00% 3.09%
Net interest margin...... 3.33% 3.37% 3.40%
Interest-earning assets/
interest-bearing
liabilities.............. 105.77% 108.45% 107.16%
</TABLE>
Consolidated Average Balances, Interest, and Rates. Net interest income
is determined by the amount of interest-earning assets compared to
interest-bearing liabilities and their related yields and costs. The difference
between the weighted average interest rates earned on interest-earning assets
(i.e., loans and investment securities) and the weighted average interest rates
paid on interest-bearing liabilities (i.e., deposits and borrowings) is called
the net interest spread. Another measure of the difference in interest income
earned versus interest expense paid is net interest margin. Net interest margin
is calculated by dividing net interest income by average earning assets.
Table 1 presents for the three years ended December 31, 1998, average
balances of interest-earning assets and interest-bearing liabilities and the
weighted average interest rates earned and paid on those balances. In addition,
interest rate spreads, net interest margins and the ratio of interest-earning
assets versus interest-bearing liabilities for those years are presented.
Average interest-earning assets were $48.9 million in 1998 versus $49.2 million
in 1997, and $47.1 million in 1996. Average interest-bearing liabilities were
$46.2 million in 1998 versus $45.4 million in 1997 and $43.9 million in 1996.
The interest rate spread was 3.07% in 1998 versus 3.00% in 1997 and 3.09% in
1996, while the net interest margin was 3.33% in 1998, 3.37% in 1997 and 3.40%
in 1996.
Table 2 shows the change in net interest income from 1998 to 1997 and
from 1997 to 1996 due to changes in volumes and rates. Variances resulting from
a combination of changes in rate and volume are allocated in proportion to the
absolute dollar amounts of the change in each category.
53
<PAGE>
Table 2 - Rate/Volume Variance Analysis - Taxable Equivalent Basis
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
998 Compared to 1997 1997 Compared to 1996
-------------------- ---------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
------ ----- ------ ------ ----- ------
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Loans......................................... (137) (16) (153) (26) 81 55
Taxable investment securities................. 113 84 197 108 (39) 69
Tax-free investment securities................ (3) (2) (5) - - -
Interest-bearing deposits in other banks...... (13) 12 (1) 40 (31) 9
Total interest income........................... (40) 78 38 121 12 133
Interest expense:
Interest bearing demand deposits.............. 18 3 21 22 4 26
Savings deposits.............................. (9) 12 3 4 (10) (6)
Other time deposits........................... 29 19 48 68 (17) 51
FHLB advances an other borrowings............... (9) 5 (4) (36) 39 3
Total interest expense................... 29 39 68 58 16 74
Net interest income........................... (69) 39 (30) 63 (4) 59
</TABLE>
Noninterest Income. Other income increased to $2.2 million in 1998
from $2.1 million in 1997 and $2.2 million in 1996. Other income consists of
loan fees and service charges and the gain on sale of mortgage loans.
Noninterest Expenses. Salary and employee benefits increased to
$1.75 million in 1998 from $1.72 million in 1997 and $1.68 million in 1996. This
increase in 1998 was primarily due to normal increases in compensation levels.
Occupancy expense was $196,000 in 1998, $193,000 in 1997 and $200,000 in 1996.
Other expenses were $1 million in 1998 versus $943,000 in 1997 and $1.2 million
in 1996. The increase in other operating expenses from 1998 to 1997 was due to
increases in data processing, depreciation and amortization, and general and
administrative expenses. The decrease in other expenses from 1996 to 1997 was
due to the decrease in OTS assessments.
Investment Securities. The composition of the investment securities
portfolio reflects management's strategy of maintaining an appropriate level of
liquidity while providing a relatively stable source of income. The portfolio
also provides a balance to interest rate risk and credit risk in other
categories of Thomaston Federal's balance sheet while providing a vehicle for
the investment of available funds, furnishing liquidity, and providing
securities to pledge as required collateral for certain deposits.
Investment securities increased $1.2 million to $12.7 million at
December 31, 1998 from $11.5 million at December 31, 1997. At December 31, 1998
and 1997, all investment securities were classified as held to maturity. At
December 31, 1998, gross unrealized gains in the total portfolio amounted to
$79,000 and there were no unrealized losses.
Table 3 reflects the carrying amount of the investment securities
portfolio for the past three years.
Table 3 - Carrying Value of Investments
(dollars in thousands)
December 31,
------------
1998 1997 1996
---- ---- ----
Securities Held-to-maturity:
U.S. Treasuries and agencies........ $11,624 10,494 7,595
Corporate debt securities........... -- -- 300
State, county and municipal......... -- 102 104
Mortgage-backed securities.......... 1,040 859 1,578
----- --- -----
Total................................. $12,664 11,455 9,577
======= ====== =====
54
<PAGE>
Carrying Value of Investments. The December 31, 1998 market value of
securities held to maturity, as a percentage of amortized cost, was 101%, up
from 100% at December 31, 1997. The market value of the securities
held-to-maturity will change as interest rates change and such unrealized gains
and losses will not flow through the earnings statement unless the related
securities become permanently impaired or they are called at prices which differ
from the carrying value at the time of the call.
Loans. Gross loans receivable increased by approximately $756,000 in
1998 to $34.9 million from $34.2 million at December 31, 1997. This increase was
the result of an increase in commercial, financial and agricultural loans and
consumer loans. As shown in Table 4, commercial, financial and agricultural
loans increased approximately $532,000, consumer loans increased approximately
$780,000, and real estate mortgages/construction decreased approximately
$239,000.
Table 4 - Loan Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial/financial/
agricultural $1,146 3.3% $ 614 1.8% $ 397 1.0% $ 386 1.1%$ 284 .8%
Real estate construction 884 2.5 1,201 3.5 1,372 3.6 1,230 3.5 1,078 3.2
Real estate mortgage 27,928 80.0 28,167 82.4 32,395 84.8 30,093 86.5 29,963 89.5
Installment loans to
individuals 4,974 14.2 4,194 12.3 4,051 10.6 3,094 8.9 2,159 6.5
----- ---- ----- ---- ----- ---- ----- --- ----- ---
Total loans $34,932 100% $34,176 100% $38,215 100% $34,803 100% $33,484 100%
Less:
Allowance for loan losses (387) (452) (473) (470) (482)
---- ---- ---- ---- ----
Total net loans $34,545 $33,724 $37,742 $34,333 $33,002
======= ======= ======= ======= =======
</TABLE>
Table 5 represents the expected maturities for commercial, financial,
and agricultural loans and real estate construction loans at December 31, 1998.
The table also presents the rate structure for these loans that mature after one
year.
Table 5 - Loan Portfolio Maturity
(dollars in thousands)
<TABLE>
<CAPTION>
Rate Structure for Loans
------------------------
Maturity Maturity Over One Year
-------- ----------------------
Over One
Year Over Floating or Pre-
One Year Through Five Adjustable determined
or Less Five Years Years Total Interest Rate Rate
------- ---------- ----- ----- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial, and
Agricultural................ $205 703 238 1,146 734 207
Real estate - construction....... 884 -- -- 884 -- --
</TABLE>
Provision and Allowance for Loan Losses. Table 6 presents an analysis
of activities in the allowance for loan losses for the past five years. An
allowance for possible losses is provided through charges to earnings in the
form of a provision for loan losses. The provision for loan losses was $38,000
in 1996. Thomaston Federal did not recognize a provision for loan losses in 1998
or 1997. Management determines the level of the provision for loan losses based
on outstanding loan balances, the levels of nonperforming assets, and reviews of
assets classified as substandard, doubtful, or loss and larger credits, together
with an analysis of historical loss experience, and current economic conditions.
55
<PAGE>
Historically, the loan portfolio has consisted primarily of loans
secured by one-to-four family residential properties, and actual losses have not
been significant. Thomaston Federal also provides other services and loan
products to meet the growing financial needs of its service community, including
consumer loans, commercial loans, and commercial real estate loans.
As shown in Table 6, the year-end allowance for loan losses decreased
to $387,000 at December 31, 1998, from $452,000 at December 31, 1997. The
allowance for loan losses was $473,000 at December 31, 1996. Total charge-offs
in 1998 were $76,000, $41,000 in 1997, and $63,000 in 1996. The allowance for
loan losses was 1.12% of net outstanding loans at December 31, 1998, versus
1.34% of net outstanding loans at December 31, 1997, and 1.25% of net
outstanding loans at December 31, 1996.
Management believes that the allowance for loan losses was both
adequate and appropriate. However, the future level of the allowance for loan
losses is highly dependent upon loan growth, loan loss experience, and other
factors, which cannot be anticipated with a high degree of certainty.
Table 6 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average net loans........................... $ 34,135 35,733 36,456 34,086 34,033
-------- ------ ------ ------ ------
Allowance for loan losses, beginning
of the period............................. $ 452 473 470 482 414
Charge-offs for the period:
Commercial/financial/agricultural......... - 17 - - -
Real estate construction loans ........... - - 2 - 3
Real estate mortgage loans................ 32 3 - 20 2
Installment loans to individuals.......... 44 21 61 25 6
Total charge-offs........................... 76 41 63 45 11
Recoveries for the period:
Commercial/financial/agricultural......... 2 - - - 10
Real estate construction loans............ - - - - 3
Real estate mortgage loans................ - - - - -
Installment loans to individuals.......... 8 20 28 8 16
-- -- -- -- --
Total recoveries............................ 10 20 28 8 29
-- -- -- -- --
Net charge-offs/(recoveries)
for the period....................... 66 21 35 37 (18)
Provision for loan losses................... - - 38 25 50
-- -- -- -- --
Allowance for loan losses, end of period.... $ 387 452 473 470 482
======= === === === ===
Ratio of allowance for loan losses to total
net loans outstanding .................... 1.12% 1.34% 1.25% 1.37% 1.46%
==== ==== ==== ==== ====
Ratio of net charge-offs during the period
to average net loans outstanding during
the period................................ .19% .06% .10% .11% (.05)%
=== === === === ====
</TABLE>
Asset Quality. At December 31, 1998, non-performing assets totaled
$564,000 compared to $736,000 at year-end 1997. There were no commitments to
lend additional funds on nonaccrual loans at December 31, 1998. Table 7
summarizes the non-performing assets for each of the last five years.
56
<PAGE>
Table 7 - Risk Elements
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual............................. $124 520 535 327 251
Loans past due 90 days and still accruing....... 217 77 - 50 42
Other real estate owned......................... 223 139 139 83 812
--- --- --- -- ---
Total non-performing assets..................... $564 736 674 460 1,105
==== === === === =====
Total non-performing loans as a
percentage of net loans.................... 1.63% 2.18% 1.79% 1.34% 3.35%
==== ==== ==== ==== ====
</TABLE>
Risk Elements. There may be additional loans within Thomaston Federal's
loan portfolio that may become classified as conditions may dictate; however,
management was not aware of any such loans that are material in amount at
December 31, 1998. At December 31, 1998, management was unaware of any known
trends, events, or uncertainties that will have, or that are reasonably likely
to have a material effect on the Thomaston Federal's liquidity, capital
resources, or operations.
Deposits. Total deposits increased approximately $433,000 during 1998,
totaling $47 million at December 31, 1998 versus $46.6 million at December 31,
1997. The maturities of time deposits of $100,000 or more at December 31, 1998,
are summarized in Table 8.
Table 8 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Three months or less $1,994
Over three months through six months 938
Over six months through twelve months 1,500
Over twelve months 735
---
Total $5,167
======
At December 31, 1998, Thomaston Federal was a shareholder in the
Federal Home Loan Bank of Atlanta ("FHLBA"). There were no advances outstanding
at December 31, 1998. Management anticipates continued utilization of this
short- and long-term source of funds to minimize interest rate risk and to fund
competitive fixed rate loans to customers.
Asset-Liability Management. A primary objective of Thomaston Federal's
asset and liability management program is to control exposure to interest rate
risk (the exposure to changes in net interest income due to changes in market
interest rates) so as to enhance its earnings and protect its net worth against
potential loss resulting from interest rate fluctuations.
Historically, the average term to maturity or repricing (rate changes)
of assets (primarily loans and investment securities) has exceeded the average
repricing period of liabilities (primarily deposits and borrowings). Table 9
provides information about the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 1998, that are
expected to mature, prepay, or reprice in each of the future time periods shown
(i.e., the interest rate sensitivity). As presented in this table, at December
31, 1998, the liabilities subject to rate changes within one year exceeded its
assets subject to rate changes within one year. This mismatched condition
subjects Thomaston Federal to interest rate risk within the one year period
because the assets, due to their generally shorter term to maturity or
repricing, are more sensitive to short-term interest rate changes than the
liabilities. It is management's belief that the result of this position would be
a decrease in net interest income if market interest rates rise and an increase
in net interest income if market interest rates decline.
57
<PAGE>
Management carefully measures and monitors interest rate sensitivity
and believes that its operating strategies offer protection against interest
rate risk.
Management has maintained positive ratios of average interest-earning
assets to average interest-bearing liabilities. As represented in Table 1 this
ratio, based on average balances for the respective years, was 105.77% in 1998,
108.45% in 1997 and 107.16% in 1996.
Table 9 - Interest Rate Sensitivity Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Maturing or Repricing in
------------------------
Over 1 Year Over 3 Years
One Year Through Through Over
or Less 3 Years 5 Years 5 Years Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Adjustable rate mortgages............ $ 10,942 5,819 509 41 17,311
Fixed rate mortgages................. 4,815 565 891 4,346 10,617
Other loans.......................... 3,193 3,811 - - 7,004
Investment securities................ 210 1,836 7,138 3,480 12,664
Interest-bearing deposits............. 1,882 - - - 1,882
----- -----
Total interest-earning assets.... 21,042 12,031 8,538 7,867 49,478
------ ------ ----- ----- ------
Interest-bearing liabilities:
Fixed maturity deposits.............. 27,035 5,710 - - 32,745
DDA accounts......................... 8,769 - - - 8,769
Passbook accounts.................... 4,646 - - - 4,646
----- -----
Total interest-bearing liabilities.... $ 40,450 5,710 - - 46,160
----------- ----- ------
Interest rate sensitivity gap......... (19,408) 6,321 8,538 7,867 3,318
Cumulative interest rate
sensitivity gap..................... $ (19,408) (13,087) (4,549) 3,318
=========== ======= ====== =====
Cumulative interest rate
sensitivity gap to total assets.... (36%) (24%)` (8%) 6%
=== === == =
</TABLE>
Table 10 represents the expected maturity of the total investment
securities by maturity date and average yields based on amortized cost at
December 31, 1998. It should be noted that the composition and
maturity/repricing distribution of the investment portfolio is subject to change
depending on rate sensitivity, capital needs, and liquidity needs.
Table 10 - Expected Maturity of Investment Securities
(dollars in thousands)
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Totals
-------- ---------- --------- --------- ------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and agencies....... $137 5.8% 8,838 6.0% 2,649 6.2% - - 11,624
Mortgage-backed
securities......... 73 7.0% 136 6.5% 33 9.0% 798 6.3% 1,040
-- --- --- --- -- --- --- --- -----
Total............ $210 6.2% 8,974 6.0% 2,682 6.2% 798 6.3% 12,664
==== === ===== === ===== === === === ======
</TABLE>
Liquidity. Thomaston Federal's primary sources of liquidity (funds) are
deposit inflows, loan repayments, proceeds from sales of loans and securities,
advances from the FHLBA, and earnings from investments. Short-term deposits,
particularly noninterest-bearing checking accounts, are becoming a more
significant source of liquidity than they have been historically to the Banks.
There were no advances from the FHLBA at December 31, 1998 or 1997.
58
<PAGE>
Subject to certain limitations, Thomaston Federal may borrow funds from
the FHLBA in the form of advances. Credit availability from the FHLBA to
Thomaston Federal is based on Thomaston Federal's financial and operating
condition. In addition to creditworthiness, Thomaston Federal must own a minimum
amount of FHLBA capital stock. This minimum is 5.0% of outstanding FHLBA
advances. Thomaston Federal uses FHLBA advances for both long-term and
short-term liquidity needs. Other than normal banking operations, Thomaston
Federal has no long-term liquidity needs. Thomaston Federal has never been
involved with highly leveraged transactions that may cause unusual potential
long-term liquidity needs.
The statements of cash flows for the three years ended December 31,
1998 detail Thomaston Federal's sources and uses of funds for those periods.
Capital Resources and Dividends. Stockholders' equity at December 31,
1998, increased 10.9% from December 31, 1997. This growth resulted from 1998
earnings. Dividends of $63,000 or $.10 per share were declared and paid in 1998,
compared to $.09 per share in 1997.
Average stockholders' equity as a percent of total average assets is
one measure used to determine capital strength. The ratio of average
stockholders' equity to average total assets was 10.01% for 1998 and 8.92% for
1997. Table 11 summarizes these and other key ratios for Thomaston Federal for
each of the last three years.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
required federal banking agencies to take "prompt corrective action" with regard
to institutions that do not meet minimum capital requirements. As a result of
FDICIA, the federal banking agencies introduced an additional capital measure
called the "Tier 1 risk-based capital ratio." The Tier 1 ratio is the ratio of
core capital to risk adjusted total assets. Note 7 to the financial statements
presents a summary of FDICIA's capital tiers compared to Thomaston Federal's
actual capital levels. Thomaston Federal exceeded all requirements of a
"well-capitalized" institution at December 31, 1998.
Table 11 - Equity Ratios
Years Ended December 31
-----------------------
1998 1997 1996
---- ---- ----
Return on average assets 1.16% 1.16% .80%
Return on average equity 11.54% 13.03% 8.55%
Dividend payout ratio 10.31% 8.91% 12.59%
Average equity to average assets 10.01% 8.92% 9.33%
Provision for Income Taxes. The provision for income taxes was $304,000
in 1998, versus $318,000 in 1997, and $231,000 in 1996. The effective actual tax
rates for 1998, 1997, and 1996 (tax provision as a percentage of income before
taxes) were 33%, 34%, and 36%, respectively. See Thomaston Federal's financial
statements for an analysis of income taxes.
Impact of Inflation and Changing Prices. The financial statements and
related financial data presented herein have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation. The liquidity and
maturity structures of Thomaston Federal's assets and liabilities are critical
to the maintenance of acceptable performance levels.
59
<PAGE>
Recent Accounting Pronouncements. In 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards for
hedging activities and for derivative instruments, including derivative
instruments embedded in other contracts. It requires the fair value recognition
of derivatives as assets or liabilities in the financial statements. SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999, but initial application of the statement must be made as of the
beginning of the quarter. At the date of initial application, an entity may
transfer any held to maturity security into the available for sale or trading
categories without calling into question the entity's intent to hold other
securities to maturity in the future. Thomaston Federal believes the adoption of
SFAS No. 133 will not have a material impact on its financial position, results
of operations or liquidity.
Management's Discussion and Analysis of Financial Condition and Results
of Operations for Each of the Three Months Ended March 31, 1999 and 1998.
Financial Condition. Total assets at March 31, 1999 were approximately
$55 million, compared to $51 million at December 31, 1998. Deposits increased
approximately $ 1.2 million, or 2.4% from December 31, 1998, while net loans
increased approximately $505,000, or 1.7%. The allowance for loan losses at
March 31, 1999 totaled $376,000, representing 1.2% of total loans compared to
the December 31, 1998 total of $387,000, representing 1.3% of total loans.
Securities decreased 21% from December 31, 1998. The increase in net loans was
funded primarily with deposit growth and the maturity of investment securities.
Results of Operations. Net interest income remained stable at $405,000
for the first three months of 1999 and 1998. Interest income for the first three
months of 1999 was $927,000, representing a decrease of $27,000, or 2.8%, over
the same period in 1998. Interest expense for the first three months of 1999
decreased approximately $27,000, or 4.9%, compared to the same period in 1998.
This decrease in interest income and interest expense during the first three
months of 1999 compared to 1998 is primarily attributable to the decrease in
interest rates. Thomaston Federal recognized no provision for loan losses in the
first three months of 1999 or 1998. It is management's belief that the allowance
for loan losses is adequate to absorb probable losses in the loan portfolio.
Noninterest income decreased 14.9% to approximately $466,000 for the three month
period ended March 31, 1999, as compared to the same period in 1998 due to a
decrease in gain on sale of mortgage loans. Noninterest expense for the first
three months of 1999 and 1998 totaled $713,000 and $687,000, respectively. This
increase of 3.8% was due to normal salary increases.
Capital Resources. Thomaston Federal 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, Thomaston Federal must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Thomaston Federal's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Thomaston Federal to maintain minimum amounts and ratios of total and
Tier 1 capital (as defined) to risk-weighted assets and of Tier 1 capital (as
defined) to average assets. As of March 31, 1999, Thomaston Federal met all
capital adequacy requirements to which it is subject. The following tables
present Thomaston Federal's regulatory capital position at March 31, 1999:
60
<PAGE>
Risk-Based Capital Ratios
Tier 1 Capital................................................ 10.10%
Tier 1 Capital minimum requirement ........................... 4.00%
Excess........................................................ 6.10%
Total Capital................................................. 17.88%
Total Capital minimum requirement............................. 8.00%
Excess........................................................ 9.88%
Leverage Ratio Tier 1 Capital to adjusted total assets........ 10.10%
Minimum leverage requirement.................................. 3.00%
Excess........................................................ 7.10%
61
<PAGE>
BUSINESS OF FLAG
General
FLAG is a bank holding company headquartered in LaGrange, Georgia. FLAG
is the sole shareholder of Citizens Bank, Vienna, Georgia, and First Flag Bank,
LaGrange, Georgia. Citizens Bank is a state bank organized under the laws of the
State of Georgia, with 14 branch offices located in 14 communities throughout
Southern Georgia. First Flag Bank is a federally-chartered savings association,
with five branch offices which serve markets located in western Georgia. First
Flag Bank has regulatory approval to convert its charter from a
federally-chartered savings association to a Georgia commercial bank. The
conversion will occur in June, 1999.
Through its subsidiaries, FLAG offers a full array of deposit accounts
and retail and commercial banking services, engages in small business lending,
residential and commercial real estate lending, mortgage banking services,
brokerage services and performs real estate appraisal services. As of March 31,
1999, FLAG had total consolidated assets of $531.5 million, total consolidated
deposits of $421.6 million, and total consolidated shareholders' equity of $48.6
million.
As a routine part of its business, FLAG evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy
Statement/Prospectus, discussions and, in some cases, negotiations and due
diligence activities looking toward or culminating in the execution of
preliminary or definitive documents respecting potential mergers may occur or be
in progress. These transactions may involve FLAG acquiring such financial
institutions in exchange for cash or capital stock, and depending upon the terms
of these transactions, they may have a dilutive effect upon the FLAG common
stock to be issued to holders of Thomaston Federal common stock in the merger.
Directors and Executive Officers
The directors of FLAG after the merger will be:
Dennis D. Allen John S. Holle
Dr. A. Glenn Bailey James W. Johnson
Leonard H. Bateman Kelly R. Linch
H. Speer Burdette, III J. Preston Martin.
Robert G. Cochran J. Daniel Speight, Jr.
Patti S. Davis John W. Stewart, Jr.
Fred A. Durand, III Robert W. Walters
The executive officers of FLAG after the merger will be:
John S. Holle Chairman of the Board
J. Daniel Speight, Jr. President and Chief Executive Officer
Charles O. Hinely Chief Operating Officer and Executive
Vice President
Patti S. Davis Chief Financial Officer, Senior
Vice President
and Assistant Secretary
Ellison C. Rudd Senior Vice President, Treasurer
and Secretary
J. Preston Martin Senior Vice President
62
<PAGE>
Upon the completion of the merger of Thomaston Federal with a newly
formed, wholly-owned subsidiary of FLAG, Robert G. Cochran will be elected as a
member of FLAG's Board of Directors. Additional persons may be elected as
directors or executive officers following the merger. See "SUMMARY - Recent
Developments in FLAG's Business."
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. Except as otherwise indicated, each of the named
persons has been engaged in his or her present principal occupation for more
than five years.
Dennis D. Allen. Mr. Allen served as a director of The Brown Bank from
1981 until December 1998 and has served as the President and Chief Executive
Officer of The Brown Bank since 1991. Following the merger of The Brown Bank
with Citizens Bank, Mr. Allen has served as a member of the Board of Directors
of FLAG and is President of The Brown Bank division of Citizens Bank.
Mr. Allen is 42 years old.
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 Flag Bank 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
Flag Bank. Dr. Bailey is 64 years old.
Leonard H. Bateman. Mr. Bateman has served as President and Chief
Executive Officer of Empire Bank Corp. and Empire Banking Company from 1986
until December 1998. Following consummation of the merger of Empire and FLAG,
Mr. Bateman has served as a member of the Board of Directors of FLAG and as
President of the Empire Banking Company division of Citizens Bank. Mr. Bateman
is 50 years old.
H. Speer Burdette, III. Mr. Burdette is an owner, director and Vice
President/Treasurer of J.K. Boatwright & Co., P.C., an accounting firm located
in LaGrange. He has been a director of First Flag Bank 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 Flag Bank.
Mr. Burdette is 46 years old.
Robert G. Cochran. Mr. Cochran is President, Chief Executive Officer
and a director of Thomaston Federal. Following the merger, Mr. Cochran will
serve as a member of the Board of Directors of FLAG. Mr. Cochran has served as
President of Thomaston Federal since 1982 and will continue to be President
after the merger. Mr. Cochran is 62 years old.
Patti S. Davis. Ms. Davis served as Executive Vice President and Chie
Financial Officer of Middle Georgia since 1994 until Middle Georgia merged with
FLAG in March 1998. Ms. Davis has been Senior Vice President and Chief Financial
Officer of Citizens Bank since 1990. Following the consummation of the merger of
Middle Georgia and FLAG, Ms. Davis has served as a Senior Vice President and as
a member of the Board of Directors of FLAG and, since July 1998, has served as
Chief Financial Officer of FLAG. In addition, Ms. Davis continues to act as
Senior Vice President and Chief Financial Officer of Citizens Bank. Following
the merger, Ms. Davis will continue to act in these capacities. Ms. Davis and J.
Daniel Speight, Jr. are cousins. Ms. Davis is 42 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 Flag Bank 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 Flag Bank.
Mr. Durand is 57 years old.
63
<PAGE>
Charles O. Hinely. Mr. Hinely has served as Executive 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 principal of Bank Management Resources,
Inc. (BMR Financial Group) and LSI Partners, Inc. Following the merger, Mr.
Hinely will continue to serve as Executive Vice President and Chief Operating
Officer of FLAG. Mr. Hinely is 51 years old.
John S. Holle. Mr. Holle served as Chairman of the Board, President,
Chief Executive Officer and as a director of FLAG since 1993, and he has been
President, Chief Executive Officer and a director of First Flag Bank since 1985
and Chairman of the Board of First Flag Bank since 1990. Following the merger of
FLAG and Middle Georgia, Mr. Holle has served as Chairman of the Board of FLAG
and President, Chief Executive Officer and a member of the Board of Directors of
FLAG and as a director of Citizens Bank. Mr. Holle also has been Chairman of the
Board and President of First Flag Bank's wholly-owned subsidiary, Piedmont,
since 1986. Following the merger, Mr. Holle will continue to be the Chairman of
the Board of FLAG and will continue to serve as a member of the Board of
Directors of FLAG. In addition, Mr. Holle will continue to act as President,
Chief Executive Officer and a member of the Board of Directors of First Flag
Bank and as a director of Citizens Bank following the merger. Mr. Holle is 48
years old.
James W. Johnson. Mr. Johnson is the president of McCannie Motor and
Tractor Company, Inc., a retail seller of tractors and implement equipment, and
served as a director of Middle Georgia and Citizens Bank since 1982 until the
merger of FLAG and Middle Georgia. Following the merger of FLAG and Middle
Georgia, Mr. Johnson has served as a member of the Board of Directors of FLAG
and continues to serve as a director of Citizens Bank. Following the merger, Mr.
Johnson will continue in these capacities. Mr. Johnson is 57 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 Flag Bank
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 Flag Bank. Mr. Linch also is a director of Key Distributors of Georgia,
Inc. Mr. Linch is 56 years old.
J. Preston Martin. Mr. Martin served as the President and Chief
Executive Officer of Three Rivers and as President of Bank of Milan from 1986
until May 1998 when Three Rivers merged with and into FLAG. Mr. Martin currently
serves as Senior Vice President, on the Boards of Directors of FLAG, Citizens
Bank and Milan and as President of the Bank of Milan division of Citizens Bank.
Mr. Martin is 45 years old.
Ellison C. Rudd. Mr. Rudd served as Executive Vice President, Chief
Financial Officer and Treasurer of FLAG since 1994. Mr. Rudd has also been
Executive Vice President of First Flag Bank since 1993 and Chief Financial
Officer and Treasurer of First Flag Bank since 1989 when he joined First Flag
Bank as a Vice President. Following the merger of FLAG and Middle Georgia and
until July 1998, Mr. Rudd served as Senior Vice President and Chief Financial
Officer of FLAG. Mr. Rudd currently serves as Senior Vice President, Secretary
and Treasurer of FLAG. Following the merger, Mr. Rudd will continue to act in
these capacities. In addition, Mr. Rudd will continue to act as Chief Financial
Officer, Treasurer and Executive Vice President of First Flag Bank. Mr. Rudd is
54 years old.
J. Daniel Speight, Jr. Mr. Speight served as Chief Executive Officer
and as a director of Middle Georgia since 1989 and has been President and Chief
Executive Officer of Citizens Bank since 1984. Following the merger of FLAG and
64
<PAGE>
Middle Georgia, Mr. Speight has served as the President and Chief Executive
Officer of FLAG, and as a member of the Board of Directors of FLAG. In addition,
Mr. Speight serves as President and Chief Executive Officer and a director of
Citizens Bank and as a director of FLAG. Following the merger, Mr. Speight will
continue to act in these capacities. Mr. Speight is 42 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 Flag Bank 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
Flag Bank. Mr. Stewart is 64 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 Flag Bank since 1982 and a director
of FLAG since 1994. Following the merger, Mr. Walters will continue to serve as
a member of the Boards of Directors of both FLAG and First Flag Bank.
Mr. Walters is 66 years old.
Management Stock Ownership
The following table presents information about each of the current
directors and executive officers of FLAG and all executive officers and
directors as a group. Unless otherwise indicated, each person has sole voting
and investment powers over the indicated shares. Information relating to
beneficial ownership of the FLAG common stock is based upon "beneficial owner"
concepts set forth in rules under the Exchange Act. Under such rules, a person
is considered 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 considered to be a beneficial owner of the same securities.
Amount and Nature Percent
Name of Beneficial Ownership of Total (%)
---- ----------------------- ------------
(a) Directors
Dennis D. Allen 22,510 (1) 0.34
Dr. A. Glenn Bailey 92,577 (2) 1.41
Leonard H. Bateman 10,625 (3) 0.16
H. Speer Burdette, III 24,727 (4) 0.37
Patti S. Davis 145,868 (5) 2.21
Fred A. Durand, III 32,728 (6) 0.50
John S. Holle 88,246.862 (7) 1.34
James W. Johnson 150,103 (8) 2.29
Kelly R. Linch 58,677 (9) 0.89
Preston Martin 287,000 (10) 4.37
J. Daniel Speight, Jr. 261,088 (11) 3.94
John W. Stewart, Jr. 29,941.459 (12) 0.45
Robert W. Walters 140,871.063 (13) 2.14
65
<PAGE>
(b) Executive Officers
Charles O. Hinely 10 (14) 0.00
Ellison C. Rudd 34,766.368 (15) 0.53
(c) All Directors and Executive
Officers as a group
(15 persons) 1,379,738.752 21.03
- -------------------
(1) Consists of 22,510 shares held by Mr. Allen.
(2) Consists of (i) 36,555 shares held by Dr. Bailey, (ii) 35,055 shares
held by Dr. Bailey's spouse as to which beneficial ownership is shared,
(iii) 975 shares held by Chattahoochee Land Investment as to which
beneficial ownership is shared, (iv) 1,125 shares held by a broker for
the benefit or Chattahoochee Land Investment as to which beneficial
ownership is shared, and (v) 18,867 shares subject to immediately
exercisable options.
(3) Consists of (i) 5,525 shares held by Mr. Bateman and (ii) 5,100 shares
held by Mr. Bateman's spouse as to which beneficia ownership is shared.
(4) Consists of (i) 1,330 shares held by brokers for the benefit of Mr.
Burdette, (ii) 4,530 shares held in Individual Retirement Accounts for
the benefit of Mr. Burdette, and (iii) 18,867 shares subject to
immediately exercisable options.
(5) Consists of (i) 108,439 shares held by Ms. Davis, (ii) 4,063 shares
held in an Individual Retirement Account for the benefit of Ms. Davis,
(iii) 7,866 shares held by Speight Futures, Inc. as to which beneficial
ownership is shared and (iv) 25,500 shares subject to immediately
exercisable options. Ms. Davis is also an executive officer of the
Company.
(6) Consists of (i) 13,696 shares held by a broker for the benefit of Mr.
Durand, (ii) 165 shares held by a broker for the benefit of Mr.
Durand's spouse as to which beneficial ownership is shared, and (iii)
18,867 shares subject to immediately exercisable options.
(7) Consists of (i) 15,000 shares held by Mr. Holle, (ii) 382.162 shares
issued to Mr. Holle pursuant to the Company's dividend reinvestment
plan, (iii) 27,864.699 shares issued pursuant to the Company's Profit
Sharing Plan, and (iv) 45,000 shares subject to immediately exercisable
options. Mr. Holle is also an executive officer of the Company.
(8) Consists of (i) 58,377 shares held by Mr. Johnson, (ii) 2,716 shares
held by Mr. Johnson's spouse as to which beneficial ownership is
shared, (iii) 84,010 held by McCranie Motor and Tractor Company, Inc.
Profit Sharing Plan for the benefit of Mr. Johnson, and (iv) 5,000
shares subject to immediately exercisable options.
(9) Consists of (i) 33,750 shares held by Mr. Linch, (ii) 6,060 shares held
by a broker for the benefit of Mr.Linch, and (iii)18,867 shares subject
to immediately exercisable options.
66
<PAGE>
(10) Consists of 287,000 shares held by a broker for the benefit of
Mr. Martin. Mr. Martin is also an executive officer of the Company.
(11) Consists of (i) 99,997 shares held by Mr. Speight, (ii) 49,498 shares
held by a broker for the benefit of Mr. Speight, (iii) 2,362 shares
held by Mr. Speight as trustee for Patricia Ruth Davis, (iv) 589 shares
held by Mr. Speight as trustee for Anna Davis, (v) 1,677 shares held by
a broker for the benefit of Mr. Speight as custodian for Alex Speight,
(vi) 1,677 shares held by a broker for the benefit of Mr. Speight as
custodian for J. Daniel Speight, III, (vii) 7,371 shares held in an
Individual Retirement Account for the benefit of Mr. Speight, (viii)
34,917 shares held by Sp8Co., Inc. as to which beneficial ownership is
shared, and (ix) 63,000 shares subject to immediately exercisable
options. Mr. Speight is also an executive officer of the Company.
(12) Consists of (i) 9,486 shares held by Mr. Stewart, (ii) 15 shares held
by Mr. Stewart as custodian for Tristain Daugherty, (iii) 1,573.268
shares issued to Mr. Stewart pursuant to the Company's dividend
reinvestment plan, (iv) 0.191 shares issued to Mr. Stewart as custodian
for Tristain Daugherty pursuant to the Company's dividend reinvestment
plan, and (v) 18,867 shares subject to immediately exercisable options.
(13) Consists of (i) 37,875 shares held by Mr. Walters, (ii) 41,700 shares
held jointly by Mr. Walters and his spouse, (iii) 42,000 shares held by
Mr. Walters' spouse as to which beneficial ownership is shared, (iv)
375 shares held by Mr. Walters as custodian for Myles D. Oliver, (v)
54.063 shares issued to Mr. Walter's as custodian for Myles D. Oliver
pursuant to the Company's dividend reinvestment plan, and (vi) 18,867
shares subject to immediately exercisable options.
(14) Consists of 10 shares held by Mr. Hinely.
(15) Consists of (i) 10,000 shares held by Mr. Rudd, (ii) 4,000 shares held
by a broker for the benefit of Mr. Rudd, (iii) 15,141.3681 shares
issued pursuant to the Company's Profit Sharing Plan, and (iv) 5,625
shares subject to immediately exercisable options.
Additional information about FLAG and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement/Prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION ABOUT FLAG."
Voting Securities and Principal Shareholders of FLAG
There were no shareholders of record that directly or indirectly owned,
controlled, or held with power to vote, 5% or more of FLAG's common stock as of
March 31, 1999.
67
<PAGE>
Pro Forma Consolidated Financial Information
The following unaudited pro forma condensed consolidated balance sheet
as of March 31, 1999 (the "Pro Forma Balance Sheet"), and the unaudited pro
forma consolidated statements of earnings for the three months ended March 31,
1999, and for each of the three years in the period ended December 31, 1998
(collectively, the "Pro Forma Earnings Statements"), combine the historical
financial statements of FLAG with Thomaston Federal 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 March 31, 1999, while the pro forma adjustments to the Pro Forma
Earnings Statements are computed as if the merger were consummated on January 1,
1996, 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
Thomaston Federal's combined results of operations actually would have been if
the merger had occurred on January 1, 1996.
68
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1999
(Dollars in thousands)
(Unaudited)
Pro Other
Thomaston Pro Forma Forma Pending Pro Forma Pro Forma
FLAG Federal Adjustments Combined Acquisitions Adjustments Combined
---- ------- ----------- -------- ------------ ----------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 17,138 516 17,654 3,385 21,039
Federal funds sold 2,000 - 2,000 6,675 8,675
Interest-bearing deposits 1,039 4,318 5,357 - 5,357
Trading securities 324 - 324 - 324
Securities available for sale, at fair value 67,528 - 67,528 26,891 94,419
Securities held to maturity 4,107 10,027 14,134 6,307 20,441
Other investments 7,267 - 7,267 - 7,267
Loans held for sale 2,836 4,071 6,907 - 6,907
Loans, net 395,074 30,772 425,846 43,730 469,576
Premises and equipment, net 14,340 2,580 16,920 1,423 18,343
Other assets 19,861 2,977 22,838 1,876 24,714
-------- ------- -------- ------- --------
Total assets $ 531,514 55,261 586,775 90,287 677,062
======= ====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 44,955 1,040 45,995 8,977 54,972
Interest bearing 376,664 48,072 424,736 63,356 488,092
------- ------ ------- ------ -------
Total deposits 421,619 49,112 470,731 72,333 543,064
Other borrowings 51,432 - 51,432 8,729 60,161
Accrued expenses and other liabilities 9,868 522 10,390 737 11,127
-------- -------- --------- -------- --------
Total liabilities 482,919 49,634 532,553 81,799 614,352
------- ------ ------- ------ -------
Stockholders' equity:
Common stock 6,562 660 466 7,688 1,364 37 9,089
Additional paid-in capital 10,500 249 (532) 10,217 4,046 (657) 13,606
Retained earnings 29,542 4,784 34,326 3,844 38,170
Accumulated other comprehensive income 1,991 - 1,991 (146) 1,845
----- ----- ---- -----
48,595 5,693 54,222 9,108 62,710
Less treasury stock - (66) 66 - (620) 620 -
------- ------ ------- ------ ---- -------
Total stockholders' equity $ 48,595 5,627 586,775 90,287 677,062
======= ====== ======= ====== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
69
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Three Months Ended March 31, 1999
(In thousands, except per share data)
(Unaudited)
Other
Thomaston Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Federal Adjustments Combined Acquisitions Adjustments Combined
---- ------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 10,977 926 11,903 1,610 13,513
Interest expense 5,119 522 5,641 781 6,422
----- --- ----- --- -----
Net interest income 5,858 404 6,262 829 7,091
Provision for loan losses 345 - 345 35 380
--- --- --- -- ---
Net interest income after
provision for loan losses 5,513 404 5,917 794 6,711
Noninterest income:
Fees and service charges 1,205 56 1,261 115 1,376
Net realized gains on
the sale of assets 581 340 921 - 921
Other operating income 320 70 390 49 439
--- -- --- -- ---
Total noninterest income 2,106 466 2,572 164 2,736
Noninterest expense:
Salaries and employee benefits 3,096 445 3,541 313 3,854
Occupancy 711 136 847 110 957
Other operating expenses 2,284 131 2,415 254 2,669
------- --- ------- ----- -------
Total noninterest expense 6,091 712 6,803 677 7,480
Income before income taxes 1,528 158 1,686 281 1,967
Income tax expense 477 57 534 89 623
------- ---- ------- ------ -------
Net income $ 1,051 101 1,152 192 1,344
======== ==== ======== ====== =======
Net income per common
share outstanding $ .16 .16 .15 .15
======== ==== ======== =======
Weighted average outstanding shares 6,561 638 7,663 9,064
======== ==== =+====== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
70
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
Other
Thomaston Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Federal Adjustments Combined Acquisitions Adjustments Combined
---- ------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 44,732 3,870 48,468 6,547 55,015
Interest expense 21,909 2,240 24,149 3,129 27,278
- ---------------- ------ ----- ------ ----- ------
Net interest income 22,823 1,630 24,319 3,418 27,737
Provision for loan losses 3,382 - 3,382 134 3,516
----- ----- --- -----
Net interest income after
provision for loan losses 19,441 1,630 20,937 3,284 24,221
Noninterest income:
Fees and service charges 4,619 2,176 6,795 438 7,233
Net realized gains on
the sale of assets 1,202 - 1,202 59 1,261
Other operating income 1,618 69 1,687 123 1,810
----- -- ----- --- -----
Total noninterest income 7,439 2,245 9,684 620 10,304
Noninterest expense
Salaries and employee benefits 10,949 1,750 12,699 1,266 13,965
Occupancy 3,931 196 4,127 436 4,563
Other operating expenses 9,737 1,013 10,750 951 11,701
----- ----- ------ --- ------
Total noninterest expense 24,617 2,959 27,576 2,653 30,229
Income before income taxes 2,263 916 3,045 1,251 4,296
Income tax expense 303 304 607 360 967
--- --- --- --- ---
Net income $ 1,960 612 2,438 891 3,329
========= === ===== === =====
Net income per common
share outstanding $ .30 .97 .32 .37
========= === === ===
Weighted average outstanding shares 6,555 630 7,643 9,047
===== === ===== =====
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
71
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
Other
Thomaston Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Federal Adjustments Combined Acquisitions Adjustments Combined
---- ------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 38,730 3,830 42,560 6,301 48,861
Interest expense 18,623 2,173 20,796 2,856 23,652
------ ----- ------ ----- ------
Net interest income 20,107 1,657 21,764 3,445 25,209
Provision for loan losses 1,596 - 1,596 171 1,767
----- ----- --- -----
Net interest income after
provision for loan losses 18,511 1,657 20,168 3,274 23,442
Noninterest income:
Fees and service charges 4,232 2,072 6,304 408 6,712
Net realized gains on
the sale of assets 909 - 909 89 998
Other operating income 1,002 57 1,059 109 1,168
----- -- ----- --- -----
Total noninterest income 6,143 2,129 8,272 606 8,878
Noninterest expense:
Salaries and employee benefits 8,913 1,716 10,629 1,216 11,845
Occupancy 3,351 193 3,544 389 3,933
Other operating expenses 6,260 943 7,203 830 8,033
----- --- ----- --- -----
Total noninterest expense 18,524 2,852 21,376 2,435 23,811
Income before income taxes 6,130 934 7,064 1,445 8,509
Income tax expense 1,820 318 2,138 477 2,615
----- --- ----- --- -----
Net income $ 4,310 616 4,926 968 5,894
====== === ===== === =====
Net income per common
share outstanding $ .66 .98 .65 .65
====== === === ===
Weighted average outstanding shares 6,519 630 7,607 9,048
===== === ===== =====
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
72
<PAGE>
<TABLE>
<CAPTION>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Statement of Earnings
For the Year Ended December 31, 1996
(In thousands, except per share data)
(Unaudited)
Other
Thomaston Pro Forma Pro Forma Pending Pro Forma Pro Forma
FLAG Federal Adjustments Combined Acquisitions Adjustments Combined
---- ------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 34,608 3,697 38,305 5,882 44,187
Interest expense 16,374 2,098 18,472 2,710 21,182
------ ----- ------ ----- ------
Net interest income 18,234 1,599 19,833 3,172 23,005
Provision for loan losses 4,475 38 4,513 111 4,624
----- -- ----- --- -----
Net interest income after
provision for loan losses 13,759 1,561 15,320 3,061 18,381
Noninterest income:
Fees and service charges 3,802 2,105 5,907 375 6,282
Net realized gains on
the sale of assets 752 - 752 85 837
Other operating income 662 63 725 76 801
--- -- --- -- ---
Total noninterest income 5,216 2,168 7,384 536 7,920
Noninterest expense:
Salaries and employee benefits 7,553 1,684 9,237 1,145 10,382
Occupancy 2,660 200 2,860 377 3,237
Other operating expenses 6,613 1,211 7,824 749 8,573
----- ----- ----- --- -----
Total noninterest expense 16,826 3,095 19,921 2,271 22,192
Income before income taxes 2,149 634 2,783 1,326 4,109
Income tax expense 451 231 682 415 1,097
--- --- --- --- -----
Net income $ 1,698 403 2,101 911 3,012
========== === ===== === =====
Net income per common
share outstanding $ .26 .64 .28 .33
========== === === ===
Weighted average outstanding shares $ 6,481 634 7,576 9,013
========== === ===== =====
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
73
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Pro Forma Financial Statements
(1) The unaudited pro forma consolidated balance sheet as of March 31, 1999 and
consolidated statements of earnings for the three months ended March 31,
1999 and for the years ended December 31, 1998, 1997 and 1996 have been
prepared based on the historical consolidated balance sheets and statements
of earnings, which give effect to the merger of Thomaston Federal with and
into FLAG accounted for as a pooling of interests, based on the exchange of
1.7275 shares of FLAG Common Stock for each outstanding share of Thomaston
Federal Common Stock.
(2) In the opinion of management of the respective parties included above, all
adjustments considered necessary for a fair presentation of the financial
position and results for the period presented have been included.
Adjustments, if any, are normal and recurring nature.
74
<PAGE>
PROPOSAL 2 - ELECTION OF DIRECTORS
Nominees
Thomaston Federal's Bylaws provide that the Board of Directors shall
consist of eight members. The Bylaws provide that the eight members of the Board
of Directors shall be divided into three classes as nearly equal in number as
possible. Directors are elected by 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 and a new class of 2 or 3 directors
is elected each year at the Annual Meeting of Shareholders.
The entire Board of Directors acts as the nominating committee for
selecting management's nominees for election as directors. Except in the case of
a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee delivers written nominations to the
Secretary at least 20 days prior to the date of the Annual Meeting. Upon
delivery, such nominations are posted in a conspicuous place in Thomaston
Federal's office. No nominations for directors except those made by the
nominating committee will be voted upon at the Annual Meeting unless other
nominations by shareholders are made in writing and delivered to the Secretary
of Thomaston Federal at least five days prior to the Annual Meeting. Upon
delivery, such nominations will be posted in a conspicuous place in Thomaston
Federal's office. Ballots bearing the names of all the persons nominated by the
nominating committee and by shareholders are provided for use at the Annual
Meeting. However, if the nominating committee fails or refuses to act at least
20 days prior to the Annual Meeting, nominations for directors may be made at
the Annual Meeting by any shareholder entitled to vote and will be voted upon.
The Board of Directors has nominated Robert G. Cochran and W. Wallace
Rhodes to stand for election as directors at the Annual Meeting. Messrs. Cochran
and Rhodes presently serve as members of the Board of Directors whose terms are
scheduled to expire at the Annual Meeting. If elected by the shareholders, each
of the nominees will serve a three year term which will expire at the time of
the 2002 Annual Meeting of Shareholders. Information regarding the two nominees
is set forth below.
The Merger Agreement provides that upon consummation of the merger the
current directors of Thomaston Federal, in addition to one director of FLAG,
will be the members of the Thomaston Federal Board of Directors. Furthermore, if
the shareholders approve the Merger Agreement and the merger is consummated,
FLAG, as the sole shareholder of Thomaston Federal, would have the ability to
remove directors of Thomaston Federal or elect additional directors.
Each of the nominees has consented to serve another three year term if
re-elected. If any of the nominees should be unavailable for any reason (which
is not anticipated), the Board of Directors may designate a substitute nominee
or nominees (in which case the persons named as proxies on the enclosed proxy
card will vote all valid proxy cards for the election of such substitute nominee
or nominees), allow the vacancy or vacancies to remain open until a suitable
candidate or candidates are located, or by resolution provide for a lesser
number of directors.
The Board of Directors recommends that shareholders vote "FOR" the
proposal to elect Robert G. Cochran and W. Wallace Rhodes as directors of
Thomaston Federal to hold office until the 2002 Annual Meeting of Shareholders
and until their successors are elected and qualified.
75
<PAGE>
Information Regarding Nominees and Continuing Directors
The following sets forth certain information as of May 15, 1999,
regarding the three nominees for director and all current directors whose terms
of office will continue after the Annual Meeting. Except as otherwise indicated,
each of the named persons has been engaged in his present principal employment,
in the same or a similar position, for more than five years.
PERSONS NOMINATED TO SERVE AS DIRECTORS
UNTIL THE 2002 ANNUAL MEETING
OF SHAREHOLDERS
Robert G. Cochran
Mr. Cochran joined Thomaston Federal in 1963 as a loan officer. He was
elected to the Board of Directors in 1974 and served as Executive Vice President
from 1977 to 1982. Mr. Cochran has served as President of Thomaston Federal
since 1982. Mr. Cochran is 62.
W. Wallace Rhodes
Mr. Rhodes has been a member of Thomaston Federal's Board of Directors
since 1988. Mr. Rhodes served as Superintendent of the Thomaston City School
System from 1981 until his retirement in August 1991. Mr. Rhodes is 62.
PERSONS ELECTED TO SERVE AS DIRECTORS
UNTIL THE 2000 ANNUAL MEETING
OF SHAREHOLDERS
Samuel A. Brewton, Jr., M.D.
Dr. Brewton became a director of Thomaston Federal in 1982. Dr. Brewton
is a urologist who retired from private practice in 1996. He has served as mayor
pro tempore of the City of Thomaston since 1990. Dr. Brewton is also a member of
the Thomaston City Council, having served in that position from 1974 to 1982 and
from 1990 to the present. Dr. Brewton is 68.
Calvin S. Hopkins, III
Mr. Hopkins became a director of Thomaston Federal in 1988. Mr. Hopkins
has been Vice President of Reddick Construction Company, a commercial
construction company in Thomaston, since 1983. Mr. Hopkins is 49.
David B. Dunaway
Mr. Dunaway has served as a director of Thomaston Federal since 1976
and served as Secretary of Thomaston Federal from 1982 to December 1994. Mr.
Dunaway has been a partner in the Thomaston law firm of Adams, Barfield, Dunaway
& Hankinson since 1972. He serves as legal counsel to Thomaston Federal. Mr.
Dunaway is 53.
76
<PAGE>
PERSONS ELECTED TO SERVE AS DIRECTORS
UNTIL THE 2001 ANNUAL MEETING
OF SHAREHOLDERS
Norman S. Morris
Mr. Morris became a director of Thomaston Federal in 1974 and served as
Vice Chairman of the Board of Directors from 1980 to 1991. Mr. Morris has been
Chairman of the Board since April 1991. Mr. Morris was General Manager of B.F.
Goodrich Textile Products until his retirement in 1989. Mr. Morris is 67.
Jere P. Greer
Mr. Greer has been a member of Thomaston Federal's Board of Directors
since 1974. Mr. Greer is the owner and manager of Greer's Store for Men, a
retail clothing store in Thomaston. Mr. Greer is 63.
George H. Hightower, Jr.
Mr. Hightower has served as a director of Thomaston Federal since 1976.
Mr. Hightower has been Executive Vice President of Thomaston Mills, Inc. since
1986. Mr. Hightower is 49.
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the full
Board and through four active standing committees consisting of the Executive
Committee, the Audit Committee, the Asset/Liability Management Committee, and
the Salary Review Committee. During the fiscal year ended December 31, 1998, the
Board of Directors held thirteen meetings, the Executive Committee held five
meetings, the Audit Committee held one meeting, the Asset/Liability Management
Committee held twelve meetings, and the Salary Review Committee held one
meeting. Each director attended 100% of all meetings of the full Board and of
each committee of which he is a member.
The Executive Committee is composed of Messrs. Cochran, Rhodes and Morris.
This committee exercises the power of the Board of Directors on matters of a
routine nature between regular Board Meetings. All actions of the Executive
Committee are reviewed and ratified by the full Board of Directors.
The members of the Audit Committee are Dr. Brewton and Messrs. Greer,
Hightower, Dunaway and Morris. The Audit Committee recommends its choice of
independent accountants to the Board of Directors, supervises the internal audit
of Thomaston Federal and reviews accounting and financial reporting matters.
The Asset/Liability Management Committee is composed of Dr. Brewton and
Messrs. Cochran, Greer, Hopkins and Rhodes. This committee regularly reviews the
operations of Thomaston Federal and the performance of its interest earning
assets.
The Salary Review Committee is composed of Messrs. Dunaway, Hightower and
Morris. This committee reviews the performance of each of Thomaston Federal's
officers and recommends to the Board the amount and form of all compensation of
officers of Thomaston Federal.
77
<PAGE>
Director Compensation
Director Cash Compensation. Each member of the Board of Directors of
Thomaston Federal receives a fee of $250 for each Board Meeting attended (unless
failure to attend is due to illness, in which case the director receives the
$250 fee) and a monthly fee. In 1998, the monthly fee was $467. Effective
January 1, 1999, the monthly fee is $533. In 1999, the fee for Board Meeting
attendance will be $300. In addition, members of the committees of the Board of
Directors receive a fee of $100 for attendance at each committee meeting, except
the President who does not receive a fee for attendance at committee meetings.
Thomaston Federal paid a total of $77,200 in directors' fees for the year ended
December 31, 1998.
Directors Option Plan. In accordance with Thomaston Federal's conversion
from mutual to stock form (the "Conversion"), the Board of Directors of
Thomaston Federal adopted the Thomaston Federal Savings Bank Directors Stock
Option Plan of 1990 for non-employee directors (the "Directors Option Plan").
The Directors Option Plan was approved by Thomaston Federal's shareholders at
the 1991 Annual Meeting of Shareholders. The purpose of the Directors Option
Plan is to attract, encourage and increase the incentive for continued service
of the directors of Thomaston Federal. The following summary of the principal
features and effects of the Directors Option Plan, as amended, does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the text of the Directors Option Plan, as amended, a copy of which may be
examined at Thomaston Federal's office.
In accordance with the Directors Option Plan, as amended, on February
25, 1991, each non-employee director of Thomaston Federal was granted, at no
cost to him, an option to purchase 1,026 shares of Thomaston Federal common
stock at an original exercise price of $5.00 per share, which is the same price
at which shares were sold on February 25, 1991 to subscribers for Thomaston
Federal common stock in the Conversion. Each option was fully vested at the time
of grant. After a two-for-one stock split in the form of a 100% stock dividend
paid by Thomaston Federal in March 1994, each option represented the right to
acquire 2,052 shares at an exercise price of $2.50 per share. As a result of the
three-for-two stock split in the form of a 50% stock dividend paid by Thomaston
Federal in March 1998 (together with the March 1994 stock split, the "Stock
Splits"), each option presently represents the right to acquire 3,078 shares at
an exercise price of $1.67 per share. The total number of shares with respect to
which options may be granted under the Directors Option Plan, as amended and as
adjusted to reflect the Stock Splits, may not exceed 21,546, and options for
that number of shares have been granted.
Each option is accompanied by a "Reload Option." A Reload Option will
be granted to an optionee who pays for the exercise of all or part of an option
with shares of Thomaston Federal common stock, and represents an additional
option to acquire the same number of shares of common stock as is tendered by
the optionee to pay for the original option, except that the exercise price for
shares acquired pursuant to the Reload Option will be determined at the time the
Reload Option is granted. Options generally must be exercised during the
optionee's term as a director, and no option is exercisable after the expiration
of ten years from the date of grant. As of the date of this Proxy
Statement/Prospectus, all of the options have been exercised.
Executive Compensation
Summary of Compensation. The following table sets forth the total
annual compensation earned by or paid to Robert G. Cochran, President, Chief
Executive Officer and Director of Thomaston Federal, for the years ended
December 31, 1996, 1997, and 1998. Other than Mr. Cochran, no executive officer
of Thomaston Federal received an annual salary and bonus in excess of $100,000
for the fiscal year ended December 31, 1998.
78
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options (#)(1) Compensation(2)
- ------------------ ---- ------ ----- -------------- ---------------
Robert G. Cochran 1998 $118,000 $500 --- $11,350
President, Chief 1997 110,000 500 --- 10,184
Executive Officer and 1996 103,350 500 --- 8,854
Director
- --------------
(1) On August 1, 1995, Thomaston Federal granted to Mr. Cochran options
representing the right to acquire 6,000 shares of Common Stock at an
exercise price of $9.00, vesting 20% annually beginning August 1996. As a
result of a three-for-two stock split in the form of a 50% stock dividend
paid by Thomaston Federal in March 1998, the option presently represents
the right to acquire 9,000 shares at an exercise price of $6.00 per share.
(2) For the years ended December 31, 1998, 1997, and 1996, includes amounts
contributed by Thomaston Federal on behalf of Mr. Cochran pursuant to the
401(k) portion of Thomaston Federal's Profit Sharing Plan and Trust
($1,795, $1,675, $1,313, respectively); fees paid to Mr. Cochran for his
service as a director ($8,850, $7,800, $7,000, respectively); and life
insurance premiums paid by Thomaston Federal in connection with a term life
insurance policy payable to Mr. Cochran's beneficiaries ($705, $709, $541,
respectively).
Long-Term Stock Incentive Plan
Thomaston Federal's long-term incentive compensation is based upon the
Thomaston Federal Savings Bank Long-Term Stock Incentive Plan of 1990. All
officers and employees are eligible for the plan. The purpose of the plan is to
further the growth and development of Thomaston Federal by encouraging officers
and employees to obtain a proprietary interest in Thomaston Federal by owning
its common stock. Thomaston Federal also intends that the plan will provide
added incentives to employees and officers of Thomaston Federal to continue
their service and to promote the growth of Thomaston Federal. A committee
appointed by the Board of Directors administers the Stock Incentive Plan. The
committee has the authority and sole discretion to grant options under the plan
and to determine the exercise price, provided that the price is at least equal
to the fair market value of the Thomaston Federal common stock. The committee
also determines the term of the options, up to a maximum of ten years. The plan
requires all employees and officers of Thomaston Federal to enter into Incentive
Stock Option Agreements in order to receive their options. Thomaston Federal did
not grant any options during 1998.
Prior to 1998, Thomaston Federal granted to Mr. Cochran options to
purchase common stock which presently represent the right to acquire 9,000
shares, of which 5,600 have vested as of August 1998, at an exercise price of
$6.00 per share. Pursuant to the Incentive Stock Option Agreement entered into
by Thomaston Federal and Mr. Cochran as of August 1, 1995, all options granted
to Mr. Cochran under the plan become immediately exercisable in the event that
Thomaston Federal becomes a party to any merger, consolidation or acquisition of
Thomaston Federal. Consequently, upon [consummation] of the merger, all of Mr.
Cochran's options will be exercisable.
79
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes the aggregate number of options
exercised during the fiscal year ended December 31, 1998, by Mr. Cochran and the
value of options held by Mr. Cochran at December 31, 1998. The table also sets
forth the number of shares covered by options (both exercisable and
unexercisable) as of December 31, 1998, and the respective values for "in the
money" options, which represents the positive spread between the exercise price
of existing options and the fair market value of Thomaston Federal's Common
Stock at December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised in-
on Options at Fiscal the-Money Options
Shares Acquired on Value Year-End (#)Exercisable/ at Fiscal Year-End ($)
Name Exercise (#) Realized ($) Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------- -------------------------
<S> <C> <C> <C> <C>
Robert G. Cochran -0- -0- 5,400/3,600 $14,850/$9,900(1)
</TABLE>
- -----------------
(1) Based on book value of $8.75 per share as of December 31, 1998.
Employment Agreement. Thomaston Federal entered into an employment
contract with Mr. Cochran, on February 25, 1991. The employment agreement
provided for an initial term expiring on December 31, 1995. Commencing on
December 31, 1993, and continuing on each December 31 thereafter, the agreement
is automatically extended for an additional year, subject to the terms of the
agreement, so that the remaining term shall be three years. The current term
expires December 31, 2001. Under the agreement, Mr. Cochran is entitled to
receive a base salary which shall be subject to annual review and adjustment by
the Salary Review Committee of the Board of Directors. The current base salary
under the agreement, effective as of January 1, 1999, is $135,000. In addition
to the base salary, the agreement provides that Mr. Cochran shall be entitled to
participate in all benefits and plans applicable to employees generally. The
agreement provides that Thomaston Federal may terminate Mr. Cochran for "cause,"
as defined in the agreement, at any time. In the event Thomaston Federal chooses
to terminate Mr. Cochran's employment for reasons other than for cause, Mr.
Cochran or, in the event of his death, his beneficiary would be entitled to a
severance payment equal to the amount of salary, based upon the base salary then
in effect, that would have been paid to Mr. Cochran over the remainder of the
term of the agreement then in effect. In addition, Thomaston Federal would
continue Mr. Cochran's life, health and disability coverage for the remaining
term of the agreement then in effect.
It is a condition to the merger that Mr. Cochran enter into a new
employment/separation agreement. See "DESCRIPTION OF THE MERGER - Management and
Operations After the Merger; Interests of Certain Persons In the Merger."
Salary Review Committee Interlocks and Insider Participation
The Salary Review Committee for 1998 was comprised of Messrs. Dunaway,
Hightower and Morris. The committee reviews the performance of each of Thomaston
Federal's officers and recommends to the Board of Directors the amount and form
of all of their compensation. The committee is composed entirely of non-employee
directors.
80
<PAGE>
Mr. Dunaway is a partner at the law firm of Adams, Barfield, Dunaway &
Hankinson, which performs various legal services for Thomaston Federal. This
firm also performs all title services associated with processing and closing
Thomaston Federal's real estate loans. The total amount of fees paid to the firm
of Adams, Barfield, Dunaway & Hankinson during the year ended December 31, 1998
was $163,523, some of which fees were reimbursed to Thomaston Federal by the
borrowers at closing and are not reflected as expenses of Thomaston Federal.
Salary Review Committee Report on Executive Compensation
This report by the Salary Review Committee of the Board of Directors
discusses the Committee's compensation objectives and policies applicable to
Thomaston Federal's executive officers. The report specifically reviews the
committee's methods for establishing the compensation during 1998 of Mr.
Cochran, who served as Thomaston Federal's President and Chief Executive Officer
during 1998, and generally with respect to all officers. The committee is
composed entirely of non-employee directors.
Thomaston Federal's compensation programs for its officers are intended
to create a direct relationship between the compensation paid to officers and
Thomaston Federal's performance. The committee believes that this relationship
is best implemented by providing a compensation package consisting of a base
salary and an incentive bonus tied to Thomaston Federal's earnings and designed
to promote Thomaston Federal's overall performance.
Base Salary. For 1998, the Salary Review Committee established the base
salary for Mr. Cochran based upon a subjective evaluation of his performance and
the overall performance of Thomaston Federal. The committee's decision was also
based upon an informal analysis and review of information available to Thomaston
Federal with respect to base salary levels of executive officers of financial
institutions that are similar in size to Thomaston Federal. The committee
reviews Mr. Cochran's base salary annually. The Salary Review Committee also
establishes the base salaries of Thomaston Federal's other officers and
recommends them to the Board of Directors for approval. The Salary Review
Committee makes its recommendations based upon a subjective evaluation of the
individual officer's performance and upon the performance of Thomaston Federal.
Short-Term Incentive Compensation. In 1991, Thomaston Federal
implemented the Profit Incentive Plan. Under the Profit Incentive Plan,
Thomaston Federal's employees have the opportunity to earn annual performance
bonuses based upon the achievement of certain predetermined performance
objectives. The bonus awarded to the participants in the Profit Incentive Plan
is determined on the basis of the net income, after taxes, of the overall
operations of Thomaston Federal. A participant is not eligible for any bonus
payment under the Profit Incentive Plan unless employed full-time, continuously
from January 1 to December 31 of a plan year. The actual amount of the bonus is
determined from a scale set in advance by the Board of Directors based on the
return on assets of Thomaston Federal. Thomaston Federal paid a bonus of $500 to
each eligible individual under the Profit Incentive Plan during 1998.
Long-Term Incentive Compensation. Thomaston Federal's long-term
incentive compensation is based upon the Thomaston Federal Savings Bank
Long-Term Stock Incentive Plan of 1990. All officers and employees are eligible
for the plan. The purpose of the plan is to promote ownership of Thomaston
Federal's common stock and to provide added incentives to employees and officers
of Thomaston Federal to continue their service and to promote the growth of
Thomaston Federal. A committee appointed by the Board of Directors administers
the Stock Incentive Plan. The committee has the authority and sole discretion to
grant options under the plan and to determine the exercise price, provided that
the price is at least equal to the fair market value of the Thomaston Federal
common stock. The committee also determines the term of the options, up to a
maximum of ten years. Thomaston Federal did not grant any options during 1998.
See "Long-Term Stock Incentive Plan" above.
81
<PAGE>
The Securities and Exchange Commission requires an explanation of
Thomaston Federal's practice regarding adherence to Section 162(m) of the Code,
which disallows the deduction for certain annual compensation in excess of $1
million paid to executive officers. Given Thomaston Federal's current level of
compensation, this factor has no effect on the compensation program at this
time. However, to preserve the future deductibility of stock option exercises,
the Stock Incentive Plan sets an annual per-employee limit on the number of
shares for which options may be granted.
SALARY REVIEW COMMITTEE
David B. Dunaway
George H. Hightower, Jr.
Norman S. Morris
Certain Transactions of Management with Thomaston Federal
In accordance with applicable laws and regulations, loans made by
Thomaston Federal to its directors, executive officers and controlling
shareholders, as well as affiliates of such persons, must be made in compliance
with certain specified quantitative limitations and on substantially the same
terms as those prevailing at the time for comparable transactions with
unaffiliated borrowers and such loans may not involve more than the normal risk
of repayment or present other unfavorable features. Loans by Thomaston Federal
to directors, executive officers and holders of more than ten percent of
Thomaston Federal's outstanding Common Stock, as well as to any member of the
immediate family of such persons were made in accordance with Section 22(h) of
the Federal Reserve Act and (A) were made in the ordinary course of business,
(B) were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other people, and (C) do not involve more than the normal risk of collectibility
or contain other unfavorable features. At December 31, 1998, Thomaston Federal
did not have any loans outstanding to executive officers or Directors of
Thomaston Federal or to members of their immediate families.
The law firm of Adams, Barfield, Dunawa & Hankinson, of which
Mr. Dunaway is a partner, performs various legal services for Thomaston Federal.
See "--Salary Review Committee Interlocks and Insider Participation."
SHAREHOLDER PROPOSALS
Proposals of shareholders of FLAG intended to be presented at the 2000
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 release of its 1999 proxy statement to security holders in
order to be included in FLAG's proxy statement and proxy relating to the 2000
annual meeting of shareholders. As of the date of the mailing of this Proxy
Statement/Prospectus, FLAG's 1999 proxy statement has not been completed. The
specific date by which proposals of shareholders of FLAG intended to be
represented at the 2000 annual meeting of shareholders must be received by FLAG
in order to be included in FLAG's 1999 proxy statement is December 15, 1999.
82
<PAGE>
EXPERTS
The restated consolidated financial statements of FLAG and subsidiaries
as of December 31, 1998 and 1997, and for each of the years in the three year
period ended December 31, 1998, incorporated by reference herein and in the
Registration Statement, have been audited by Porter Keadle Moore, LLP,
independent certified public accountants, are included in the FLAG Annual Report
to Shareholders which is incorporated by reference in FLAG's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. The financial statements
audited by Porter Keadle Moore, LLP have been incorporated herein by reference
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
The consolidated financial statements of FLAG and subsidiary for the
year ended December 31, 1996, included in the restated consolidated financial
statements of FLAG, incorporated herein and in the Registration Statement by
reference, have been audited by Robinson, Grimes and Company, P.C. independent
certified public accountants. The financial statements audited by Robinson,
Grimes and Company P.C., have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Three Rivers Bancshares, Inc.
as of December 31, 1997 and 1996 and for each of the years in the two year
period ended December 31, 1997, included in the restated consolidated financial
statements of FLAG, incorporated herein and in the Registration Statement by
reference, have been audited by Thigpen, Jones, Seaton & Co., P.C., independent
certified public accountants. The financial statements audited by Thigpen,
Jones, Seaton & Co., P.C. have been incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The financial statements of Thomaston Federal as of December 31, 1998,
1997, and 1996, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the years, are contained herein
and in the Registration Statement in reliance upon the report of Driver & Adams,
CPA, P.C., independent certified public accountants, upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of FLAG common stock to be issued in the
merger and certain tax consequences of the merger will be passed upon by Powell,
Goldstein, Frazer & Murphy LLP, Atlanta, Georgia.
OTHER MATTERS
Management of Thomaston Federal does not know of any matters to be
brought before the Annual Meeting other than those described above. If any other
matters properly come before the Annual Meeting, the persons designated as
Proxies will vote on such matters in accordance with their best judgment.
83
<PAGE>
INDEX TO THOMASTON FEDERAL FINANCIAL DATA
Page
----
Balance Sheets as of March 31, 1999 and 1998 (Unaudited)................ F-2
Statements of Earnings for the Three Months
Ended March 31, 1999 and 1998 (Unaudited).......................... F-3
Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (Unaudited)................................ F-4
Notes to Financial Statements (Unaudited)............................... F-5
Independent Auditors' Report............................................ F-6
Balance Sheets as of December 31, 1998, 1997, and 1996 ................. F-7
Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996................................... F-9
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996.................................. F-10
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996..................................................... F-11
Notes to Financial Statements........................................... F-13
F-1
<PAGE>
Thomaston Federal Savings Bank
Balance Sheets
March 31, 1999 and 1998
(Unaudited)
Assets
------
1999 1998
---- ----
Cash and due from banks .................... $ 516,222 445,710
Interest bearing deposits in banks ......... 4,318,488 2,014,137
Securities held to maturity ................ 10,026,731 13,244,640
Mortgage loans held for sale ............... 4,070,910 3,236,386
Loans ...................................... 30,771,565 30,504,365
Premises and equipment ..................... 2,580,323 2,586,164
Other assets ............................... 2,976,819 1,496,161
----------- -----------
Total assets .............................. $55,261,058 53,527,563
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand .............................. $ 1,040,186 554,524
Interest bearing demand ............. 9,083,019 8,668,832
Savings ............................. 3,697,183 5,023,051
Time ................................ 35,291,608 33,504,590
Total deposits ............. 49,111,996 47,750,997
Other liabilities ........................ 522,205 657,235
----------- -----------
Total liabilities .............. 49,634,201 48,408,232
Shareholders' equity:
Common stock ............................ 659,763 642,129
Capital surplus ......................... 248,953 229,777
Retained earnings ....................... 4,783,817 4,313,101
Treasury stock .......................... (65,676) (65,676)
------------ ------------
Total shareholders' equity ..... 5,626,857 5,119,331
------------ ------------
Total liabilities and
shareholders' equity ..... $ 55,261,058 53,527,563
============ ============
F-2
<PAGE>
Thomaston Federal Savings Bank
Statements of Earnings
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Interest income:
Loans ....................................... $697,065 718,783
Deposits with other banks ................... 39,230 41,069
Investments ................................. 190,211 193,433
-------- --------
Total Interest Income ............. 926,506 953,285
-------- --------
Interest expense:
Deposits .................................... 518,701 547,951
Other ....................................... 3,239 844
-------- --------
Total interest expense ............ 521,940 548,795
-------- --------
Net interest income ............... 404,566 404,490
Provision for loan losses ....................... -- --
Non interest income:
Service charges and fees .................... 55,519 57,872
Gain on sale of loans ....................... 340,073 380,237
Other ....................................... 70,148 109,123
-------- --------
Total non interest income .......... 465,740 547,232
Non interest expense:
Salaries and benefits ....................... 445,153 420,287
Occupancy ................................... 136,013 130,407
Other ....................................... 131,362 135,841
-------- --------
Total noninterest expense .......... 712,528 686,535
-------- --------
Income before taxes ............... 157,778 265,187
Income tax expense .............................. 56,800 102,097
-------- --------
Net earnings ...................... $100,978 163,090
======== ========
Basic earnings per share ......................... $ .16 .26
======== ========
Average shares outstanding ....................... 638,202 629,906
======== ========
F-3
<PAGE>
<TABLE>
<CAPTION>
Thomaston Federal Savings Bank
Statements of Cash Flows
March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings .......................................... $ 100,978 163,090
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion ................. 39,133 42,475
Gain on sale of loans ........................... (340,073) (380,237)
Change in mortgage loans held for sale ................... 546,950 103,707
Change in other ................................. (1,973,018) (139,829)
---------- --------
Net cash used by operating activities ...... (1,626,030) (210,794)
---------- --------
Cash flows from investing activities:
Change in interest bearing deposits ................... (2,436,412) 703,428
Proceeds from maturities of securities held to maturity 2,639,370 --
Purchases of securities held to maturity .............. -- (1,787,432)
Change in loans ....................................... (505,138) 259,166
Purchases of premises and equipment ................... (2,476) (29,759)
------ -------
Net cash used in investing activities ............. (304,656) (854,597)
-------- --------
Cash flows from financing activities:
Net change in deposits ................................ 2,058,479 1,130,348
Proceeds from exercise of stock options ............... 36,810 899
Dividends paid ........................................ (78,178) (62,994)
------- -------
Net cash provided by investing activities ......... 2,017,111 1,068,253
Net change in cash and cash equivalents ........... 86,425 2,862
Cash and cash equivalents at beginning of year ........... 429,797 442,848
------- -------
Cash and cash equivalents at end of year ................. $ 516,222 445,710
=========== =======
</TABLE>
F-4
<PAGE>
Thomaston Federal Savings Bank
Notes to Consolidated Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
--------------------------------------
Thomaston Federal Savings Bank (the "Company"), operates a savings bank in
the Thomaston, Georgia area. The interim financial statements included
herein are unaudited but reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial
position and results of operations for the interim period presented. All
such adjustments are of a normal recurring nature. The results of
operations for the period ended March 31, 1999 are not necessarily
indicative of the results of a full year's operations.
The accounting principles followed by the Company 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 determinations 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 deferred tax assets, the recognition of which
are based on future taxable income.
F-5
<PAGE>
Driver & Adams
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Thomaston Federal Savings Bank
Thomaston, Georgia
We have audited the accompanying statements of financial condition of Thomaston
Federal Savings Bank (the "Savings Bank") as of December 31, 1998, 1997 and
1996, and the related statements of operations, changes in stockholders' equity
and cash flows for each of the years. These financial statements are the
responsibility of the Savings Bank'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 financial statements referred to above present fairly, in
all material respects, the financial position of Thomaston Federal Savings Bank
at December 31, 1998, 1997 and 1996, and the results of its operations, cash
flows and changes in stockholders' equity for each of the years in conformity
with generally accepted accounting principles.
Thomaston, Georgia /s/ Driver & Adams
January 28, 1999
F-6
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
ASSETS
Cash .............................. $ 429,797 $ 442,848 $ 503,154
Interest bearing deposits in other 1,882,076 2,717,565 2,325,332
banks........................... ----------- ----------- -----------
Cash and cash equivalents ......... $ 2,311,873 $ 3,160,413 $ 2,828,486
Investment securities (Note 1 & 4) 12,663,838 11,454,587 9,576,539
(Market value of $11,703,176,
$10,591,764, and $7,936,524,
respectively.)
Mortgage loans held for sale ...... 4,277,787 2,959,856 5,418,834
(Note 2)
Loans held for long-term investment 30,266,427 30,763,531 32,323,016
(Note 2)
Premises and equipment, at cost, .. 2,619,243 2,601,501 2,736,513
Less accumulated depreciation
(Note 3)
Federal Home Loan Bank stock,...... 331,000 331,000 331,000
at cost
Accrued interest receivable on .... 200,445 169,338 143,377
investments
Real estate owned-acquired ........ 222,704 139,450 138,517
through foreclosures (Note 1)
(Note 12)
Originated Mortgage Servicing ..... 316,689 172,065 77,324
Rights (Note 1) (Note 18)
Accrued interest receivable ....... 217,846 225,027 246,805
Other assets ...................... 191,099 187,256 259,756
----------- ----------- -----------
TOTAL ASSETS ...................... $53,618,951 $52,164,024 $54,080,167
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C> <C>
Savings accounts (Note 5) .............. $ 47,053,517 $ 46,620,649 $ 45,494,308
Advances from Federal Home Loan Bank ... 0 0 3,400,000
Note 6)
Advance payments by borrowers for taxes 141,414 195,376 151,645
and insurance
Collections on loans serviced for other 748,123 181,671 419,448
investors
Accrued expenses and other liabilities . 108,650 147,992 159,908
------------ ------------ ------------
TOTAL LIABILITIES ........... $ 48,051,704 $ 47,145,688 $ 49,625,309
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, ......... $ 638,067 $ 637,967 $ 637,867
5,000,000 shares authorized,
629,943, 629,843 and 629,743 shares,
respectively, issued and outstanding
Common stock in treasury at cost; ...... (65,676) (65,676) (65,676)
8,124 shares
Capital in excess of par or stated value 233,839 233,039 232,239
Retained earnings
(Substantially restricted) ........... 4,761,017 4,213,006 3,650,428
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY ............. $ 5,567,247 $ 5,018,336 $ 4,454,858
------------ ------------ ------------
$ 53,618,951 $ 52,164,024 $ 54,080,167
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS
December 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loans ................................................. $2,942,299 $3,108,702 $3,092,618
Interest and dividends on investment securities ....... 793,584 585,564 478,333
Other interest income ................................. 133,885 135,042 126,260
------- ------- -------
TOTAL INTEREST INCOME ................................. $3,869,768 $3,829,308 $3,697,211
---------- ---------- ----------
INTEREST EXPENSE:
Savings Deposits ...................................... $2,222,053 $2,150,582 $2,078,851
Advance - Federal Home Loan Bank ...................... 18,451 21,534 18,919
------ ------ ------
TOTAL INTEREST EXPENSE ................................ $2,240,504 $2,172,116 $2,097,770
---------- ---------- ----------
NET INTEREST INCOME ................................... $1,629,264 $1,657,192 $1,599,441
PROVISION FOR LOSSES ON LOANS: ........................ 0 0 37,500
- - ------
NET INTEREST INCOME AFTER PROVISION ................... $1,629,264 $1,657,192 $1,561,941
FOR LOSSES ON LOANS ---------- ---------- ----------
OTHER INCOME:
Loan fees & service charges ........................... $ 631,625 $ 571,746 $ 569,535
Gain on sale of loans ................................. 1,544,662 1,500,221 1,535,741
Other ................................................. 69,325 57,448 62,686
------ ------ ------
$2,245,612 $2,129,415 $ 2,167,962
---------- ---------- -----------
OTHER EXPENSES:
Compensation .......................................... $1,750,298 $1,715,861 $1,683,505
Occupancy ............................................. 196,392 192,661 199,631
Data processing services .............................. 168,808 149,343 157,961
Advertising ........................................... 66,522 65,920 67,593
Professional fees ..................................... 74,360 70,161 62,865
Depreciation & Amortization ........................... 175,810 152,221 163,296
Federal deposit insurance premiums & OTS Assessments .. 47,080 41,420 380,122
Other general and administrative ...................... 480,595 463,948 378,696
------- ------- -------
$2,959,865 $2,851,535 $ 3,093,669
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ............................ $ 915,011 $ 935,072 $ 636,234
INCOME TAXES - (NOTE 8) ............................... 304,006 317,925 231,115
- ------- ------- -------
NET INCOME ............................................ $ 611,005 $ 617,147 $ 405,119
========== ========== ==========
Basic earnings per share .............................. $ .97 $ .98 $ .64
Diluted earnings per share ............................ $ .92 $ .94 $ .62
</TABLE>
The accompanying notes are an integral part of the financial statements
F-9
<PAGE>
<TABLE>
<CAPTION>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------
Capital in
Number of Excess of
Shares Common Par or
Common Stock Stated Value Retained Treasury
Stock (at Par) Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Balances at 636,983 $637,667 $230,639 $ 3,296,549 $ (6,156) $ 4,158,699
Dec. 31, 1995
============================================================================================================
Dividends Paid-1996 - $ - $ - $ (51,240) $ - $ (51,240)
============================================================================================================
Purchase of (7,440) - - - (59,520) (59,520)
treasury stock
============================================================================================================
1996 Net Income - - - 405,119 - 405,119
============================================================================================================
Stock Purchases 200 200 1,600 - 1,800
--------- --------- --------- -------------- ------- -------------
-
=========================
Balances at 629,743 $637,867 $232,239 $ 3,650,428 $ (65,676) $ 4,454,858
Dec. 31, 1996
============================================================================================================
Dividends Paid-1997 - $ - $ - $ (54,569) $ - $ (54,569)
============================================================================================================
1997 Net Income - - - 617,147 - 617,147
============================================================================================================
Stock Purchases 100 100 800 - 900
--------- --------- --------- -------------- ------- ------------
-
=========================
Balances at 629,843 $637,967 $233,039 $ 4,213,006 $ (65,676) $ 5,018,336
Dec. 31, 1997
============================================================================================================
Dividends Paid-1998 - $ - $ - $ (62,994) $ - $ (62,994)
============================================================================================================
1998 Net Income - - - 611,005 - 611,005
============================================================================================================
Stock Purchases 100 100 800 - - 900
--------- --------- --------- ----------- -------- -------------
=========================
Balances at 629,943 $638,067 $233,839 $ 4,761,017 $ (65,676) $ 5,567,247
Dec. 31, 1998
============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income ............................................. $ 611,005 $ 617,147 $ 405,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in interest receivable and ......... 783 100,218 25,399
other assets
Decrease (increase) in originated mortgage ............. (144,624) (94,741) (77,324)
servicing rights
(Decrease) increase in deferred loan fees .............. (7,623) (14,725) (12,366)
Deferred tax provision ................................. 7,555 2,725 36,229
Provision for depreciation & amortization .............. 175,810 152,221 163,296
Gain on sale of loans .................................. 1,544,662 1,500,221 1,535,741
Change in mortgage loans held for sale ................. (1,317,931) 2,458,978 (1,346,892)
Provision for loan losses .............................. 0 0 37,500
(Decrease) increase in payables and other .............. (35,436) (4,526) 40,799
liabilities ------- ------ ------
Net Cash Provided By Operating Activities .............. $ 834,201 $ 4,717,518 $ 807,501
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of office properties and equipment ........... $ (144,875) $ (46,150) $ (733,950)
Proceeds from maturities of investments ................ 7,502,000 2,881,000 3,732,000
Purchases of investment securities ..................... (9,327,000) (5,500,000) (5,722,000)
Loans sold ............................................. 67,639,000 60,870,000 60,592,000
Loans purchased ........................................ (515,000) (228,000) (293,000)
Loans - principal repayments ........................... 15,710,000 13,615,000 12,285,000
Loans originated ....................................... (83,560,000) (70,223,000) (75,492,000)
R.E.O. sales ........................................... 265,000 135,290 204,704
Other - Net ............................................ (134,362) (3,201,386) (1,333,480)
-------- ---------- ----------
Net Cash Provided (Used) By Investing Activities ....... $ (2,565,237) $ (1,697,246) $ (6,760,726)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-11
<PAGE>
<TABLE>
<CAPTION>
THOMASTON FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
FINANCING ACTIVITIES
<S> <C> <C> <C>
Increase (decrease) - advances of Federal Home Loan $ 0 $ (3,400,000) $ 2,150,000
Bank
Increase (decrease) in escrow accounts ............ 512,490 (360,776) 132,524
Purchase of treasury stock ........................ 0 0 (59,520)
Savings withdrawals ............................... (77,325,000) (83,325,000) (57,821,000)
Savings deposits .................................. 77,758,000 84,452,000 62,402,000
Dividends paid .................................... (62,994) (54,569) (51,240)
------------ ------------ ------------
Net Cash Provided By (Used) Financing Activities .. $ 882,496 $ (2,688,345) $ 6,752,764
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents .. $ (848,540) $ 331,927 $ 799,539
Cash and cash equivalents at beginning of period .. 3,160,413 2,828,486 2,028,947
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $ 2,311,873 $ 3,160,413 $ 2,828,486
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid on Advances ......................... $ 18,451 $ 24,483 $ 17,437
============ ============ ============
Interest Paid on Deposits ......................... $ 468,379 $ 470,641 $ 415,553
============ ============ ============
Income Taxes Paid ................................. $ 315,000 $ 162,091 $ 173,076
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
NON-CASH TRANSACTIONS
Transfer of mortgage loans to real estate acquired $ 337,000 $ 139,350 $ 190,063
through foreclosure ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
The accounting policies of Thomaston Federal Savings Bank, a Federally Chartered
Association (the Bank) conform to generally accepted accounting principles
(GAAP) and prevailing practices within the thrift industry. The Bank is
primarily regulated by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation. Financial data of Thomaston Federal is presented for the
twelve month period ending and as of December 31, 1998, 1997 and 1996. In the
opinion of management, this information reflects all adjustments (none of which
were other than normal recurring accruals) necessary for the fair presentation
of this data. A summary of the more significant accounting policies follows.
Investment Securities: Securities held for investment are stated at cost,
adjusted for level-yield amortization of premiums and accretion of discounts on
purchase, plus accrued interest.
On January 1, 1994, pursuant to SFAS No. 115, investment securities are
classified as "held-to-maturity" and reported at amortized cost because the Bank
has the ability and positive intent to hold such securities to maturity. The
Bank's adoption of SFAS No. 115 did not result in a change in the classification
or accounting for investment securities.
Thomaston Federal does not invest in "off balance sheet" derivatives, nor does
it invest in securities considered "high risk" by its regulators.
Mortgage Loans Held for Sale: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of aggregate cost or market value.
The amount by which cost exceeds market value is accounted for as a valuation
allowance. Changes, if any, in the valuation allowance are included in the
determination of net earnings in the period in which the change occurs. Gains
and losses from the sale of loans are determined using the specific
identification method.
Loans, Loan Fees and Interest Income: Loans that management has the intent and
ability to hold for the foreseeable future or until maturity are reported at
their outstanding unpaid principal balances, net of the allowance for loan
losses, deferred fees or costs on originated loans and unamortized premiums or
discounts on purchased loans.
F-13
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Loans, Loan Fees and Interest Income: (continued)
- -------------------------------------------------
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized in interest income using the level-yield method over
the contractual lives of the loans, adjusted for estimated prepayments based on
the Banks' historical prepayment experience. Commitment fees and costs relating
to commitments whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized commitment fee
at the time of exercise is recognized over the life of the loan as an adjustment
to the yield. Premiums and discounts on purchased loans are amortized over the
remaining lives of the loans using the level-yield method. Fees arising from
servicing loans for others are recognized as earned.
Thomaston Federal considers a loan 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 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.
Interest on Loans: Interest on loans is recorded as earned. Accrued interest on
loans that management believes is uncollectible is reserved. Loan delinquencies
past ninety days cease accrual of interest earned.
Loan Fees and Expenses: During December 1986, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases". As permitted, the Bank adopted the provisions
of this Statement for lending transactions entered into and commitments granted
on or after January 1, 1988. Accordingly, loan origination and commitment fees
and certain direct loan origination costs related to loans or commitments
originated subsequent to January 1, 1988, are being deferred and the net amount
amortized as an adjustment of the related loans' yield. The Bank is amortizing
deferred amounts over the contractual life of the related loans.
F-14
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Mortgage Servicing Rights: The Bank adopted on January 1, 1996, Financial
Accounting Standards No. 125, "Accounting for Mortgage Servicing Rights." This
statement requires that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans. The acquisition of mortgage servicing
rights through either the purchase or origination of mortgage loans are
allocated based on relative fair values.
The Bank is actively involved in originating and selling loans with servicing
released. Inasmuch as quoted market prices are available, the Bank has
determined that the most objective and relevant measure of the fair value of
mortgage servicing rights is the use of quoted market prices. Because mortgage
servicing rights are sensitive to prepayments, their values diminish when
prepayments of the underlying mortgage loans occur. If mortgage refinancing
activity increases dramatically as borrowers respond to substantial declines in
mortgage interest rates, mortgage servicing rights will decrease in value due to
the accelerated payments on the underlying loan portfolio. The Bank assesses its
capitalized mortgage servicing rights for impairment based on the fair value of
those rights after considering predominant risk characteristics of the
underlying loans.
The amount capitalized as the right to service mortgage loans, net of any
valuation allowances, is amortized over the estimated period of the servicing
income.
A subsidiary schedule of originated mortgage servicing rights is maintained by
the Bank. This schedule reflects each loan's amount, rate, term and other
characteristics. This schedule is stratified periodically based on loan amount,
type and term to compare current fair value to capitalized fair value. After
considering predominant risk characteristics such as substantial variances in
mortgage interest rates and loan prepayment activity, impairment is evaluated,
and a valuation allowance is recorded if considered necessary.
Depreciation and Amortization: Thomaston Federal computes depreciation of office
properties and equipment on the straight-line method for financial reporting
purposes. Estimated lives used to compute depreciation are - building, forty
years; building improvements, ten years; and furniture, fixtures and equipment,
five to ten years.
F-15
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Provision for Estimated Loan Losses: The allowance for loan losses is maintained
at a level believed adequate by management to absorb losses in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on an evaluation of the portfolio and, among other things, growth, composition
of the portfolio and historical experience. Future adjustments to the allowance
for loan losses may be necessary if economic conditions differ substantially
from the assumptions as to economic conditions used in making the initial
determinations.
Statement of Cash Flows: In accordance with the provisions of Financial
Accounting Standards Board Statement No. 95, "Statement of Cash Flows", the Bank
has presented statements of cash flows for each period presented. For purposes
of reporting cash flows, cash and cash equivalents include cash on hand and
amounts due from banks which are non-interest bearing and amounts due from banks
which are interest bearing.
Real Estate Owned-Acquired Through Foreclosure: Property acquired through
foreclosure consists primarily of one to four family first mortgage loans and
commercial real estate loans. At acquisition, appraisals are obtained to
determine fair value. The asset is recorded at lower of fair value or book
value. Book value is defined as the unpaid principal balance plus cost of
acquisition, less accrued but uncollected interest and late charges. If book
value exceeds fair value of the property, the differing amount is written off.
Such losses are recorded when they are both probable and estimable.
Income Taxes: In February 1992, Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes" was issued. SFAS 109 requires a
change from the deferred method of accounting for income taxes to the asset and
liability method. Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the temporary differences between the
financial reporting basis and the tax basis of the Bank's assets and liabilities
at enacted tax rates expected to be in effect when such amount are realized or
settled.
F-16
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Net Earnings Per Common Share: Thomaston Federal is required to report earnings
per common share with and without the dilutive effects of potential common stock
issuances from instruments such as options, convertible securities and warrants
on the face of the statements of earnings. Earnings per common share are based
on the weighted average number of common shares outstanding during the period
while the effects of potential common shares outstanding during the period are
included in diluted earnings per share. Additionally, Thomaston Federal must
reconcile the amounts used in the computation of both "basic earnings per share"
and "diluted earnings per share". Earnings per common share for the years ended
December 31, 1998, 1997, and 1996 are as follows:
Net Common Per
Earnings Shares Share
(Numerator)(Denominator) Amount
For the year ended December 31, 1998
Basic earnings per share .................. $611,005 $629,934 0.97
Effect of dilutive securities-stock options -- 34,714 (0.05)
-------- -------- --------
Diluted earnings per share ................ $611,005 $664,648 0.92
======== ======== ========
For the year ended December 31, 1997
Basic earnings per share .................. $617,147 $629,772 0.98
Effect of dilutive securities-stock options -- 27,081 (0.04)
-------- -------- --------
Diluted earnings per share ................ $617,147 $656,853 0.94
======== ======== ========
For the year ended December 31, 1996
Basic earnings per share .................. $405,119 $633,733 0.64
Effect of dilutive securities-stock options -- 24,223 (0.02)
-------- -------- --------
Diluted earnings per share ................ $405,119 $657,957 0.62
======== ======== ========
Recent Accounting Pronouncements: In 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for hedging activities and for
derivative instruments including derivative instruments embedded in other
contracts. It requires the fair value recognition of derivatives as assets or
liabilities in the financial statements. SFAS No. 133 is effective for all
fiscal quarters in fiscal years beginning after June 15, 1999, but initial
application of the statement must be made as of the beginning of the quarter. At
the date of initial application, an entity may transfer any held-to-maturity
security into the available-for-sale or trading categories without calling into
question the entity's intent to hold other securities to maturity in the future.
Thomaston Federal believes the adoption of SFAS No. 133 will not have a material
impact on its financial position, results of operations or liquidity.
F-17
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - LOANS RECEIVABLE:
- --------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Real estate mortgage loans .................. $ 29,930,919 $ 29,884,678 $ 34,763,763
Construction loans .......................... 1,857,905 1,200,640 1,371,830
Loans to depositors, secured by savings - ... 242,874 275,381 426,122
share loans
Consumer loans .............................. 4,732,091 3,914,790 3,616,310
Non-mortgage commercial loans ............... 679,711 613,907 396,946
------------ ------------ ------------
Gross Loans ................................. $ 37,443,500 $ 35,889,396 $ 40,574,971
LESS:
Undisbursed portion of mortgage loans - Loans (1,414,535) (779,904) (687,688)
in process
Unearned interest and discounts ............. (8,690) (17,613) (22,643)
Deferred loan fees .......................... (49,529) (57,152) (71,877)
Allowance for loan losses ................... (386,532) (452,340) (472,913)
------------ ------------ ------------
Total Loans Receivable - Net ................ $ 35,584,214 $ 34,582,387 $ 39,319,850
============ ============ ============
</TABLE>
(Note 2 continues on following page)
F-18
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - LOANS RECEIVABLE: (Continued)
- --------------------------------------
Changes in the allowance for loan losses are as follows:
DECEMBER 31,
------------
1998 1997 1996
--------- --------- ---------
Balances at beginning of period $ 452,340 $ 472,913 $ 469,997
Provision for losses .......... 0 0 37,500
Charge-offs ................... (75,922) (40,598) (62,868)
Recoveries .................... 10,114 20,025 28,284
--------- --------- ---------
Balance at End of Period ...... $ 386,532 $ 452,340 $ 472,913
========= ========= =========
Note: Loans serviced for others approximated $79,168,000, $81,331,000, and
$81,276,281 at December 31, 1998, 1997, and 1996, respectively.
The Bank has granted loans to the officers, directors and principal holders of
equity securities of the Bank. Related party loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unrelated persons and do not involve more
than normal risk of collectibility. All loans are current in their contractual
payments for both principal and interest.
Activity in the loan accounts of officers, directors and principal holders of
equity securities is as follows:
DECEMBER 31,
------------
1998 1997 1996
-------- -------- --------
Balances at beginning of period $ 47,507 $ 50,637 $ 47,347
New loans ..................... 6,000 20,292 7,000
Loan repayments ............... (52,509) (23,422) (3,710)
-------- -------- --------
Balance at End of Period ...... $ 998 $ 47,507 $ 50,637
======== ======== ========
F-19
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - PREMISES AND EQUIPMENT:
- --------------------------------
Properties and equipment are carried at cost and are summarized by major
classification as follows:
DECEMBER 31,
------------
1998 1997 1996
----------- ----------- -----------
Land .......................... $ 483,125 $ 483,125 $ 483,125
Buildings and improvements .... 1,966,900 1,966,900 1,964,866
Furniture, fixtures & equipment 1,275,877 1,128,458 1,084,342
Transportation equipment ...... 48,279 50,823 50,823
----------- ----------- -----------
$ 3,774,181 $ 3,629,306 $ 3,583,156
LESS:
Accumulated Depreciation ...... (1,154,938) (1,027,805) (846,643)
----------- ----------- -----------
Net book value ................ $ 2,619,243 $ 2,601,501 $ 2,736,513
=========== =========== ===========
F-20
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT SECURITIES
- ------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
1998 1997 1996
=====================================================================================================================
ESTIMATED GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED GROSS GROSS
AMORTIZED MARKET UNREALIZE UNREALIZED AMORTIZED MARKET UNREALIZED UNREALIZEDAMORTIZED MARKET UNREALIZEDUNREALIZED
COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.50% to 7.46% $2,698,140 $2,702,889 $ 4,749 $ -- $1,905,468 $ 1,897,969 $ - $7,499 $1,666,646 $1,636,157 $ - $ 30,489
FHLMC BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
5.65% to 7.52% 4,988,835 5,030,287 41,452 -- 3,902,396 3,905,042 2,646 - 3,359,228 3,337,027 - 22,201
FNMA BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
3.0% to 9.20% 2,699,906 2,704,812 4,906 -- 3,448,934 3,433,906 - 15,028 2,099,787 2,072,720 - 27,067
FHLB BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
5.120% to 6.07% 1,236,957 1,265,188 28,231 -- 1,236,290 1,254,847 18,557 - 468,385 490,601 22,216 -
SLMA/FFCB BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
5.750% TO 0 0 -- -- 0 0 - - 300,000 300,019 19 -
7.000% CORP.
BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
6.9% 0 0 -- -- 102,499 100,000 - 2,499 104,493 100,000 - 4,493
MUNICIPAL BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS $11,623,838 $11,703,176 $79,338 $ 0 $10,595,587 $10,591,764 $21,203 $25,026 $7,998,539 $7,936,524 $ 22,235 $84,250
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES BY DUE DATE
DECEMBER 31, 1998
====================================== ============== ============= ================ ==================
ESTIMATED GROSS GROSS
AMORTIZED COST ARKET VALUE UNREALIZED GAINS UNREALIZED LOSSES
====================================== ============== ============= ================ ==================
<S> <C> <C> <C> <C>
Due in one year $ 136,956 163,094 $ 26,138 $ --
====================================== -------------- ------------- ---------------- ==================
Due after one year through five years 8,838,243 8,882,724 44,481 --
====================================== -------------- ------------- ---------------- ==================
Due after five years through ten years 2,648,639 2,657,358 8,719 --
====================================== -------------- ------------- ---------------- ==================
Due after ten years -- -- -- --
===================================== ============== ============= ================ ==================
TOTALS $ 11,623,838 11,703,176 $ 79,338 $ 0
====================================== ============== ============= ================ ==================
</TABLE>
F-21
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT SECURITIES (Continued)
- ------------------------------------------
<TABLE>
<CAPTION>
REALIZED GAINS AND LOSSES
SALE OF INVESTMENTS
============== ===================================== ==================================== =======================================
1998 1997 1996
========= ========= ======== ======== ========= ======== ======== ======== ========= ======== ======== ==========
GROSS GROSS GROSS GROSS GROSS GROSS
AMORTIZED REALIZED REALIZED AMORTIZED REALIZED REALIZED AMORTIZED REALIZED REALIZED
COST PROCEEDS GAINS LOSSES COST PROCEEDS GAINS LOSSES COST PROCEEDS GAINS LOSSES
============== ========= ========= ======== ======== ========= ======== ======== ======== ========= ======== ======== ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHLMC STOCK $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
============== --------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -------- ==========
FHLMC PC'S 0 0 0 0 0 0 0 0 0 0 0 0
============== ========= ========= ======== ======== ========= ======== ======== ======== ========= ======== ======== ==========
TOTALS $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
============== ========= ========= ======== ======== ========= ======== ======== ======== ========= ======== ======== ==========
</TABLE>
Investment securities with a carrying value of $5,240,000 and $4,411,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public
deposits.
F-22
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SAVINGS ACCOUNT ANALYSIS
- ---------------------------------
<TABLE>
<CAPTION>
===============================================================================================================-
INTEREST
TYPE OF ACCOUNT RATE RANGE DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996
===========================================================================
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Regular Savings Below 6% $ 4,534,668 9.85% $ 5,117,000 10.94% $ 5,163,488 11.32%
- ----------------------------------------------------------------------------------------------------------------
MMDA Below 4% 1,389,290 2.94% 1,426,777 3.05% 1,400,182 3.07%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
NOW Below 6% 7,379,852 15.65% 6,777,360 14.79% 5,869,113 12.86%
- ----------------------------------------------------------------------------------------------------------------
NON-INTEREST BEARING N/A 1,004,218 2.13% 973,160 2.08% 1,348,035 3.24%
- ----------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT Below 6% 28,378,316 60.17% 26,356,648 56.37% 27,895,296 61.14%
- ----------------------------------------------------------------------------------------------------------------
6% - 8% 4,367,173 9.26% 5,969,704 12.77% 3,818,194 8.37%
- ----------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $47,053,517 100.00% $46,620,649 100.00% $45,494,308 100.00%
================================================================================================================
</TABLE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
================================== ================= =============== ===============
1998 1997 1996
================================== ================= =============== ===============
<S> <C> <C> <C>
Interest Bearing Demand Deposits $ 200,264 $ 179,070 $ 152,874
- ---------------------------------- ----------------- --------------- ---------------
Passbook and Statement Savings 162,910 160,307 166,188
- ---------------------------------- ----------------- --------------- ---------------
Time Deposits 1,858,879 1,811,205 1,759,789
- ---------------------------------- ----------------- --------------- ---------------
TOTAL INTEREST EXPENSE $ 2,222,053 $ 2,150,582 $ 2,078,851
================================== ================= =============== ===============
</TABLE>
F-23
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 - TIME DEPOSITS:
- -----------------------
At December 31, 1998, contractual maturities of time deposits are summarized as
follows:
Year ending December 31,
1999.................................. $27,034,656
2000.................................. 3,641,031
2001.................................. 1,954,017
2002.................................. 115,785
-----------------
$32,745,489
At December 31, 1998 and 1997, the Bank had individual time deposits over
$100,000 of approximately $5,167,000 and $4,838,000, respectively.
F-24
<PAGE>
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK:
- ----------------------------------------------
DUE RATE 1998 1997 1996
--- ---- ---- ---- ----
1997 Variable $ - $ - $ -
1998 Variable - - 3,400,000
1999 Variable - - -
-------- -------- ---------
TOTALS $ 0 $ 0 $ 3,400,000
======== ======== =========
These advances are collateralized by Federal Home Loan Mortgage Corporation
mortgage backed securities, FHLB Bonds, and FNMA Bonds.
F-25
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 8 - REGULATORY CAPITAL:
- ----------------------------
OTS-regulated savings associations must comply with two overlapping sets of
regulatory capital standards, as listed below.
Pursuant to 12 CFR Part 567, "Capital" (FIRREA)
1. Tangible capital: For capital adequacy purposes, the minimum ratio, as a
percent of tangible assets, is 1.5%.
2. Core or leverage For capital adequacy purposes, the minimum ratio, as a
capital: percentadjusted total assets, is 3%.
3. Risk-based capital: For capital adequacy purposes, the minimum ratio, as a
percent of risk-weighted assets, is 8%.
Pursuant to 12 CFR Part 565, "Prompt Corrective Action" (FDICIA)
4. Tangible equity: To be deemed other than "critically undercapitalized" the
minimum ratio, as a percent of tangible assets, is 2%.
5. Tier 1 or leverage To be deemed "adequately capitalized" or "well
capital: capitalized", the minimum ratios, as a percent of
adjusted total assets, are 4% or 5%, respectively (with
an exception as described in the regulation).
6. Tier 1 risk-based To be deemed "adequately capitalized" or "well
capital: capitalized", the minimum ratios, as a percent of
risk-weighted assets, are 4% or 6%, respectively.
7. Total risk-based To be deemed "adequately capitalized" or "well
capital: capitalized", the minimum ratios, as a percent of
risk-weighted assets, are 8% or 10%, respectively.
CAPITAL AND PROMPT CORRECTIVE ACTION RATIOS:
12/31/98 12/31/97
-------- --------
Tier 1 (Core) Capital Ratio
(Tier 1 (Core) Capital / Adjusted Total Assets) ........ 10.30% 9.55%
Total Risk-Based Capital Ratio
(Total Risk-Based Capital / Risk-weighted Assets) ...... 18.79% 18.15%
Total Risk-Based Capital Ratio
(Tier 1 (Core) Capital / Risk-weighted Assets) ......... 17.56% 16.90%
Tangible Equity Ratio
(Tangible Capital + Cumulative Perpetual
Preferred Stock / Tangible Assets)..................... 10.30% 9.55%
F-26
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - PROVISION FOR INCOME TAXES:
- ------------------------------------
The Bank adopted SFAS 109 as of January 1, 1993, as discussed in Note 1. The
cumulative effect of this change in accounting for income taxes determined as of
January 1, 1993 was immaterial and therefore does not have any effect on the
statement of operations for the year ended December 31, 1993. Prior years'
financial statements have not been restated. Deferred tax assets have been
recognized for taxes paid in prior years and future reversals of existing
taxable temporary differences.
The components of income tax expense attributable to income from continuing
operations are as follows:
December 31,
------------
1998 1997 1996
---- ---- ----
Current ........................ $ 296,451 $ 321,048 $ 194,886
Deferred ....................... 7,555 (3,123) 36,229
--------- --------- ---------
Provision for income tax expense $ 304,006 $ 317,925 $ 231,115
========= ========= =========
Deferred income tax expense results from timing differences caused by
differences in the periods in which financial statement income and taxable
income are reported. The components of the deferred tax provisions resulting
from such differences are summarized as follows:
December 31,
------------
1998 1997 1996
---- ---- ----
Provision for loan losses ............. $ 7,323 $ 3,060 $ 27,107
Tax cost recovery deductions over book (12,668) (1,723) 13,697
depreciation
Other ................................. 12,900 (4,460) (4,575)
-------- -------- --------
Deferred Tax Provision ................ $ 7,555 $ (3,123) $ 36,229
======== ======== ========
F-27
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - PROVISION FOR INCOME TAXES: (Continued)
- ------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below.
1998 1997
---- ----
Loans receivable, principally due to deferred ... $ 65,500 $ 58,177
loan fees and allowance for loan losses
Premises and equipment, due to differences in ... (49,476) (36,808)
depreciation methods for tax purposes
Other ........................................... -- (12,900)
-------- --------
Net deferred tax assets $ 16,024 $ 8,469
======== ========
The Bank has determined that a valuation allowance against deferred tax assets
is not required as reversing temporary taxable items will offset the reversing
deductible temporary differences.
The difference between the actual total provision for Federal and State income
taxes and Federal income taxes computed at the statutory rates was accounted for
as follows:
1998 1997 1996
---- ---- ----
Federal income tax at statutory rate ....... $ 296,451 $ 321,048 194,886
Increase (decrease) in taxes resulting from:
Provision for losses on loans .............. 7,323 3,060 27,107
Other ...................................... 232 (6,183) 9,122
--------- --------- --------
$ 304,006 $ 317,925 231,115
========= ========= ========
Effective tax rate ......................... 33% 34% 36%
========= ========= ========
F-28
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - PROFIT SHARING PLAN:
- ------------------------------
The Thomaston Federal Savings Bank Profit-Sharing Plan was amended as of January
1, 1993 as a 401(K) plan. Employees become eligible to participate in the plan
after completion of six (6) month's service. Thomaston Federal Savings Bank, the
employer, will match employee contributions up to a percentage of each
employee's compensation, subject to a predetermined return on asset performance
each fiscal year.
Employer contributions to the plan for years ending December 31, 1998, 1997 and
1996 were $11,068, $10,557, and $9,860, respectively.
Stock Option Plan: The Bank has an employee stock incentive plan and a director
stock incentive plan. The plans were adopted for the benefit of directors and
key officers and employees in order that they may purchase stock at a price
equal to the fair market value on the date of grant. A total of 28,900 shares
were reserved for possible issuance under the employee plan and 21,546 were
reserved under the director plan. All of the options reserved under the director
plan were granted on February 25, 1991 and vested immediately. The employee
options generally vest over a five-year period and expire after ten years.
Thomaston Federal is encouraged, but not required, to compute the fair value of
options at the date of grant and to recognize such costs as compensation expense
immediately if there is no vesting period or ratably over the vesting period of
the options. Thomaston Federal has chosen not to adopt the cost recognition
principles, and therefore no compensation expense has been recognized in 1998,
1997 or 1996 related to the stock option plans. Had compensation cost been
determined based upon the fair value of the options at the grant dates, the
Bank's net earnings and net earnings per share would have been reduced to the
pro forma amounts indicated below.
1998 1997 1996
---- ---- ----
Net earnings
As reported ........... $ 611,005 $ 617,147 $ 405,119
Pro forma ............. $ 601,041 $ 607,183 $ 395,155
Basic earnings per share
As reported ........... $ 0.97 $ 0.98 $ 0.64
Pro forma ............. $ 0.95 $ 0.96 $ 0.62
Diluted earnings per share
As reported ........... $ 0.92 $ 0.94 $ 0.62
Pro forma ............. $ 0.90 $ 0.92 $ 0.60
F-29
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Stock Option Plan: (continued)
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions: dividend yield of 1%; volatility of .51; risk free interest rate of
6% and an expected life of 5 years.
A summary of activity in these stock option plans is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year. 50,146 4.14 50,246 4.14 50,446 4.15
Exercised during the year ..... (100) 6.00 (100) 6.00 (200) 6.00
------- ------- -------
Outstanding, end of year ...... 50,046 4.14 50,146 4.14 50,246 4.14
Number of shares exercisable... 38,486 32,806 27,126
======= ======= ========
</TABLE>
The options have a weighted average remaining contractual life of approximately
6.5 years as of December 31, 1998.
F-30
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 11 - PLAN OF CONVERSION:
- -----------------------------
On February 26, 1990, the Board of Directors of the Bank, adopted a Plan of
Conversion to convert from a federal mutual savings and loan association to a
federal stock savings bank. The conversion was accomplished through amendment of
the Bank's federal charter and the sale of the Bank's common stock in an amount
equal to the market value of the Bank. A subscription offering of the shares of
the Bank's common stock was offered initially to depositors, certain other
eligible subscribers, and directors, officers and employees of the Bank. Any
shares of the Bank's common stock not sold in the offering were offered for sale
to the general public. This community offering expired on February 7, 1991.
On February 25, 1991, the Bank converted from a federal mutual savings bank to a
federal stock savings bank. The Bank issued 213,843 shares of its common stock
(par value $1) in a subscription offering at $5 per share for gross sales
proceeds of $1,069,215. Costs related to the stock issuance totaled $200,909 and
have been applied to reduce the gross proceeds. The net proceeds of $868,306
were included in common stock ($213,843) and paid-in-capital ($654,463).
At the time of the conversion, the Bank established a liquidation account in an
amount equal to its total net worth as of the date of the latest statement of
financial position appearing in the final prospectus. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent those eligible account holders
have reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the unlikely
event of a complete liquidation, each eligible account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.
Subsequent to the conversion, the Bank may not declare or pay cash dividends on
or repurchase any of its shares of common stock if the effect thereof would
cause stockholders' equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.
F-31
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 12 - ALLOWANCES FOR LOAN LOSSES:
- -------------------------------------
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
this reserve which it believes is adequate for estimated losses on its loan
portfolio. Management's evaluation of the loan portfolio takes into
consideration the results of recent supervisory examinations, the effects on the
loan portfolio of current economic indicators and their probable impact on
borrowers, the amount of charge-offs for the period, the amount of
non-performing loans and related collateral security and the detailed evaluation
of the loan portfolio and delinquency reports.
The following table presents an analysis of the allowance for loan losses and
other related data.
December 31,
------------
1998 1997 1996
---- ---- ----
Balance at beginning of period ................. $452,340 $472,913 $469,997
Provisions charged to operating expenses ....... 0 0 37,500
-------- -------- --------
$452,340 $472,913 $507,497
-------- -------- --------
Recoveries of loans previously charged-off:
Consumer ....................................... $ 10,114 $ 20,025 $ 28,284
Mortgage ....................................... 0 0 0
-------- -------- --------
$ 10,114 $ 20,025 $ 28,284
-------- -------- --------
Loans charged-off against the allowance:
Consumer ....................................... $ 44,590 $ 37,371 $ 62,044
Mortgage ....................................... 31,332 3,227 824
-------- -------- --------
Total Charge-offs .............................. $ 75,922 $ 40,598 $ 62,868
-------- -------- --------
Total Recoveries ............................... $386,532 $452,340 $472,913
======== ======== ========
Ratio of allowance for loan losses as a
percentage of gross loans outstanding
at end of period 1.07% 1.29% 1.19%
==== ==== ====
F-32
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 13 - REAL ESTATE OWNED - ACQUIRED THROUGH FORECLOSURE:
- -----------------------------------------------------------
December 31,
------------
1998 1997 1996
--------- --------- ---------
Real Estate Owned (Book Value) ....... $ 235,404 $ 139,450 $ 138,517
Less: Allowance for losses .......... (12,700) 0 0
--------- --------- ---------
Real Estate Owned (Net) .............. $ 222,704 $ 139,450 $ 138,517
========= ========= =========
The Allowance For Losses on Real Estate Acquired through foreclosure represents
write-downs to fair value of real estate held as of December 31 of each year.
The adequacy of the allowance is continually evaluated by management and
adjusted when considered appropriate.
The following is an analysis of the changes in the allowance for losses for real
estate acquired through foreclosure:
December 31,
------------
1998 1997 1996
------- ------- -------
Balance at beginning of period ........... $ 0 $ 0 $ 0
Provisions transferred from general loss
revenues .............................. 12,700 0 0
------ - -
$12,700 $ 0 $ 0
Recoveries of loans previously charged-off 0 0 0
Loans charged-off against the allowance .. 0 0 0
------- ------- -------
Balance at end of period ................. $12,700 $ 0 $ 0
======= ======= =======
F-33
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 14 - LOAN COMMITMENTS:
- ---------------------------
At December 31, 1998, the Bank had outstanding commitments to originate first
mortgage loans totaling $899,000. Additionally, the Bank had outstanding
commitments to sell loans totaling $4,278,000. It is the opinion of management
that such commitments do not involve more than a normal risk of loss.
NOTE 15 - CONTINGENCIES:
- ------------------------
As of December 31, 1998, Thomaston Federal was not involved in any pending or
threatened litigation, other than routine bankruptcy matters involving its
borrowers. There are no unasserted claims or assessments against Thomaston
Federal existent as of December 31, 1998.
NOTE 16 - RELATED PARTY TRANSACTIONS:
- -------------------------------------
The Bank has loans outstanding to officers and directors totaling $998 at
December 31, 1998. These loans are made in the ordinary course of business and
are made on substantially the same terms and collateral as those of comparable
transactions prevailing at the time, and do not involve more than the normal
risk of collectibility or contain other unfavorable features.
At December 31, 1998, deposits from directors and officers aggregated
approximately $1,875,000. These deposits were taken in the normal course of
business at market interest rates.
The Bank engaged the law firm of Adams, Barfield, Dunaway and Hankinson to
perform legal services. This firm also performs all title and other legal
services associated with processing and closing all real estate loans. The total
amount of fees paid this firm during the year ending December 31, 1998 was
approximately $163,523, some of which fees were reimbursed to the Bank by the
borrower at closing and are not reflected as expenses of the Bank. Mr. David
Dunaway is a partner of this law firm and serves on the Board of Directors of
the Bank.
F-34
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 17 - LEASE COMMITMENTS:
- ----------------------------
Phenix City, Alabama:
- ---------------------
On January 1, 1993, the Bank entered into a lease commitment for office
facilities at its Phenix City, Alabama loan origination office. The lease is
accounted for as an operating lease beginning January 1, 1993. The monthly lease
is $500 per month.
The future minimum lease commitment is as follows:
1999 $ 6,000
2000 0
2001 0
2002 0
2003 0
------
$ 6,000
Macon, Georgia:
- ---------------
On December 16, 1997, the Bank entered into a three-year lease commitment for
office facilities at its Macon, Georgia loan origination office. The lease will
be accounted for as an operating lease beginning February 1, 1998. The monthly
lease is $1,300 per month.
The future minimum lease commitment is as follows:
1999 $ 15,600
2000 15,600
2001 0
2002 0
2003 0
-------
$ 31,200
Opelika, Alabama:
- -----------------
On March 27, 1998, the Bank entered into a twelve-month and two-week lease
commitment for office facilities at its Opelika, Alabama loan origination
office. The lease will be accounted for as an operating lease beginning March,
1998.
The monthly lease is $550.
The future minimum lease commitment is as follows:
1999 $ 2,425
2000 0
2001 0
2002 0
2003 0
-------
$ 2,425
F-35
<PAGE>
THOMASTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 18 - MORTGAGE SERVICING RIGHTS:
- ------------------------------------
The following required disclosures are provided relative to originated mortgage
servicing rights capitalized during the year:
December 31,
------------
1998 1997 1996
--------- --------- ---------
Fair Value at Beginning of Year . $ 172,065 $ 77,324 $ 0
Amount capitalized and recognized 215,990 107,519 81,038
Amount amortized ................ (71,366) (12,778) (3,714)
--------- --------- ---------
Fair value at year-end ..... $ 316,689 $ 172,065 $ 77,324
========= ========= =========
Analysis of Valuation Allowance:
Balance at beginning of period .. $ 0 $ 0 $ 0
Additions charged to operations . 0 0 0
Reductions credited to operations 0 0 0
Direct write-downs charged ...... 0 0 0
--------- --------- ---------
against allowances
Balance at end of period ........ $ 0 $ 0 $ 0
========= ========= =========
(Refer to Note 1 for accounting policies surrounding mortgage servicing rights.)
F-36
<PAGE>
NOTE 19 - STOCK SPLIT CHARGING CAPITAL IN EXCESS OF PAR OR STATED VALUE - PAR
VALUE OF STOCK NOT CHANGED:
The Board of Directors authorized a three-for-two stock split for shareholders
of record as of March 1, 1998, of the bank's $1 par value common stock. As a
result of the split, 209,981 additional shares were issued, and capital in
excess of par or stated value was reduced by $209,981.
All references in the accompanying financial statements to the number of common
shares and par-value amounts for 1997 and 1996 have been restated to reflect the
stock split.
F-37
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN FLAG FINANCIAL CORPORATION
AND THOMASTON FEDERAL SAVINGS BANK
Dated as of MAY 7, 1999
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS.............................................................iv
AGREEMENT AND PLAN OF MERGER.................................................1
ARTICLE 1. TRANSACTIONS AND TERMS OF THE MERGER.......................1
1.1 CREATION OF INTERIM.................................................1
1.2 MERGER..............................................................2
1.3 TIME AND PLACE OF CLOSING...........................................2
1.4 EFFECTIVE TIME......................................................2
ARTICLE 2. TERMS OF MERGER............................................2
2.1 CHARTER.............................................................2
2.2 BYLAWS..............................................................2
2.3 DIRECTORS AND OFFICERS..............................................3
ARTICLE 3. MANNER OF CONVERTING SHARES................................3
3.1 CONVERSION OF SHARES................................................3
3.2 ANTI-DILUTION PROVISIONS............................................4
3.3 SHARES HELD BY THOMASTON FEDERAL OR FLAG............................4
3.4 DISSENTING SHAREHOLDERS.............................................4
3.5 FRACTIONAL SHARES...................................................5
3.6 INTERIM STOCK.......................................................5
ARTICLE 4. EXCHANGE OF SHARES.........................................5
4.1 EXCHANGE PROCEDURES.................................................5
4.2 RIGHTS OF FORMER SHAREHOLDERS OF THOMASTON FEDERAL..................6
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THOMASTON FEDERAL........7
5.1 ORGANIZATION, STANDING, AND POWER...................................7
5.2 AUTHORITY OF THOMASTON FEDERAL; NO BREACH BY AGREEMENT..............7
5.3 CAPITAL STOCK.......................................................9
5.4 THOMASTON FEDERAL SUBSIDIARIES......................................9
5.5 FINANCIAL STATEMENTS...............................................10
5.6 ABSENCE OF UNDISCLOSED LIABILITIES ................................10
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS ..............................11
5.8 TAX MATTERS .......................................................11
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES ................................12
5.10 ASSETS ............................................................13
5.11 INTELLECTUAL PROPERTY .............................................13
5.12 ENVIRONMENTAL MATTERS .............................................14
5.13 COMPLIANCE WITH LAWS ..............................................15
5.14 IMMIGRATION MATTERS ...............................................15
5.15 LABOR RELATIONS ...................................................16
5.16 EMPLOYEE BENEFIT PLANS ............................................16
5.17 MATERIAL CONTRACTS ................................................18
5.18 LEGAL PROCEEDINGS .................................................19
5.19 REPORTS ...........................................................20
5.20 STATEMENTS TRUE AND CORRECT .......................................20
5.21 ACCOUNTING, TAX AND REGULATORY MATTERS ......./....................20
5.22 CHARTER PROVISIONS ................................................21
5.23 BOARD RECOMMENDATION ..............................................21
5.24 Y-2K ..............................................................21
i
<PAGE>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF FLAG....................21
6.1 ORGANIZATION, STANDING, AND POWER .................................21
6.2 AUTHORITY OF FLAG; NO BREACH BY AGREEMENT .........................22
6.3 CAPITAL STOCK .....................................................23
6.4 FLAG SUBSIDIARIES .................................................23
6.5 SEC FILINGS, FINANCIAL STATEMENTS .................................24
6.6 ABSENCE OF UNDISCLOSED LIABILITIES ................................25
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS ..............................25
6.8 TAX MATTERS .......................................................25
6.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES ................................26
6.10 ASSETS ............................................................27
6.11 INTELLECTUAL PROPERTY .............................................27
6.12 ENVIRONMENTAL MATTERS .............................................28
6.13 COMPLIANCE WITH LAWS ..............................................28
6.14 LABOR RELATIONS ...................................................29
6.15 EMPLOYEE BENEFIT PLANS ............................................29
6.16 MATERIAL CONTRACTS ................................................31
6.17 LEGAL PROCEEDINGS .................................................32
6.18 REPORTS ...........................................................32
6.19 STATEMENTS TRUE AND CORRECT .......................................32
6.20 ACCOUNTING TAX AND REGULATORY MATTERS .............................33
6.21 CHARTER PROVISIONS ................................................33
6.22 BOARD RECOMMENDATION ..............................................33
6.23 Y2K ...............................................................33
6.24 MATTERS RELATING TO INTERIM .......................................34
ARTICLE 7. CONDUCT OF BUSINESS PENDING CONSUMMATION..................34
7.1 AFFIRMATIVE COVENANTS OF THOMASTON FEDERAL ........................34
7.2 NEGATIVE COVENANTS OF THOMASTON FEDERAL ...........................35
7.3 AFFIRMATIVE COVENANTS OF FLAG .....................................37
7.4 NEGATIVE COVENANTS OF FLAG ........................................37
7.5 ADVERSE CHANGES IN CONDITION ......................................37
7.6 REPORTS ...........................................................37
ARTICLE 8. ADDITIONAL AGREEMENTS.....................................38
8.1 REGISTRATION STATEMENT ............................................38
8.2 NASDAQ LISTING ....................................................39
8.3 SHAREHOLDER APPROVAL ..............................................39
8.4 APPLICATIONS ......................................................40
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE .............................40
8.6 INVESTIGATION AND CONFIDENTIALITY .................................41
8.7 PRESS RELEASES ....................................................41
8.8 CERTAIN ACTIONS ...................................................41
8.9 ACCOUNTING AND TAX TREATMENT ......................................42
8.10 CHARTER PROVISIONS ................................................42
8.11 AGREEMENTS OF AFFILIATES ..........................................42
8.12 EMPLOYEE BENEFITS AND CONTRACTS ...................................43
8.13 INDEMNIFICATION ...................................................44
ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.........44
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY ...........................44
9.2 CONDITIONS TO OBLIGATIONS OF FLAG .................................46
9.3 CONDITIONS TO OBLIGATIONS OF THOMASTON FEDERAL ....................47
ii
<PAGE>
ARTICLE 10. TERMINATION...............................................48
10.1 TERMINATION .......................................................48
10.2 EFFECT OF TERMINATION .............................................49
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS .....................49
ARTICLE 11. MISCELLANEOUS.............................................49
11.1 DEFINITIONS .......................................................49
11.2 EXPENSES ..........................................................57
11.3 BROKERS AND FINDERS ...............................................57
11.4 ENTIRE AGREEMENT ..................................................58
11.5 AMENDMENTS ........................................................58
11.6 WAIVERS ...........................................................58
11.7 ASSIGNMENT ........................................................59
11.8 NOTICES ...........................................................59
11.9 GOVERNING LAW .....................................................60
11.10 COUNTERPARTS ......................................................60
11.11 CAPTIONS, ARTICLES AND SECTIONS ...................................60
11.12 INTERPRETATIONS ...................................................60
11.13 ENFORCEMENT OF AGREEMENT ..........................................60
11.14 SEVERABILITY ......................................................60
SIGNATURES TO AGREEMENT AND PLAN OF MERGER
iii
<PAGE>
LIST OF EXHIBITS
Exhibit
Number Description
- ------ -----------
1. Form of Agreement of Affiliates of Thomaston Federal Savings
Bank (ss.8.12,ss. 9.2(f)).
2. Matters as to which Long Aldridge & Norman LLP will opine.
(ss. 9.2(d)).
3. Form of Claims Letter (ss. 9.2(g)).
4. Matters as to which Powell, Goldstein, Frazer & Murphy LLP will
opine. (ss. 9.3(d)).
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of May 7, 1999, by and between FLAG FINANCIAL CORPORATION ("FLAG"), a
Georgia corporation located in LaGrange, Georgia, and THOMASTON FEDERAL SAVINGS
BANK ("THOMASTON FEDERAL"), a federally-chartered savings association located in
Thomaston, Georgia.
Preamble
--------
The respective Boards of Directors of THOMASTON FEDERAL and FLAG are of
the opinion that the transactions described herein are in the best interests of
the Parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of THOMASTON FEDERAL by FLAG, pursuant to the
merger of FFC FEDERAL SAVINGS BANK, a wholly-owned subsidiary of FLAG to be
organized under the laws of the United States, with and into THOMASTON FEDERAL.
At the effective time of such merger, the outstanding shares of the capital
stock of THOMASTON FEDERAL shall be converted into the right to receive shares
of the common stock of FLAG (except as provided herein). As a result,
shareholders of THOMASTON FEDERAL shall become shareholders of FLAG, and
THOMASTON FEDERAL shall become a wholly-owned subsidiary of FLAG. The
transactions described in this Agreement are subject to (a) approval of the
shareholders of THOMASTON FEDERAL, (b) approval of the Board of Governors of the
Federal Reserve System, (c) approval of the Office of Thrift Supervision (the
"OTS"), (d) approval of the Georgia Department of Banking and Finance, and (e)
satisfaction of certain other conditions described in this Agreement. It is the
intention of the Parties to this Agreement that the merger, for federal income
tax purposes, shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code, and, for accounting purposes, shall qualify
for treatment as a pooling of interests.
Certain terms used in this Agreement are defined in Section 11.1
hereof.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1.
TRANSACTIONS AND TERMS OF THE MERGER
------------------------------------
1.1 Creation of INTERIM.
- --------------------------
As soon as practicable after the date of this Agreement, FLAG shall cause
to be chartered by the OTS an interim savings bank to be called FFC FEDERAL
SAVINGS BANK ("INTERIM"), and which will be a wholly-owned subsidiary of FLAG.
As soon as practicable following the organization of INTERIM, FLAG shall cause
INTERIM to approve, adopt and ratify this Agreement so that it becomes the
binding obligation of INTERIM.
1
<PAGE>
1.2 Merger.
- ------------
Subject to the terms and conditions of this Agreement, at the Effective
Time, INTERIM will merge with and into THOMASTON FEDERAL in accordance with the
applicable laws and regulations of the OTS (the "Merger"). THOMASTON FEDERAL
shall be the Surviving Bank resulting from the Merger, shall continue under the
name "Thomaston Federal Savings Bank," and shall continue to be a
federally-charted savings association governed by the Laws of the United States.
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 THOMASTON
FEDERAL and FLAG, and which will be approved, adopted and ratified by INTERIM as
soon as practicable after its organization, as set forth herein.
1.3 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.
1.4 Effective Time.
- ----------------------
The Merger and other transactions contemplated by this Agreement shall
become effective on the date and at the time that the appropriate Articles of
Combination reflecting the Merger are approved by the OTS (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 or
before the fifth business day following the last to occur of (i) the effective
date (including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over and approving
or exempting the Merger, and (ii) the earliest date on which the shareholders of
THOMASTON FEDERAL have approved this Agreement (applicable Law does not require
that FLAG shareholders approve this Agreement and/or the transactions
contemplated hereby, including the Merger); provided, however, that the date of
the Effective Time shall not extend past the termination date set forth in ss.
10.1(e) hereof.
ARTICLE 2.
TERMS OF MERGER
---------------
2.1 Charter.
- ------------
The Charter of THOMASTON FEDERAL in effect immediately prior to the
Effective Time shall be the Charter of the Surviving Bank until duly amended or
repealed.
2.2 Bylaws.
- -----------
The Bylaws of THOMASTON FEDERAL in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Bank until duly amended or
repealed.
2.3 Directors and Officers.
- ---------------------------
(a) The directors of the Surviving Bank shall be (i) the directors of
THOMASTON FEDERAL immediately prior to the Effective Time and (ii) one of the
directors of FLAG immediately prior to the Effective Time, who shall be elected
as a director of the Surviving Bank, together with such additional persons as
may thereafter be elected. Such persons shall serve as the directors of the
Surviving Bank from and after the Effective Time in accordance with the Bylaws
of the Surviving Bank. In addition, as soon as practicable after the Merger, but
in no event later than the next quarterly meeting of the Board of Directors of
FLAG following the Effective Time, Robert G. Cochran, President and Chief
Executive Officer of THOMASTON FEDERAL, will be elected as a director of FLAG.
2
<PAGE>
(b) The executive officers of the Surviving Bank shall be (i) the executive
officers of the Surviving Bank immediately prior to the Effective Time and (ii)
such additional persons as may thereafter be elected. Such persons shall serve
as the executive officers of the Surviving Bank from and after the Effective
Time in accordance with the Bylaws of the Surviving Bank.
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 THOMASTON FEDERAL, or
the shareholders of the foregoing, the shares of THOMASTON FEDERAL 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 THOMASTON FEDERAL Common Stock (excluding shares held by
any THOMASTON FEDERAL 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 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 1.7275 shares of FLAG Common Stock (the "Exchange Ratio").
(c) Each option or warrant to purchase THOMASTON FEDERAL Common Stock
outstanding immediately prior to the Effective Time (and which by its terms does
not lapse on or before the Effective Time), whether or not then exercisable,
will be converted into and become options or warrants, as the case may be, to
purchase FLAG Common Stock and FLAG will assume each option and warrant in
accordance with the terms of the option or warrant plans and agreements, except
that from and after the Effective Time (i) FLAG and its Compensation Committee
shall be substituted for THOMASTON FEDERAL as administrator of the option and
warrant plans, (ii) each option and warrant assumed by FLAG may be exercised
solely for shares of FLAG Common Stock, (iii) the number of shares of FLAG
Common Stock subject to each option and warrant shall be the number of whole
shares of FLAG (omitting any fractional share) determined by multiplying the
number of shares of THOMASTON FEDERAL Common Stock subject to such option or
warrant immediately prior to the Effective Time by the Exchange Ratio, and (iv)
the per share exercise price under each such option or warrant shall be adjusted
by dividing the per share exercise price under each such option or warrant by
the Exchange Ratio and rounding up to the nearest cent.
3
<PAGE>
3.2 Anti-Dilution Provisions.
- -------------------------------
In the event that 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) is prior to the Effective Time, the Exchange
Ratio shall be proportionately adjusted.
3.3 Shares Held by THOMASTON FEDERAL or FLAG.
- ------------------------------------------------
Each of the shares of THOMASTON FEDERAL Common Stock held by any THOMASTON
FEDERAL 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 THOMASTON FEDERAL Common Stock who perfects his
dissenters' rights in accordance with and as contemplated by Section 552.14 of
the OTS regulations, shall be entitled to receive the value of such shares in
cash as determined pursuant to such regulations; provided, that no such payment
shall be made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of the OTS regulations
and surrendered to FLAG the certificates or certificates representing the shares
for which payment is being made. In the event that after the Effective Time, a
dissenting shareholder of THOMASTON FEDERAL fails to perfect, or effectively
withdraws or loses, his right to appraisal of and payment for his shares, FLAG
shall issue and deliver the consideration to which such holder of shares of
THOMASTON FEDERAL Common Stock is entitled under this Article 3 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of THOMASTON FEDERAL Common Stock held by him. If and to the
extent required by applicable Law, THOMASTON FEDERAL will establish (or cause to
be established) an escrow account with an amount sufficient to satisfy the
maximum aggregate payment that may be required to be paid to dissenting
shareholders. Upon satisfaction of all claims of dissenting shareholders, the
remaining escrowed amount, reduced by payment of the fees and expenses of the
escrow agent, will be returned to FLAG.
3.5 Fractional Shares.
- ------------------------
Notwithstanding any other provision of this Agreement, each holder of
shares of THOMASTON FEDERAL 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
or, if no sales are reported on such date, on the next preceding date on which a
sale is reported. No such holder will be entitled to dividends, voting rights,
or any other rights as a shareholder in respect of any fractional shares.
4
<PAGE>
3.6 INTERIM Stock.
- --------------------
Each share of INTERIM common stock issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and exchanged for that number
of fully paid and nonassessable shares of common stock of the Surviving Bank,
which is equal to the number of shares of THOMASTON FEDERAL Common Stock issued
and outstanding immediately prior to the Effective Date. From and after the
Effective Date, the certificates theretofore representing all of the outstanding
shares of INTERIM common stock shall be deemed for all purposes to evidence
ownership of such number of shares of Surviving Bank stock. Promptly after the
Effective Date, the Surviving Bank shall issue to the shareholder of INTERIM a
stock certificate or certificates representing such number of shares of
Surviving Bank stock in exchange for the certificate or certificates which
formerly represented all of the outstanding shares of INTERIM common stock,
which shall be cancelled.
ARTICLE 4.
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures.
- -------------------------
(a) Promptly after the Effective Time, FLAG shall cause the exchange agent
selected by FLAG (the "Exchange Agent") to mail to each holder of record of a
certificate or certificates which represented shares of THOMASTON FEDERAL 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 THOMASTON FEDERAL Common Stock so delivered shall
be duly endorsed as the Exchange Agent may reasonably require. In the event of a
transfer of ownership of shares of THOMASTON FEDERAL Common Stock represented by
Certificates that are not registered in the transfer records of THOMASTON
FEDERAL, 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 THOMASTON FEDERAL 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
5
<PAGE>
shares to the Exchange Agent and shall promptly upon surrender thereof receive
in exchange therefor the consideration provided in Section 3.1, together with
all undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. FLAG shall not be obligated to
deliver the consideration to which any former holder of THOMASTON FEDERAL 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL shall constitute
ratification of the appointment of the Exchange Agent.
(b) Promptly after the Effective Time, FLAG shall deliver to the holders of
each option or warrant to purchase Thomaston Federal Common Stock an appropriate
notice setting forth such holder's rights pursuant to such option or warrant
following the Merger. At or prior to the Effective Time, FLAG shall take all
corporate action necessary to reserve for issuance sufficient shares of FLAG
Common Stock for delivery upon the exercise of such options and warrants assumed
in accordance with Section 3.1(c).
4.2 Rights of Former Shareholders of THOMASTON FEDERAL.
- --------------------------------------------------------------
At the Effective Time, the stock transfer books of THOMASTON FEDERAL shall
be closed as to holders of THOMASTON FEDERAL Common Stock immediately prior to
the Effective Time and no transfer of THOMASTON FEDERAL 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 THOMASTON FEDERAL Common Stock (other than shares to be
canceled pursuant to Sections 3.3 and 3.4) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Section 3.1 in exchange therefor, subject, however, to FLAG's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which have been declared or made by THOMASTON
FEDERAL in respect of such shares of THOMASTON FEDERAL 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
THOMASTON FEDERAL 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 THOMASTON FEDERAL 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. No interest shall be payable with respect to any cash to be paid
under Section 3.1 of this Agreement except to the extent required in connection
with the exercise of dissenters' rights.
6
<PAGE>
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THOMASTON FEDERAL
---------------------------------------------------
THOMASTON FEDERAL hereby represents and warrants to FLAG as follows:
5.1 Organization, Standing, and Power.
- -------------------------------------
THOMASTON FEDERAL is a federally-chartered savings association duly
organized, validly existing, and in good standing under the Laws of the United
States, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. THOMASTON
FEDERAL is duly qualified or licensed to transact business as a foreign
corporation in good standing in the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a THOMASTON FEDERAL Material Adverse
Effect. The minute book and other organizational documents for THOMASTON FEDERAL
have been made available to FLAG for its review and, except as disclosed in
Section 5.1 of the THOMASTON FEDERAL Disclosure Memorandum, are true and
complete in all material respects as in effect as of the date of this Agreement
and accurately reflect in all material respects all amendments thereto and all
proceedings of the Board of Directors and shareholders thereof.
5.2 Authority of THOMASTON FEDERAL; No Breach By Agreement.
- ------------------------------------------------------------
(a) THOMASTON FEDERAL has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby subject to the terms and
conditions hereof. 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 THOMASTON FEDERAL, subject to the approval of
this Agreement by the holders of a majority of the outstanding shares of voting
stock of THOMASTON FEDERAL, which is the only shareholder vote required for
approval of this Agreement, and consummation of the Merger by THOMASTON FEDERAL.
Subject to such requisite shareholder approval, this Agreement represents a
legal, valid, and binding obligation of THOMASTON FEDERAL, enforceable against
THOMASTON FEDERAL 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).
7
<PAGE>
(b) Neither the execution and delivery of this Agreement by THOMASTON
FEDERAL, nor the consummation by THOMASTON FEDERAL of the transactions
contemplated hereby, nor compliance by THOMASTON FEDERAL with any of the
provisions hereof, will (i) conflict with or result in a breach of any provision
of THOMASTON FEDERAL's Charter or Bylaws, or the Charter, Articles of
Incorporation, or Bylaws of any THOMASTON FEDERAL Subsidiary or any resolution
adopted by the board of directors or the shareholders of any THOMASTON FEDERAL
Entity, or (ii) except as disclosed in Section 5.2 of the THOMASTON FEDERAL
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
THOMASTON FEDERAL Entity under, any Contract or Permit of any THOMASTON FEDERAL
Entity, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a THOMASTON FEDERAL
Material Adverse Effect, or (iii) create any right in any third party to
exercise any rights adverse to any THOMASTON FEDERAL entity or acquire any asset
of any THOMASTON FEDERAL entity, or (iv) 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 THOMASTON
FEDERAL Entity or any of their respective material Assets (including any
THOMASTON FEDERAL Entity becoming subject to or liable for the payment of any
Tax on any of the Assets owned by any THOMASTON FEDERAL Entity being reassessed
or revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of
applicable federal and state banking Laws (including Laws applicable to bank
and/or savings association holding companies), 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 THOMASTON FEDERAL
Material Adverse Effect, no notice to, filing with, or Consent of, any public
body or authority is necessary for the consummation by THOMASTON FEDERAL of the
Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
- ------------------
(a) As of the date of this Agreement, the authorized capital stock of
THOMASTON FEDERAL consists of 5,000,000 shares of THOMASTON FEDERAL Common Stock
and 5,000,000 shares of serial preferred stock with a par value of $1.00 per
share, of which 651,639 shares of Common Stock are issued and outstanding, and
of which 28,350 shares of Common Stock underlie outstanding options to purchase
THOMASTON FEDERAL Common Stock. All of the issued and outstanding shares of
capital stock of THOMASTON FEDERAL are duly and validly issued and outstanding
and are fully paid and nonassessable under the OTS regulations. None of the
outstanding shares of capital stock of THOMASTON FEDERAL has been issued in
violation of any preemptive rights of the current or past shareholders of
THOMASTON FEDERAL.
8
<PAGE>
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the THOMASTON FEDERAL Disclosure Memorandum, there are no shares of
capital stock or other equity securities of THOMASTON FEDERAL outstanding and no
outstanding Equity Rights relating to the capital stock of THOMASTON FEDERAL.
5.4 THOMASTON FEDERAL Subsidiaries.
- ------------------------------------
THOMASTON FEDERAL has disclosed in Section 5.4 of the THOMASTON FEDERAL
Disclosure Memorandum all of the THOMASTON FEDERAL 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 THOMASTON FEDERAL 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 Thomaston Federal's ownership interest therein).
Except as disclosed in Section 5.4 of the THOMASTON FEDERAL Disclosure
Memorandum, THOMASTON FEDERAL or one of its wholly-owned Subsidiaries owns all
of the issued and outstanding shares of capital stock (or other equity
interests) of each THOMASTON FEDERAL Subsidiary. No capital stock (or other
equity interest) of any THOMASTON FEDERAL Subsidiary is or may become required
to be issued (other than to another THOMASTON FEDERAL Entity) by reason of any
Equity Rights, and there are no Contracts by which any THOMASTON FEDERAL
Subsidiary is bound to issue (other than to another THOMASTON FEDERAL Entity)
additional shares of its capital stock (or other equity interests) or Equity
Rights or by which any THOMASTON FEDERAL Entity is or may be bound to transfer
any shares of the capital stock (or other equity interests) of any THOMASTON
FEDERAL Subsidiary (other than to another THOMASTON FEDERAL Entity). There are
no Contracts relating to the rights of any THOMASTON FEDERAL Entity to vote or
to dispose of any shares of the capital stock (or other equity interests) of any
THOMASTON FEDERAL Subsidiary. All of the shares of capital stock (or other
equity interests) of each THOMASTON FEDERAL Subsidiary held by a THOMASTON
FEDERAL Entity are fully paid and (except pursuant to 12 U.S.C. Section 55 in
the case of national banks and comparable, applicable state Law, if any, in the
case of state depository institutions) nonassessable and are owned by the
THOMASTON FEDERAL Entity free and clear of any Lien. Except as disclosed in
Section 5.4 of the THOMASTON FEDERAL Disclosure Memorandum, each THOMASTON
FEDERAL Subsidiary is either a bank, savings association or a corporation, and
is duly organized, validly existing, and, as to corporations, in good standing
under the Laws of the jurisdiction in which it is incorporated or organized, and
has the corporate power and authority necessary for it to own, lease, and
operate its Assets and to carry on its business as now conducted. Each THOMASTON
FEDERAL 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 THOMASTON FEDERAL
Material Adverse Effect. Each THOMASTON FEDERAL 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 THOMASTON FEDERAL Subsidiary have been made
available to FLAG for its review, and, except as disclosed in Section 5.4 of the
THOMASTON FEDERAL 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.
9
<PAGE>
5.5 Financial Statements.
- --------------------------
Each of the THOMASTON FEDERAL Financial Statements (including, in each
case, any related notes) was prepared in accordance with GAAP, or with
regulatory accounting principles applicable to audited or interim financial
statements of savings associations, 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity has any Liabilities that are reasonably likely
to have, individually or in the aggregate, a THOMASTON FEDERAL Material Adverse
Effect, except Liabilities which are accrued or reserved against in the
consolidated balance sheets of THOMASTON FEDERAL as of December 31, 1998,
included in the THOMASTON FEDERAL Financial Statements or reflected in the notes
thereto. No THOMASTON FEDERAL Entity has incurred or paid any Liability since
December 31, 1998, except for such Liabilities incurred or paid (i) in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a THOMASTON
FEDERAL 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, 1998, except as disclosed in the THOMASTON FEDERAL
Financial Statements delivered prior to the date of this Agreement or as
disclosed in Section 5.7 of the THOMASTON FEDERAL 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 THOMASTON FEDERAL
Material Adverse Effect, and (ii) each THOMASTON FEDERAL Entity has operated in
all material respect in the ordinary course of business and without a material
breach or violation of any of the covenants and agreements of THOMASTON FEDERAL
provided in Article 7.
5.8 Tax Matters.
- -----------------
(a) All Tax Returns required to be filed by or on behalf of any THOMASTON
FEDERAL Entities have been timely filed or requests for extensions have been
timely filed, granted, and, to the Knowledge of THOMASTON FEDERAL, have not
expired for the periods ended on or before December 31, 1998, 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 THOMASTON FEDERAL 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,
10
<PAGE>
deficiency, or refund Litigation pending with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a THOMASTON FEDERAL Material Adverse Effect, except as
reserved against in the THOMASTON FEDERAL Financial Statements delivered prior
to the date of this Agreement or as disclosed in Section 5.8 of the THOMASTON
FEDERAL Disclosure Memorandum. All Taxes and other Liabilities due with respect
to completed and settled examinations or concluded tax related Litigation have
been paid. There are no Liens with respect to Taxes upon any of the Assets of
THOMASTON FEDERAL Entities, except for any such Liens which are not reasonably
likely to have a THOMASTON FEDERAL Material Adverse Effect or with respect to
which the Taxes are not yet due and payable.
(b) None of the THOMASTON FEDERAL 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
THOMASTON FEDERAL Entities for the period or periods through and including the
date of the respective THOMASTON FEDERAL Financial Statements that has been made
and is reflected on such THOMASTON FEDERAL Financial Statements is sufficient to
cover all such Taxes.
(d) Deferred Taxes of THOMASTON FEDERAL Entities have been provided for in
accordance with GAAP.
(e) Except as disclosed in Section 5.8 of the THOMASTON FEDERAL Disclosure
Memorandum, none of the THOMASTON FEDERAL Entities is a party to any Tax
allocation or sharing agreement and none of THOMASTON FEDERAL 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 THOMASTON FEDERAL) or has any
Liability for Taxes of any Person (other than THOMASTON FEDERAL 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the THOMASTON FEDERAL Disclosure
Memorandum, none of the THOMASTON FEDERAL 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.
11
<PAGE>
(h) Exclusive of the Merger, there has not been an ownership change, as
defined in Internal Revenue Code Section 382(g), of THOMASTON FEDERAL Entities
that occurred during or after any Taxable Period in which THOMASTON FEDERAL
Entities incurred a net operating loss that carries over to any Taxable Period
ending after December 31, 1998.
(i) No THOMASTON FEDERAL 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 THOMASTON
FEDERAL 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 THOMASTON FEDERAL included in the most recent
THOMASTON FEDERAL Financial Statements dated prior to the date of this Agreement
was, and the Allowance shown on the consolidated balance sheets of THOMASTON
FEDERAL included in the THOMASTON FEDERAL 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, net of
recoveries related to loans or credits previously charged off, relating to or
inherent in the loan and lease portfolios (including accrued interest
receivables) of THOMASTON FEDERAL Entities and other extensions of credit
(including letters of credit and commitments to make loans or extend credit) by
THOMASTON FEDERAL Entities as of the dates thereof, except where the failure of
such Allowance to be so adequate is not reasonably likely to have a THOMASTON
FEDERAL Material Adverse Effect.
5.10 Assets.
- -------------
(a) Except as disclosed in Section 5.10 of the THOMASTON FEDERAL Disclosure
Memorandum or as disclosed or reserved against in the THOMASTON FEDERAL
Financial Statements delivered prior to the date of this Agreement, THOMASTON
FEDERAL 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 THOMASTON FEDERAL Material
Adverse Effect. All tangible properties used in the businesses of the THOMASTON
FEDERAL Entities are usable in the ordinary course of business consistent with
THOMASTON FEDERAL's past practices.
(b) All Assets which are material to THOMASTON FEDERAL's business on a
consolidated basis, held under leases or subleases by any of the THOMASTON
FEDERAL Entities, are held under valid Contracts enforceable against THOMASTON
FEDERAL in accordance with their respective terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
12
<PAGE>
other Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought), and, assuming the enforceability of such Contract
against the third party thereto, each such Contract is in full force and effect.
(c) THOMASTON FEDERAL Entities currently maintain the insurance policies
described in Section 5.10(c) of the THOMASTON FEDERAL Disclosure Memorandum.
None of the THOMASTON FEDERAL Entities has received written notice from any
insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. There are
presently no claims for amounts exceeding in any individual case $25,000 pending
under such policies of insurance and no written notices of claims in excess of
such amounts have been given by any THOMASTON FEDERAL Entity under such
policies.
(d) The Assets of the THOMASTON FEDERAL Entities include all material
Assets required to operate the business of the THOMASTON FEDERAL Entities as
presently conducted.
5.11 Intellectual Property.
- ---------------------------
Each THOMASTON FEDERAL Entity owns or has a license to use all of the
Intellectual Property used by such THOMASTON FEDERAL Entity in the ordinary
course of its business. Except as disclosed in Section 5.11 of the THOMASTON
FEDERAL Disclosure Memorandum, each THOMASTON FEDERAL Entity is the owner of or
has a license to any Intellectual Property sold or licensed to a third party by
such THOMASTON FEDERAL Entity in connection with such THOMASTON FEDERAL Entity's
business operations, and such THOMASTON FEDERAL Entity has the right to convey
by sale or license any Intellectual Property so conveyed. No THOMASTON FEDERAL
Entity is in material Default under any of its Intellectual Property licenses.
No proceedings have been instituted, or are pending or, to the Knowledge of
THOMASTON FEDERAL, threatened, which challenge the rights of any THOMASTON
FEDERAL Entity with respect to Intellectual Property used, sold or licensed by
such THOMASTON FEDERAL Entity in the course of its business, nor has any person
claimed or alleged any rights to such Intellectual Property. To the Knowledge of
THOMASTON FEDERAL, the conduct of the business of the THOMASTON FEDERAL Entities
does not infringe any Intellectual Property of any other person. Except as
disclosed in Section 5.11 of the THOMASTON FEDERAL Disclosure Memorandum, no
THOMASTON FEDERAL Entity is obligated to pay any recurring royalties to any
Person with respect to any such Intellectual Property.
5.12 Environmental Matters.
- ---------------------------
(a) Except as disclosed in Section 5.12 of the THOMASTON FEDERAL Disclosure
Memorandum, to the Knowledge of THOMASTON FEDERAL, each THOMASTON FEDERAL
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 THOMASTON
FEDERAL Material Adverse Effect.
13
<PAGE>
(b) There is no Litigation pending or, to the Knowledge of THOMASTON
FEDERAL, threatened, before any court, governmental agency, or authority or
other forum in which any THOMASTON FEDERAL Entity or any of its Operating
Properties or Participation Facilities (or THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity or any of its Operating Properties or
Participation Facilities or any neighboring property, except for such Litigation
pending or threatened against THOMASTON FEDERAL that is not reasonably likely to
have, individually or in the aggregate, a THOMASTON FEDERAL Material Adverse
Effect, nor, to the Knowledge of THOMASTON FEDERAL, 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 THOMASTON
FEDERAL Material Adverse Effect.
(c) Except as disclosed in Section 5.12 of the THOMASTON FEDERAL Disclosure
Memorandum, during the period of (i) any THOMASTON FEDERAL Entity's ownership or
operation of any of their respective current Assets, or (ii) any THOMASTON
FEDERAL Entity's participation in the management of any Participation Facility
or any Operating Property, to the Knowledge of THOMASTON FEDERAL, 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 THOMASTON FEDERAL
Material Adverse Effect. Except as disclosed in Section 5.12 of the THOMASTON
FEDERAL Disclosure Memorandum, prior to the period of (i) any THOMASTON FEDERAL
Entity's ownership or operation of any of their respective current properties,
(ii) any THOMASTON FEDERAL Entity's participation in the management of any
Participation Facility or any Operating Property, to the Knowledge of THOMASTON
FEDERAL, 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 THOMASTON FEDERAL Material Adverse
Effect.
5.13 Compliance with Laws.
- ----------------------------
Each THOMASTON FEDERAL 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 THOMASTON FEDERAL Material
Adverse Effect, and, to the Knowledge of THOMASTON FEDERAL, 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 THOMASTON FEDERAL Material
Adverse Effect. Except as disclosed in Section 5.13 of the THOMASTON FEDERAL
Disclosure Memorandum, none of the THOMASTON FEDERAL Entities:
14
<PAGE>
(a) is in Default under any of the provisions of its Charter 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 THOMASTON FEDERAL
Material Adverse Effect; or
(c) since January 1, 1995, has received any written notification or written
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting that
any THOMASTON FEDERAL 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
THOMASTON FEDERAL Material Adverse Effect, (ii) threatening to revoke any
Permits, the revocation of which is reasonably likely to have, individually or
in the aggregate, a THOMASTON FEDERAL Material Adverse Effect, or (iii)
requiring any THOMASTON FEDERAL Entity to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business or in any
material manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends. Copies of all material reports,
correspondence, notices and other documents relating to any inspection, audit,
monitoring or other form of review or enforcement action by a Regulatory
Authority have been made available to FLAG.
5.14 Immigration Matters.
- -------------------------
(a) Except as set forth in Section 5.14(a) of the THOMASTON FEDERAL
Disclosure Memorandum, each THOMASTON FEDERAL Entity has complied with the IRCA
with respect to the completion of Forms I-9 for all employees and the
reverification of the employment status of any and all employees whose
employment authorization documents indicated a limited period of employment
authorization.
(b) Except as set forth in Section 5.14(b) of the THOMASTON FEDERAL
Disclosure Memorandum, with respect to a former employee who has left a
THOMASTON FEDERAL Entity's employment within three (3) years prior to Closing,
the THOMASTON FEDERAL Entity has complied with the IRCA with respect to the
maintenance of Forms I-9 for at least three years from the date of hire or for
one year beyond the date of termination, whichever is later.
5.15 Labor Relations.
- ---------------------
No THOMASTON FEDERAL Entity is the subject of any pending Litigation
asserting that it or any other THOMASTON FEDERAL 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 THOMASTON FEDERAL
Entity to bargain with any labor organization as to wages or conditions of
15
<PAGE>
employment, nor is any THOMASTON FEDERAL Entity party to any collective
bargaining agreement, nor is there any strike or other labor dispute involving
any THOMASTON FEDERAL Entity, pending or, to the Knowledge of Thomaston Federal,
threatened, or to the Knowledge of THOMASTON FEDERAL, is there any activity
involving any THOMASTON FEDERAL Entity's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.16 Employee Benefit Plans.
- --------------------------------
(a) THOMASTON FEDERAL has disclosed in Section 5.16 of the THOMASTON
FEDERAL 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 THOMASTON FEDERAL
Entity or ERISA Affiliate (as defined in subparagraph (c) below) thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, "THOMASTON FEDERAL Benefit Plans").
Each THOMASTON FEDERAL Benefit Plan which is an "employee pension benefit plan,"
as that term is defined in Section 3(2) of ERISA, is referred to herein as an
"THOMASTON FEDERAL ERISA Plan." Each THOMASTON FEDERAL 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 an "THOMASTON FEDERAL Pension Plan." No THOMASTON
FEDERAL Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(b) All THOMASTON FEDERAL 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 THOMASTON FEDERAL Material Adverse Effect.
Each THOMASTON FEDERAL 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 THOMASTON FEDERAL
has no Knowledge of any circumstances likely to result in revocation of any such
favorable determination letter. To the Knowledge of THOMASTON FEDERAL, no
THOMASTON FEDERAL Entity has engaged in a transaction with respect to any
THOMASTON FEDERAL Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any THOMASTON FEDERAL
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 THOMASTON FEDERAL Material Adverse Effect.
(c) No THOMASTON FEDERAL 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
16
<PAGE>
date of the most recent actuarial valuation, there has been (i) no material
change in the financial position of any THOMASTON FEDERAL Pension Plan, (ii) no
change in the actuarial assumptions with respect to any THOMASTON FEDERAL
Pension Plan, and (iii) no increase in benefits under any THOMASTON FEDERAL
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 THOMASTON
FEDERAL Material Adverse Effect or materially adversely affect the funding
status of any such plan. Neither any THOMASTON FEDERAL Pension Plan nor any
"single employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any THOMASTON FEDERAL Entity, or the
single-employer plan of any entity which is considered one employer with
THOMASTON FEDERAL 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 THOMASTON FEDERAL Material Adverse Effect. No
THOMASTON FEDERAL Entity has provided, or is required to provide, security to a
THOMASTON FEDERAL 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL
Material Adverse Effect. No THOMASTON FEDERAL 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 5.16 of the THOMASTON FEDERAL Disclosure
Memorandum, no THOMASTON FEDERAL Entity has any Liability for retiree health and
life benefits under any of the THOMASTON FEDERAL Benefit Plans and there are no
restrictions on the rights of such THOMASTON FEDERAL 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 THOMASTON
FEDERAL Material Adverse Effect.
(f) Except as disclosed in Section 5.16 of the THOMASTON FEDERAL 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 THOMASTON FEDERAL
Entity from any THOMASTON FEDERAL Entity under any THOMASTON FEDERAL Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any
THOMASTON FEDERAL 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
THOMASTON FEDERAL Material Adverse Effect.
17
<PAGE>
(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 THOMASTON FEDERAL 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 THOMASTON FEDERAL Financial Statements
to the extent required by and in accordance with GAAP.
5.17 Material Contracts.
- -------------------------
(a) Except as disclosed in Section 5.17(a) of the THOMASTON FEDERAL
Disclosure Memorandum or otherwise reflected in the THOMASTON FEDERAL Financial
Statements, none of the THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity or the guarantee by any THOMASTON
FEDERAL Entity of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase agreements,
Federal Home Loan Bank advances and trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any THOMASTON FEDERAL Entity from engaging
in any business activities in any geographic area, line of business or otherwise
in competition with any other Person, (iv) any Contract between or among the
THOMASTON FEDERAL Entities, (v) any Contract relating to the provision of data
processing, network communication, or other technical services to or by any
THOMASTON FEDERAL 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 THOMASTON FEDERAL with the SEC (assuming THOMASTON
FEDERAL 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 5.16(a), the "THOMASTON FEDERAL Contracts").
(b) With respect to each THOMASTON FEDERAL Contract and except as disclosed
in Section 5.17(b) of the THOMASTON FEDERAL Disclosure Memorandum: (i) assuming
the enforceability of such Contract against the third party thereto, each such
Contract is in full force and effect; (ii) no THOMASTON FEDERAL Entity is in
Default thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a THOMASTON FEDERAL Material Adverse Effect;
(iii) no THOMASTON FEDERAL 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 THOMASTON FEDERAL, in Default in any respect, other than
Defaults which are not reasonably likely to have, individually or in the
aggregate, a THOMASTON FEDERAL Material Adverse Effect, or has repudiated or
waived any material provision thereunder.
18
<PAGE>
(c) Except as disclosed in Section 5.17(c) of the THOMASTON FEDERAL
Disclosure Memorandum, no officer, director or employee of any THOMASTON FEDERAL
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 THOMASTON FEDERAL Entity. All of the indebtedness of any THOMASTON
FEDERAL Entity for money borrowed (excluding deposits obtained in the ordinary
course of business) is prepayable at any time by such THOMASTON FEDERAL Entity
without penalty or premium.
5.18 Legal Proceedings.
- ----------------------
There is no Litigation instituted or pending or, to the Knowledge of
THOMASTON FEDERAL, 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 THOMASTON FEDERAL Entity, or against any
director, employee or employee benefit plan (acting in such capacity) of any
THOMASTON FEDERAL Entity, or against any Asset, interest, or right of any of
them, that is reasonably likely to have, individually or in the aggregate, a
THOMASTON FEDERAL Material Adverse Effect, nor are there any Orders of any
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any THOMASTON FEDERAL Entity, that are reasonably likely to
have, individually or in the aggregate, a THOMASTON FEDERAL Material Adverse
Effect. Section 5.18 of the THOMASTON FEDERAL Disclosure Memorandum contains a
summary of all Litigation as of the date of this Agreement to which any
THOMASTON FEDERAL Entity is a party and which names a THOMASTON FEDERAL Entity
as a defendant or cross-defendant or for which, to the Knowledge of THOMASTON
FEDERAL, any THOMASTON FEDERAL Entity has any potential Liability.
5.19 Reports.
- -------------
Since January 1, 1995, or the date of organization if later, each THOMASTON
FEDERAL Entity has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities, except for such filings which the failure to
so file is not reasonably likely to have, individually or in the aggregate, a
THOMASTON FEDERAL 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.
Except as disclosed in Section 5.19 of the THOMASTON FEDERAL Disclosure
Memorandum, since January 1, 1995, no THOMASTON FEDERAL Entity has filed any
Suspicious Activity Report or any claim under any fidelity blanket bond, general
liability, errors and omissions, directors and officers or other insurance
policies that pertain to the operations of its business or the ownership of its
assets.
19
<PAGE>
5.20 Statements True and Correct.
- ---------------------------------
No written statement, certificate, or other writing furnished or to be
furnished by any THOMASTON FEDERAL Entity to FLAG pursuant to this Agreement
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 in writing by any THOMASTON FEDERAL
Entity specifically for inclusion in the Registration Statement to be filed by
FLAG with the SEC in accordance with Section 8.1 will, when such Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. All documents that any THOMASTON FEDERAL Entity is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law. No documents to be filed by a THOMASTON
FEDERAL Entity with any Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.21 Accounting, Tax and Regulatory Matters.
- -----------------------------------------------
No THOMASTON FEDERAL Entity has taken or agreed to take any action or has
any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the Merger from qualifying for pooling of interest accounting treatment
and as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) or result in the imposition
of a condition or restriction of the type referred to in the last sentence of
such Section.
5.22 Charter Provisions.
- ---------------------------
Each THOMASTON FEDERAL 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 (other than dissenter's rights) to any Person under the
Charter, Articles of Incorporation, Bylaws or other governing instruments of any
THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity that may be directly or
indirectly acquired by them as a result of the Merger.
5.23 Board Recommendation.
- ----------------------------
The Board of Directors of THOMASTON FEDERAL, at a meeting duly called and
held, has by unanimous vote of those directors present (who constituted all of
the directors then in office) (i) determined that this Agreement and the
transactions contemplated hereby are fair to and in the best interests of the
shareholders of THOMASTON FEDERAL, and (ii) resolved to recommend that the
holders of the shares of THOMASTON FEDERAL Common Stock approve this Agreement.
5.24 Y2K.
- ----------
No THOMASTON FEDERAL Entity has received, nor to THOMASTON FEDERAL's
Knowledge are there facts that would form the basis for the issuance by the OTS
of, a rating of "Needs Improvement" or "Unsatisfactory" on any OTS Year 2000
Report of Examination. THOMASTON FEDERAL has disclosed to FLAG a complete and
accurate copy of its plan, including its good faith estimate of the anticipated
20
<PAGE>
associated costs, for addressing the issues set forth in the Year 2000 guidance
papers issued by the Federal Financial Institutions Examination Council (the
"FFIEC"), including the statement dated May 5, 1997, entitled "Year 2000 Project
Management Awareness," December 17, 1997, entitled "Safety and Soundness
Guidelines Concerning the Year 2000 Business Risk," October 15, 1998, entitled
"Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness," and any subsequent guidance papers issued by the FFIEC, as such
issues are, to the knowledge of THOMASTON FEDERAL, reasonably expected to affect
any THOMASTON FEDERAL Entity. Between the date of this Agreement and the
Effective Time, THOMASTON FEDERAL shall use its reasonable best efforts to
implement such plan. THOMASTON FEDERAL has formed a committee to review policies
and directives issued by Regulatory Authorities with respect to preparedness for
year 2000 data processing and other operations, and intends to implement such
committee's recommendations for ensuring compliance with such policies and
directives.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF FLAG
--------------------------------------
FLAG hereby represents and warrants to THOMASTON FEDERAL 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 THOMASTON FEDERAL for its review and, except as disclosed
in Section 6.1 of the FLAG Disclosure Memorandum, are true and complete in all
material respects as in effect as of the date of this Agreement and accurately
reflect in all material respects all amendments thereto and all proceedings of
the Board of Directors and shareholders thereof.
6.2 Authority of FLAG; No Breach By Agreement.
- ----------------------------------------------
(a) FLAG has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of FLAG. This Agreement
represents a legal, valid, and binding obligation of FLAG, enforceable against
FLAG in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
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).
21
<PAGE>
(b) Neither the execution and delivery of this Agreement by FLAG, nor the
consummation by FLAG of the transactions contemplated hereby, nor compliance by
FLAG with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of FLAG's Articles of Incorporation or Bylaws, or the
Charter, or Articles of Incorporation or Bylaws of any FLAG Entity, or any
resolution adopted by the Board of Directors or the shareholders of any FLAG
Entity, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any FLAG
Entity under, any Contract or Permit of any FLAG Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, or (iii)
subject to receipt of the requisite Consents referred to in Section 9. 1 (b),
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any FLAG Entity or any of their respective material
Assets (including any FLAG Entity becoming subject to or liable for the payment
of any Tax on any of the Assets owned by any FLAG Entity being reassessed or
revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a FLAG Material Adverse Effect or prevent or restrict the
consummation of the transaction contemplated by this Agreement, 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 6,561,879 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 THOMASTON FEDERAL 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 THOMASTON FEDERAL Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past shareholders of FLAG or in violation of any applicable Law.
23
<PAGE>
(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 or banking Law of the jurisdiction in which
such Subsidiary is incorporated or organized and are owned by the FLAG Entity
free and clear of any Lien. Each FLAG Subsidiary is either a bank, savings
association or a corporation, and is duly organized, validly existing, and (as
to corporations) in good standing under the Laws of the jurisdiction in which it
is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each FLAG Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Each FLAG Subsidiary that is a depository
institution is an "insured institution" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder. The minute book and other
organizational documents for each FLAG Subsidiary have been made available to
THOMASTON FEDERAL 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.
23
<PAGE>
6.5 SEC Filings, Financial Statements.
- --------------------------------------
(a) FLAG has timely filed and made available to THOMASTON FEDERAL all SEC
Documents required to be filed by FLAG since December 31, 1993 (the "FLAG SEC
Reports"). The FLAG SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Laws and other
applicable Laws and (ii) did not, at the time they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such FLAG SEC Reports or necessary in
order to make the statements in such FLAG SEC Reports, in light of the
circumstances under which they were made, not misleading. No FLAG Subsidiary is
required to file any SEC Documents.
(b) Each of the FLAG Financial Statements (including, in each case, any
related notes) contained in the FLAG SEC Reports, including any FLAG SEC Reports
filed after the date of this Agreement until the Effective Time, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of FLAG
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect.
6.6 Absence of Undisclosed Liabilities.
- --------------------------------------------
No FLAG Entity has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a FLAG Material Adverse Effect, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of FLAG as of December 31, 1998, included in the FLAG Financial
Statements or reflected in the notes thereto. No FLAG Entity has incurred or
paid any Liability since December 31, 1998, except for such Liabilities incurred
or paid (i) in the ordinary course of business consistent with past business
practice and which are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect or (ii) in connection with the
transactions contemplated by this Agreement.
6.7 Absence of Certain Changes or Events.
- --------------------------------------------
Since December 31, 1998, 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.
24
<PAGE>
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,
1998, and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, except to the extent that all such failures to
file, taken together, are not reasonably likely to have a FLAG Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. There is no audit
examination, deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a FLAG Material Adverse Effect, except as reserved against in
the FLAG Financial Statements delivered prior to the date of this Agreement or
as disclosed in Section 6.8 of the FLAG Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of the FLAG Entities, except for any such Liens which are
not reasonably likely to have a FLAG Material Adverse Effect or with respect to
which the Taxes are not 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) 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.
25
<PAGE>
(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, 1998.
(i) No FLAG Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
(j) All material elections with respect to Taxes affecting the FLAG
Entities have been or will be timely made.
6.9 Allowance for Possible Loan Losses.
- ---------------------------------------
The Allowance shown on the consolidated balance sheets of FLAG included in
the most recent FLAG Financial Statements dated prior to the date of this
Agreement was, and the Allowance shown on the consolidated balance sheets of
FLAG included in the FLAG Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate (within
the meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for all known or reasonably anticipated losses relating to or inherent
in the loan and lease portfolios (including accrued interest receivables) of the
FLAG Entities and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the FLAG Entities as of the dates
thereof, except where the failure of such Allowance to be so adequate is not
reasonably likely to have a FLAG Material Adverse Effect.
6.10 Assets.
- -------------
(a) Except as disclosed in Section 6.10 of the FLAG Disclosure Memorandum
or as disclosed or reserved against in the FLAG Financial Statements delivered
prior to the date of this Agreement, the FLAG Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have a FLAG Material Adverse Effect. All tangible properties used in the
businesses of the FLAG Entities are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
FLAG's past practices.
(b) All Assets which are material to FLAG's business on a consolidated
basis, held under leases or subleases by any of the FLAG Entities, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect.
26
<PAGE>
(c) The FLAG Entities currently maintain insurance similar in amounts,
scope and coverage to that maintained by other peer banking organizations. None
of the FLAG Entities has received notice from any insurance carrier that (i) any
policy of insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no claims for
amounts exceeding in any individual case $25,000 pending under such policies of
insurance and no notices of claims in excess of such amounts have been given by
any FLAG Entity under such policies.
(d) The Assets of the FLAG Entities include all Assets required to operate
the business of the FLAG Entities as presently conducted.
6.11 Intellectual Property.
- ----------------------------
Each FLAG Entity owns or has a license to use all of the Intellectual
Property used by such FLAG Entity in the course of its business. Each FLAG
Entity is the owner of or has a license to any Intellectual Property sold or
licensed to a third party by such FLAG Entity in connection with such FLAG
Entity's business operations, and such FLAG Entity has the right to convey by
sale or license any Intellectual Property so conveyed. No FLAG Entity is in
Default under any of its Intellectual Property licenses. No proceedings have
been instituted, or are pending or to the Knowledge of FLAG threatened, which
challenge the rights of any FLAG Entity with respect to Intellectual Property
used, sold or licensed by such FLAG Entity in the course of its business, nor
has any person claimed or alleged any rights to such Intellectual Property. The
conduct of the business of the FLAG Entities does not infringe any Intellectual
Property of any other person. Except as disclosed in Section 6.11 of the FLAG
Disclosure Memorandum, no FLAG Entity is obligated to pay any recurring
royalties to any Person with respect to any such Intellectual Property.
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) There is no Litigation pending or threatened before any court,
governmental agency, or authority or other forum in which any FLAG Entity or any
of its Operating Properties or Participation Facilities (or FLAG in respect of
such Operating Property or Participation Facility) has been or, with respect to
threatened Litigation, may be named as a defendant (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the emission, migration, release, discharge, spillage, or disposal into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any FLAG Entity or any of its Operating Properties or Participation
Facilities or any neighboring property, except for 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.
27
<PAGE>
(c) During the period of (i) any FLAG Entity's ownership or operation of
any of their respective current properties, (ii) any FLAG Entity's participation
in the management of any Participation Facility or any Operating Property, there
have been no emissions, migrations, releases, discharges, spillages, or
disposals of Hazardous Material in, on, at, under, adjacent to, or affecting (or
potentially affecting) such properties or any neighboring properties, except
such as are not reasonably likely to have, individually or in the aggregate, a
FLAG Material Adverse Effect. Prior to the period of (i) any FLAG Entity's
ownership or operation of any of their respective current properties, (ii) any
FLAG Entity's participation in the management of any Participation Facility or
any Operating Property, to the Knowledge of FLAG, there were no releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such property, Participation Facility or Operating Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect.
6.13 Compliance with Laws.
- -----------------------------
FLAG is duly registered as a bank holding company under federal and state
bank holding company Laws. Each FLAG Entity has in effect all Permits necessary
for it to own, lease or operate its material Assets and to carry on its business
as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a FLAG Material Adverse Effect. Except as disclosed in Section 6.13
of the FLAG Disclosure Memorandum, none of the FLAG Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which are not
reasonably likely to, have, individually or in the aggregate, a FLAG Material
Adverse Effect; or
(c) since January 1, 1995, has received any notification or communication
from any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any FLAG Entity is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, (ii) threatening to revoke any Permits, the revocation of which
is reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect, or (iii) requiring any FLAG Entity to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution or
similar undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends. Copies of all material reports,
correspondence, notices and other documents relating to any inspection, audit,
monitoring or other form of review or enforcement action by a Regulatory
Authority have been made available to THOMASTON FEDERAL.
28
<PAGE>
6.14 Labor Relations.
- ----------------------
No FLAG Entity is the subject of any Litigation asserting that it or any
other FLAG Entity has committed an unfair labor practice (within the meaning of
the National Labor Relations Act or comparable state law) or seeking to compel
it or any other FLAG Entity to bargain with any labor organization as to wages
or conditions of employment, nor is any FLAG Entity party to any collective
bargaining agreement, nor is there any strike or other labor dispute involving
any FLAG Entity, pending or threatened, or to the Knowledge of FLAG, is there
any activity involving any FLAG Entity's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
6.15 Employee Benefit Plans.
- ----------------------------
(a) FLAG has disclosed in Section 6.15 of the FLAG Disclosure Memorandum
and has delivered or made available to THOMASTON FEDERAL prior to the execution
of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any FLAG Entity or ERISA Affiliate
thereof for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "FLAG Benefit
Plans"). Each FLAG Benefit Plan which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as a "FLAG
ERISA Plan." Each FLAG ERISA Plan which is also a "defined benefit plan" (as
defined in Section 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 has no Knowledge 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
29
<PAGE>
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 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 of FLAG 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 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.
30
<PAGE>
6.16 Material Contracts.
- --------------------------
Except as disclosed in Section 6.16 of the FLAG Disclosure Memorandum or
otherwise reflected in the FLAG Financial Statements, none of the FLAG Entities,
nor any of their respective Assets, businesses, or operations, is a party to, or
is bound or affected by, or receives benefits under, (i) any employment,
severance, termination, consulting or retirement Contract providing for
aggregate payments to any Person in any calendar year in excess of $50,000, (ii)
any Contract relating to the borrowing of money by any FLAG Entity or the
guarantee by any FLAG Entity of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, and Federal Home Loan Bank advances of depository
institution Subsidiaries, trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contract which
prohibits or restricts any FLAG Entity from engaging in any business activities
in any geographic area, line of business or otherwise in competition with any
other Person, (iv) any Contract between or among FLAG Entities, (v) any Contract
relating to the provision of data processing, network communication, or other
technical services to or by any FLAG Entity, (vi) any exchange-traded or
over-the-counter swap, forward, future, option, cap, floor, or collar financial
Contract, or any other interest rate or foreign currency protection Contract not
included on its balance sheet which is a financial derivative Contract, or (vii)
any other Contract or amendment thereto that would be required to be filed as an
exhibit to a Form 10-K filed by FLAG with the SEC as of the date of this
Agreement that has not been filed as an exhibit to FLAG's Form 10-K filed for
the fiscal year ended December 31, 1998, or in an SEC Document and identified to
THOMASTON FEDERAL (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. Except as disclosed in Section 6.16 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.
6.17 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.
31
<PAGE>
6.18 Reports.
- --------------
Since January 1, 1993, each FLAG Entity has timely filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with Regulatory Authorities (except, in
the case of state securities authorities, failures to file which are not
reasonably likely to have, individually or in the aggregate, a FLAG Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
6.19 Statements True and Correct
- --------------------------------
No statement, certificate, instrument or other writing furnished or to be
furnished by any FLAG Entity to THOMASTON FEDERAL pursuant to this Agreement or
any other document, agreement or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the information supplied or
to be supplied by any FLAG Entity for inclusion in the Registration Statement to
be filed by FLAG with the SEC, will, when such Registration Statement becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein not misleading.
None of the documents to be filed by any FLAG Entity with the SEC or any other
Regulatory Authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. All documents that any FLAG Entity thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
6.20 Accounting, Tax and Regulatory Matters.
- --------------------------------------------
No FLAG Entity has taken or agreed to take any action or has any Knowledge
of any fact or circumstance that is reasonably likely to (i) prevent the Merger
from qualifying for pooling of interests accounting treatment and as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.l(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.21 Charter Provisions.
- ---------------------------
Each FLAG Entity has taken all action so that the entering into of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement do not and will not result in the grant of any
rights to any Person under the Charter, Articles of Incorporation, Bylaws or
other governing instruments of any FLAG Entity or restrict or impair the ability
of FLAG or any of its Subsidiaries to vote, or otherwise to exercise the rights
of a shareholder with respect to, shares of any FLAG Entity that may be directly
or indirectly acquired or controlled by them.
32
<PAGE>
6.22 Board Approval.
- ---------------------
The Board of Directors of FLAG, at a meeting duly called and held, has by
unanimous vote of those directors present (who constituted all of the directors
then in office) determined that this Agreement and the transactions contemplated
hereby, including the Merger, taken together, are fair to and in the best
interests of the FLAG shareholders. Applicable Law does not require that FLAG
shareholders approve this Agreement and/or the transactions contemplated hereby,
including the Merger.
6.23 Y2K. No FLAG Entity has received, nor to FLAG's Knowledge are there facts
that would form the basis for the issuance of, a "Year 2000 Deficiency
Notification Letter" (as such term is employed in the Federal Reserve's
Supervision and Regulatory Letter No. SR 98-3 (SUP), dated March 4, 1998). FLAG
has disclosed to THOMASTON FEDERAL a complete and accurate copy of its plan,
including its good faith estimate of the anticipated associated costs, for
addressing the issues set forth in the Year 2000 guidance papers issued by the
Federal Financial Institutions Examination Council (the "FFIEC"), including the
statement dated May 5, 1997, entitled "Year 2000 Project Management Awareness,"
December 17, 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," October 15, 1998, entitled "Interagency Guidelines
Establishing Year 2000 Standards for Safety and Soundness," and any subsequent
guidance papers issued by the FFIEC, as such issues affect any FLAG Entity.
Between the date of this Agreement and the Effective Time, FLAG shall use its
reasonable best efforts to implement such plan. FLAG has formed a committee to
review policies and directives issued by Regulatory Authorities with respect to
preparedness for year 2000 data processing and other operations, and intends to
implement such committee's recommendations for ensuring compliance with such
policies and directives.
6.24 Matters Relating to INTERIM.
- -----------------------------------
At the Effective Time, INTERIM will be an interim federal savings
association chartered by the OTS, and will have the corporate power and
authority to carry on its business as contemplated by this Agreement and to own,
lease and operate its material Assets. INTERIM will have the corporate power
necessary to approve, adopt and ratify this Agreement and to consummate the
transactions contemplated hereby. The approval, adoption and ratification of
this Agreement, the performance of the Agreement, and the consummation of the
transactions contemplated therein, including the Merger, will be duly and
validly authorized by all necessary corporate action in respect thereof on the
part of INTERIM, subject to the approval of the Agreement by FLAG, as the sole
shareholder of INTERIM, which is the only shareholder vote required for approval
of the Agreement, and the consummation of the Merger by INTERIM. When INTERIM
approves, adopts and ratifies this Agreement, this Agreement will represent a
legal, valid and binding obligation of INTERIM, enforceable against INTERIM 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).
33
<PAGE>
ARTICLE 7.
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Affirmative Covenants of THOMASTON FEDERAL.
- ------------------------------------------------
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,
THOMASTON FEDERAL 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 THOMASTON FEDERAL.
- -----------------------------------------------
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,
THOMASTON FEDERAL 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 Charter, Articles of Incorporation, Bylaws or other governing
instruments of any THOMASTON FEDERAL entity, except to amend the Bylaws of
THOMASTON FEDERAL to allow THOMASTON FEDERAL to hold its annual meeting of
shareholders to be held in 1999 within 210 days after the end of the 1998 fiscal
year; or
(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a THOMASTON FEDERAL Entity to another
THOMASTON FEDERAL Entity) in excess of an aggregate of $100,000 (for THOMASTON
FEDERAL Entities on a consolidated basis) except in the ordinary course of the
business of the THOMASTON FEDERAL Subsidiaries consistent with past practices
(which shall include, for the THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity
of any Lien or permit any such Lien to exist (other than in connection with
deposits, repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business, the satisfaction of
legal requirements in the exercise of trust powers, and Liens in effect as of
the date hereof that are disclosed in Section 7.2(b) of the THOMASTON FEDERAL
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 THOMASTON FEDERAL Entity, or declare or pay any dividend or
make any other distribution in respect of THOMASTON FEDERAL's capital stock,
except in accordance with past practice specifically disclosed in Section 7.2(c)
of the THOMASTON FEDERAL Disclosure Memorandum; or
34
<PAGE>
(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 THOMASTON FEDERAL
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
THOMASTON FEDERAL Common Stock or any other capital stock of any THOMASTON
FEDERAL 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 THOMASTON
FEDERAL Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of THOMASTON FEDERAL 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 THOMASTON FEDERAL Subsidiary (unless any such shares of stock are
sold or otherwise transferred to another THOMASTON FEDERAL Entity); or
(f) except for loans made in the ordinary course of its business, make any
material investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other than a
wholly owned THOMASTON FEDERAL 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 THOMASTON FEDERAL Entity, other than in the ordinary course of
business, provided that THOMASTON FEDERAL will not increase any officer's or
employee's compensation by more than ten percent (10%); 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 THOMASTON FEDERAL Disclosure Memorandum; and enter into or amend
any severance agreements with officers of any THOMASTON FEDERAL Entity; grant
any material increase in fees or other increases in compensation or other
benefits to directors of any THOMASTON FEDERAL Entity except in accordance with
past practice disclosed in Section 7.2(g) of the THOMASTON FEDERAL 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 THOMASTON
FEDERAL Entity and any Person having a salary thereunder in excess of $50,000
per year (unless such amendment is required by Law) that the THOMASTON FEDERAL
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
35
<PAGE>
(i) adopt any new employee benefit plan of any THOMASTON FEDERAL Entity or
terminate or withdraw from, or make any material change in or to, any existing
employee benefit plans of any THOMASTON FEDERAL 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 THOMASTON FEDERAL Disclosure
Memorandum, settle any Litigation involving any Liability of any THOMASTON
FEDERAL Entity for material money damages or restrictions upon the operations of
any THOMASTON FEDERAL Entity; or
(l) except in the ordinary course of business, enter into, modify, amend or
terminate any material Contract (including any loan Contract with an unpaid
balance exceeding $50,000) or waive, release, compromise or assign any material
rights or claims.
7.3 Affirmative Covenants of FLAG.
- ------------------------------------
From the date of this Agreement until the earlier of the Effective Time or
the termination of this Agreement, unless the prior written consent of THOMASTON
FEDERAL 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 THOMASTON
FEDERAL shall have been obtained, and except as otherwise expressly contemplated
herein, FLAG covenants and agrees that it will not amend the Articles of
Incorporation or Bylaws of FLAG in any manner adverse to the holders of
THOMASTON FEDERAL Common Stock, or take any action which will materially
adversely impact the ability of FLAG Entities to consummate the transactions
contemplated by this Agreement.
36
<PAGE>
7.5 Adverse Changes in Condition.
- ---------------------------------
Each of FLAG and THOMASTON FEDERAL agrees to give written notice promptly
to the other upon becoming aware of the occurrence or impending occurrence of
any event or circumstance relating to it or any of its Subsidiaries which (i) is
reasonably likely to have, individually or in the aggregate, a THOMASTON FEDERAL
Material Adverse Effect or a FLAG Material Adverse Effect, as applicable, or
(ii) would cause or constitute a material breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts to
prevent or promptly to remedy the same.
7.6 Reports.
- ------------
Each of FLAG and THOMASTON FEDERAL and their Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other copies
of all such periodic reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material). As
of their respective dates, such reports filed with the SEC will comply in all
material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in accordance with Laws applicable to such reports.
ARTICLE 8.
ADDITIONAL AGREEMENTS
---------------------
8.1 Registration Statement.
- ---------------------------
(a) As soon as practicable after execution of this Agreement, FLAG shall
prepare and file the Registration Statement with the SEC, and shall use its
reasonable best 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 to the shareholders of THOMASTON FEDERAL upon consummation
of the Merger. No filing of, or amendment or supplement to, the Registration
Statement will be made by FLAG without providing THOMASTON FEDERAL the
opportunity to review and comment thereon. FLAG will advise THOMASTON FEDERAL
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of FLAG
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment to the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information. THOMASTON FEDERAL 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. FLAG and THOMASTON FEDERAL shall make
all necessary filings with respect to the Merger under the Securities Laws.
37
<PAGE>
(b) FLAG will indemnify and hold harmless THOMASTON FEDERAL its directors,
officers and other persons, if any, who control THOMASTON FEDERAL within the
meaning of the Securities Act from and against (including, without limitation,
advance, prior to final disposition of the matter, the expenses of defending)
any losses, claims, damages, liabilities or judgments, joint or several, to
which they or any of them may become subject, insofar as such losses, claims,
damages, liabilities, or judgments (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or in any amendment or supplement
thereto, or in any state application for qualification, permit, exemption or
registration as a broker/dealer, or in any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will advance expenses to or reimburse
each such person for any legal or other expenses reasonably incurred by such
person in connection with investigating or defending any such action or claim to
the maximum extent permitted by the GBCC; provided, however, that FLAG shall not
be liable, in any such case, to the extent that any such loss, claim, damage,
liability, or judgment (or action in respect thereof) arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, or any such amendment or supplement
thereto, or in any such state application, or in any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to FLAG by or on behalf of either THOMASTON FEDERAL or any officer, director or
affiliate of THOMASTON FEDERAL specifically for use therein.
(c) Promptly after receipt by an indemnified party under subparagraph (b)
above of notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against FLAG under such
subparagraph, notify FLAG in writing of the commencement thereof. In case any
such action shall be brought against any indemnified party and it shall notify
FLAG of the commencement thereof, FLAG shall be entitled to participate therein
and, to the extent that it shall wish, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party, and, after notice
from FLAG to such indemnified party of its election so to assume the defense
thereof, FLAG shall not be liable to such indemnified party under such
subparagraph for any legal expenses of other counsel or any other expenses
subsequently incurred by such indemnified party; provided, however, if FLAG
elects not to assume such defense or if counsel for the indemnified party
advises FLAG in writing that there are material substantive issues which raise
conflicts of interest between FLAG or THOMASTON FEDERAL and the indemnified
party, such indemnified party may retain counsel satisfactory to it and FLAG
shall pay all reasonable fees and expenses of such counsel for the indemnified
party promptly as statements therefor are received. Notwithstanding the
foregoing, FLAG shall not be obligated to pay the fees and expenses of more than
one counsel for all parties indemnified by FLAG in respect of such claim unless,
in the reasonable judgment of any such indemnified party, a conflict of interest
exists between such indemnified party and any other of such indemnified parties
in respect to such claims.
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 THOMASTON FEDERAL 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.
38
<PAGE>
8.3 Shareholder Approval.
- -------------------------
(a) THOMASTON FEDERAL shall call a Shareholders' Meeting, to be held as
soon as reasonably practicable after the Registration Statement is declared
effective by the SEC, for the purpose of voting upon approval of this Agreement
and such other related matters as it deems appropriate. In connection with the
Shareholders' Meeting, the Board of Directors of THOMASTON FEDERAL shall
recommend to its shareholders, subject to the conditions in such authorization
and recommendation by the Board of Directors, the approval of the matters
submitted for approval (subject to the Board of Directors of THOMASTON FEDERAL,
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 THOMASTON
FEDERAL's shareholders, under applicable law), and the Board of Directors and
officers of THOMASTON FEDERAL shall use their reasonable efforts to obtain such
shareholders' approval (subject to the Board of Directors of THOMASTON FEDERAL,
after having consulted with and considered the advice of outside counsel,
reasonably determining in good faith that the taking of such actions would
constitute a breach of fiduciary duties of the members of such Board of
Directors to the THOMASTON FEDERAL shareholders, under applicable law).
(b) INTERIM shall call an INTERIM Shareholders' Meeting, to be held as soon
as reasonably practicable after its organization, for the purpose of voting upon
approval of this Agreement and such other related matters as it deems
appropriate. In connection with the INTERIM Shareholders' Meeting, the Board of
Directors of INTERIM shall recommend to its shareholder, subject to the
conditions in such authorization and recommendation by the Board of Directors,
the approval of the matters submitted for approval, and the Board of Directors
and officers of INTERIM shall use their reasonable efforts to obtain its
shareholder's approval. FLAG, as sole shareholder of INTERIM, shall vote its
shares of INTERIM in favor of this Agreement.
8.4 Applications.
- ------------------
FLAG shall promptly prepare and file, and THOMASTON FEDERAL shall cooperate
in the preparation and, where appropriate, filing of, applications with all
Regulatory Authorities having jurisdiction over the transactions contemplated by
this Agreement, including, without limitation, the Board of Governors of the
Federal Reserve System, the OTS, and the Georgia Department of Banking and
Finance, seeking the requisite Consents necessary to consummate the transactions
contemplated by this Agreement. The Parties shall deliver to each other copies
of all filings, correspondence and orders to and from all Regulatory Authorities
in connection with the transactions contemplated hereby.
8.5 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,
39
<PAGE>
the transactions contemplated by this Agreement, including using its reasonable
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied the
conditions 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 the
consummation of the Merger, and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the Party
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby, and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of any other Party.
(b) Each Party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
Party concerning its and its Subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Each Party shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to such Party to preserve the
confidentiality of the information relating to such Party and its Subsidiaries
provided to such Persons and their Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a THOMASTON FEDERAL Material Adverse
Effect or a FLAG Material Adverse Effect, as applicable.
8.7 Press Releases.
- --------------------
Prior to the Effective Time, THOMASTON FEDERAL and FLAG shall use their
reasonable best efforts to consult with each other as to the form and substance
of any press release or other public disclosure 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 shall reasonably deem necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.
40
<PAGE>
8.8 Certain Actions.
- --------------------
Except with respect to this Agreement and the transactions contemplated
hereby, no THOMASTON FEDERAL Entity nor any Representatives thereof retained by
any THOMASTON FEDERAL Entity shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent the Board of Directors
of THOMASTON FEDERAL, 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 THOMASTON FEDERAL's shareholders, under applicable
Law, no THOMASTON FEDERAL Entity or Representative thereof shall furnish any
non-public information that it is not legally obligated to furnish, negotiate
with respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but THOMASTON FEDERAL may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent, upon the advice
of counsel, THOMASTON FEDERAL reasonably determines that it is required to do so
in order to comply with its legal obligations. Notwithstanding the foregoing,
if, at any time prior to the Effective Time, the Board of Directors of THOMASTON
FEDERAL determines in good faith, based on the advice of outside counsel and its
financial advisors, that the terms of an Acquisition Proposal are more desirable
to THOMASTON FEDERAL than the terms of this Agreement or the proposed Merger and
that the Board of Directors has a fiduciary duty to consider and respond to the
Acquisition Proposal under applicable law, THOMASTON FEDERAL in response to a
written Acquisition Proposal may furnish nonpublic information with respect to
THOMASTON FEDERAL to the person who made such Acquisition Proposal. THOMASTON
FEDERAL shall promptly advise FLAG following the receipt of any Acquisition
Proposal and the details thereof, and advise FLAG of any developments with
respect to such Acquisition Proposal promptly upon, but in any event not more
than five business days after, the occurrence thereof. THOMASTON FEDERAL shall
(i) immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
to any of the foregoing, and (ii) direct and use its reasonable efforts to cause
its Representatives not to engage in any of the foregoing.
8.9 Accounting and Tax Treatment.
- ---------------------------------
Each of the Parties undertakes and agrees to use its reasonable efforts to
cause the Merger to, and to take no action which would cause the Merger not to,
qualify for pooling of interests accounting treatment and as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code for federal
income tax purposes.
8.10 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 charter,
articles of incorporation, bylaws or other governing instruments of such Party
or any of its Subsidiaries or restrict or impair the ability of FLAG or any of
its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of any THOMASTON FEDERAL Entity that may be directly or
indirectly acquired by them.
8.11 Agreements of Affiliates.
- ------------------------------
THOMASTON FEDERAL has disclosed in Section 8.11 of the THOMASTON FEDERAL
Disclosure Memorandum each Person whom it reasonably believes is an "affiliate"
41
<PAGE>
of THOMASTON FEDERAL for purposes of Rule 145 under the 1933 Act. THOMASTON
FEDERAL shall use its reasonable efforts to cause each such Person to deliver to
FLAG not later than 30 days after the date of this Agreement a written
agreement, substantially in the form of Exhibit 1, providing that such Person
will not sell, pledge, transfer, or otherwise dispose of the shares of the
THOMASTON FEDERAL Common Stock held by such Person except as contemplated by
such agreement or by this Agreement and will not sell, pledge, transfer, or
otherwise dispose of the shares of FLAG Common Stock to be received by such
Person upon consummation of the Merger except in compliance with applicable
provisions of the 1933 Act and the rules and regulations thereunder and until
such time as financial results covering at least 30 days of combined operations
of FLAG and THOMASTON FEDERAL have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies, except that
transfers may be made in compliance with Staff Accounting Bulletin No. 76 issued
by the SEC. Except for transfers made in compliance with Staff Accounting
Bulletin No. 76, shares of FLAG Common Stock issued to such affiliates of
THOMASTON FEDERAL shall not be transferable until such time as financial results
covering at least 30 days of combined operations of FLAG and THOMASTON FEDERAL
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 8.12.
FLAG shall be entitled to place restrictive legends upon certificates for shares
of FLAG Common Stock issued to affiliates of THOMASTON FEDERAL pursuant to this
Agreement to enforce the provisions of this Section 8.12. FLAG shall not be
required to maintain the effectiveness of the Registration Statement under the
1933 Act for the purposes of resale of FLAG Common Stock by such affiliates.
8.12 Employee Benefits and Contracts.
- --------------------------------------
Following the Effective Time, FLAG shall either (i) continue to provide to
officers and employees of the THOMASTON FEDERAL Entities employee benefits under
THOMASTON FEDERAL's existing employee benefit and welfare plans or, (ii) if FLAG
shall determine to provide to officers and employees of the THOMASTON FEDERAL
Entities employee benefits under other employee benefit plans and welfare plans,
provide generally to officers and employees of the THOMASTON FEDERAL Entities
employee benefits under employee benefit and welfare plans, on terms and
conditions which when taken as a whole are substantially similar to those
currently provided by the FLAG Entities to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) under FLAG's employee benefit plans, (i) service under any qualified
defined contribution plans of THOMASTON FEDERAL shall be treated as service
under FLAG's qualified defined contribution plans, and (ii) service under any
other THOMASTON FEDERAL Benefit Plans shall be treated as service under any
similar employee benefit plans maintained by FLAG. With respect to officers and
employees of the THOMASTON FEDERAL 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 THOMASTON FEDERAL Entities, FLAG shall cause each comparable employee
welfare benefit plan which is substituted for a THOMASTON FEDERAL 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
42
<PAGE>
any, that overlaps with the then current plan year for each such substituted
employee welfare benefit plans. FLAG also shall cause the Surviving Bank and its
Subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation Contracts disclosed in Section 5.16 of the
THOMASTON FEDERAL Disclosure Memorandum to FLAG between any THOMASTON FEDERAL
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 THOMASTON FEDERAL Benefit Plans.
8.13 Indemnification.
- ----------------------
FLAG shall indemnify, defend and hold harmless each person entitled to
indemnification from a THOMASTON FEDERAL 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 OTS regulations and by
THOMASTON FEDERAL's Charter 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.
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 THOMASTON FEDERAL 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.
(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 any Party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement that, had
such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
43
<PAGE>
(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 THOMASTON FEDERAL Material Adverse
Effect or a FLAG Material Adverse Effect, as applicable. No Consent so obtained
which is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of any Party would so materially adversely impact the
economic or business benefits of the transactions contemplated by this Agreement
that, had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(d) Legal Proceedings. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, restricts, makes illegal or, in good faith,
inadvisable, the consummation of the transactions contemplated by this
Agreement.
(e) Registration Statement. The Registration Statement shall be effective
under the 1933 Act, and no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of FLAG Common Stock issuable pursuant to the Merger shall have been
received.
(f) Nasdaq Listing. The shares of FLAG Common Stock issuable pursuant to
the Merger shall have been approved for listing on the Nasdaq National Market.
(g) Tax Matters. Each Party shall have received a written opinion of
counsel from Powell, Goldstein, Frazer & Murphy LLP, in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, (ii) the exchange in the Merger of THOMASTON FEDERAL
Common Stock for FLAG Common Stock will not give rise to gain or loss to the
shareholders of THOMASTON FEDERAL with respect to such exchange (except to the
extent of any cash received), and (iii) neither THOMASTON FEDERAL nor FLAG will
recognize gain or loss as a consequence of the Merger (except for amounts
resulting from any required change in accounting methods and any income and
deferred gain recognized pursuant to Treasury regulations issued under Section
1502 of the Internal Revenue Code). In rendering such Tax Opinion, such counsel
shall be entitled to rely as to matters of fact upon representations of officers
of THOMASTON FEDERAL and FLAG reasonably satisfactory in form and substance to
such counsel.
(h) Employment Matters. Robert G. Cochran, President and Chief Executive
Officer of THOMASTON FEDERAL, and Joel Dudley, Manager of THOMASTON FEDERAL's
loan production offices, shall each have negotiated a mutually satisfactory
employment/separation agreement with FLAG which shall have an initial term of
three years.
44
<PAGE>
(i) Dissenting Stockholders. The number of shares of THOMASTON FEDERAL
Common Stock for which THOMASTON FEDERAL stockholders seek appraisal rights as
dissenting stockholders under Section 552.14 of the OTS regulations shall not
exceed nine percent (9%) of the THOMASTON FEDERAL COMMON STOCK outstanding as of
the Effective Time.
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 THOMASTON FEDERAL 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 changes resulting from the
exercise of outstanding stock options, and except for inaccuracies which are de
minimus in amount). The representations and warranties set forth in Sections
5.21 and 5.22 shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of THOMASTON
FEDERAL set forth in this Agreement (including the representations and
warranties set forth in Sections 5.3, 5.21 and 5.22) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a THOMASTON
FEDERAL 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 THOMASTON FEDERAL 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. THOMASTON FEDERAL shall have delivered to FLAG (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its secretary, to the effect that to their Knowledge
the conditions set forth in Section 9.1 as relates to THOMASTON FEDERAL and in
Section 9.2(a) and 9.2(b) have been satisfied; provided, -------- however, that
the representations, warranties and covenants to which such certificate relates
shall not been deemed to ------- have survived the Closing, and (ii) certified
copies of resolutions duly adopted by THOMASTON FEDERAL'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 reasonably request.
45
<PAGE>
(d) Opinion of Counsel. FLAG shall have received an opinion of Long
Aldridge & Norman LLP, counsel to THOMASTON FEDERAL, dated as of the Closing
Date, in form reasonably satisfactory to FLAG, as to the matters set forth in
Exhibit 2.
(e) Pooling Letters. FLAG shall have received an opinion of Porter Keadle
Moore, LLP, dated as of the Closing Date, addressed to FLAG and in form and
substance reasonably acceptable to FLAG, to the effect that the Merger, for
accounting purposes, shall qualify for treatment as a pooling of interests.
(f) Affiliates Agreements. FLAG shall have received from each affiliate of
THOMASTON FEDERAL the affiliate agreement referred to in Section 8.11 and
Exhibit 1.
(g) Claims Letters. Each of the directors and officers of THOMASTON FEDERAL
shall have executed and delivered to FLAG letters in substantially the form of
Exhibit 3.
9.3 Conditions to Obligations of THOMASTON FEDERAL.
- ---------------------------------------------------
The obligations of THOMASTON FEDERAL 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 THOMASTON
FEDERAL pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section 9.3(a),
the accuracy of the representations and warranties of FLAG set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties set forth in
Section 6.3 shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties of FLAG set forth in
Section 6.20 and 6.21 shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of FLAG set
forth in this Agreement (including the representations and warranties set forth
in Sections 6.3, 6.20 and 6.21) 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 THOMASTON FEDERAL (i) a
certificate, dated as of the Closing Date and signed on its behalf by its chief
executive officer and its chief financial officer, to the effect that to the
best of their knowledge the conditions set forth in Section 9.1 as relates to
FLAG and in Section 9.3(a) and 9.3(b) have been satisfied; provided, however,
46
<PAGE>
that the representations, warranties and covenants to which such certificate
relates shall not been deemed to have survived the Closing, and (ii) certified
copies of resolutions duly adopted by FLAG's Board of Directors evidencing the
taking of all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as THOMASTON FEDERAL and its
counsel shall request.
(d) Opinion of Counsel. THOMASTON FEDERAL shall have received an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to FLAG, dated as of the Closing
Date, in form reasonably acceptable to THOMASTON FEDERAL, as to the matters set
forth in Exhibit 4.
(e) Fairness Opinions. THOMASTON FEDERAL shall have received from The
Robinson-Humphrey Company opinions that the terms of the Merger are fair to the
stockholders of THOMASTON FEDERAL from a financial point of view. Such opinions
shall be dated the date of approval of this Agreement by THOMASTON FEDERAL'S
Board of Directors, and as of the date of the proxy materials relating to the
Merger mailed to THOMASTON FEDERAL stockholders.
ARTICLE 10.
TERMINATION
-----------
10.1 Termination.
- ------------------
Notwithstanding any other provision of this Agreement, and notwithstanding
the approval of this Agreement by the shareholders of THOMASTON FEDERAL, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) By mutual consent of FLAG and THOMASTON FEDERAL; or
(b) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written notice to
the breaching Party of such breach and which breach is reasonably likely, in the
opinion of the non-breaching Party, to have, individually or in the aggregate, a
THOMASTON FEDERAL 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
47
<PAGE>
(d) By either Party (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final non-appealable action of
such authority or if any action taken by such authority is not appealed within
the time limit for appeal, or (ii) the shareholders of THOMASTON FEDERAL fail to
vote their approval of the matters relating to this Agreement and the
transactions contemplated hereby at the Shareholders' Meeting where such matters
were presented to such shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by October 31, 1999, 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 THOMASTON FEDERAL in the event that prior to the Effective Time,
THOMASTON FEDERAL enters into a definitive agreement with respect to the sale of
THOMASTON FEDERAL to any person or entity who or which has made an Acquisition
Proposal and THOMASTON FEDERAL has paid FLAG $100,000 as reimbursement for the
expenses of FLAG incurred in connection with the Merger.
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(e) shall not relieve the breaching
Party from Liability for an uncured willful breach of a representation,
warranty, covenant, or agreement giving rise to such termination.
10.3 Non-Survival of Representations and Covenants.
- ---------------------------------------------------
The respective representations, warranties, obligations, covenants, and
agreements of the Parties shall not survive the Effective Time except this
Section 10.3 and Articles 1, 2, 3, 4 and 11 and Sections 8.12 and 8.13.
ARTICLE 11.
MISCELLANEOUS
-------------
11.1 Definitions.
- ------------------
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
48
<PAGE>
"Acquisition Proposal" with respect to a Party shall mean any tender offer
or exchange offer or any proposal for a merger, acquisition of all of the stock
or assets of, or other business combination involving the acquisition of such
Party or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any of its
Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits, the FLAG Disclosure Memorandum and the THOMASTON FEDERAL Disclosure
Memorandum delivered pursuant hereto and incorporated herein by reference.
"Articles of Combination" shall mean the Articles filed with the OTS to
effect the merger of INTERIM with and into THOMASTON FEDERAL.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, or any Affiliate of such Person and wherever located.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement (provided such oral
agreement is, in any one year period, in excess of $5,000 individually, or
$25,000 in the aggregate), arrangement, authorization, commitment, contract,
indenture, instrument, lease, obligation, plan, practice, restriction,
understanding, or undertaking of any kind or character, to which any Person is a
party or that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, after
failing to cure any such breach, violation, default, contravention or conflict
within any applicable grace or cure period, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both would constitute a
breach or violation of, default under, contravention of, or conflict with, any
Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with
or without the passage of time or the giving of notice would give rise to a
right of any Person to exercise any remedy or obtain any relief under, terminate
or revoke, suspend, cancel, or modify or change the current terms of, or
renegotiate, or to accelerate the maturity or performance of, or to increase or
impose any Liability under, any Contract, Law, Order, or Permit.
49
<PAGE>
"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.
"Equity Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exhibits 1 through 4," inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FLAG Capital Stock" shall mean, collectively, the FLAG Common Stock, the
FLAG Preferred Stock and any other class or series of capital stock of FLAG.
"FLAG Common Stock" shall mean the $1.00 par value common stock of FLAG.
"FLAG Disclosure Memorandum" shall mean the written information entitled
"FLAG Financial Corporation Disclosure Memorandum" delivered prior to execution
of this Agreement to THOMASTON FEDERAL describing in reasonable detail the
matters contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto, unless it is clear from the
disclosure of such information that it applies to other Sections.
50
<PAGE>
"FLAG Entities" shall mean, collectively, FLAG and all FLAG Subsidiaries.
"FLAG Financial Statements" shall mean the consolidated balance sheets
(including related notes and schedules, if any) of FLAG as of December 31, 1998
and as of December 31, 1997 and 1996, and the related statements of income,
changes in shareholders' equity, and cash flows (including related notes and
schedules, if any) for each of the three fiscal years ended December 31, 1997,
1996 and 1995, as filed by FLAG in SEC Documents, and (ii) the consolidated
balance sheets of FLAG (including related notes and schedules, if any) and
related statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) included in SEC Documents filed
with respect to periods ended subsequent to December 31, 1998.
"FLAG Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business, or results of
operations of FLAG and its Subsidiaries, taken as a whole, or (ii) the ability
of FLAG Entities to perform their obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to savings associations, banks, and their holding
companies, and (c) actions and omissions of FLAG (or any of its Subsidiaries)
taken with the prior informed written Consent of THOMASTON FEDERAL in
contemplation of the transactions contemplated hereby.
"FLAG Preferred Stock" shall mean the shares of preferred stock of FLAG.
"FLAG Subsidiaries" shall mean the Subsidiaries of FLAG, which shall
include the FLAG Subsidiaries described in Section 6.4 and any corporation,
bank, savings association, or other organization acquired as a Subsidiary of
FLAG in the future and held as a Subsidiary by FLAG at the Effective Time.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
constituent, hazardous waste, solid waste, special waste, regulated substance,
or toxic substance (as those terms are listed, defined or regulated by any
applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants,
petroleum, petroleum products, or oil (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
51
<PAGE>
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, and licenses, computer
software (including any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, inventions, and other intellectual
property rights.
"INTERIM Shareholders' Meeting" shall meant the meeting of the shareholders
of INTERIM to be held pursuant to Section 8.3, including any adjournment or
adjournments thereof.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a FLAG Entity (including references to
being aware of a particular matter) shall mean those facts that are known or
should reasonably have been known after due inquiry by the chairman, president,
chief financial officer, chief accounting officer, chief operating officer,
chief credit officer, general counsel, any assistant or deputy general counsel,
or any senior, executive or other vice president of such FLAG Entity.
"Knowledge" as used with respect to a THOMASTON FEDERAL Entity (including
references to being aware of a particular matter) shall mean those facts that
are actually known (with no obligation of inquiry) by the president and chief
executive officer of such THOMASTON FEDERAL Entity.
"Law" shall mean any code, law (including common law), ordinance,
regulation, decision, judicial interpretation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets, Liabilities,
or business, including those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the ordinary course of the banking
business, and (iii) Liens which do not materially impair the use of or title to
the Assets subject to such Lien.
52
<PAGE>
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, Known investigation, hearing, Known criminal prosecution, Known
governmental or other examinations, or other administrative or other proceeding,
or any investigation Known to the Party by, relating to or affecting a Party,
its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq National Market" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"Operating Property" shall mean any property owned, leased, or operated by
the Party in question or by any of its Subsidiaries and, where required by the
context, includes the owner or operator of such property, but only with respect
to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency, or Regulatory Authority.
"OTS" shall mean the Office of Thrift Supervision.
"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 THOMASTON FEDERAL or FLAG and "Parties" shall
mean THOMASTON FEDERAL 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 THOMASTON FEDERAL in connection with the transactions contemplated by this
Agreement.
53
<PAGE>
"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 OTS (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 Meeting" shall mean the meeting of the shareholders of
THOMASTON FEDERAL to be held pursuant to Section 8.3(a), 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 Bank" shall mean THOMASTON FEDERAL as the surviving bank
resulting from the Merger.
"Tax Return" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group that
includes a Party or its Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, county, local or foreign government or
subdivision or agency thereof, including any interest, penalties, and additions
imposed thereon or with respect thereto.
54
<PAGE>
"THOMASTON FEDERAL Common Stock" shall mean the $1.00 par value common
stock of THOMASTON FEDERAL.
"THOMASTON FEDERAL Disclosure Memorandum" shall mean the written
information entitled "THOMASTON FEDERAL Disclosure Memorandum" delivered prior
to execution of this Agreement to FLAG describing in reasonable detail the
matters contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto, unless it is clear from the
disclosure of such information that it applies to other Sections.
"THOMASTON FEDERAL Entities" shall mean, collectively, THOMASTON FEDERAL
and all THOMASTON FEDERAL Subsidiaries.
"THOMASTON FEDERAL Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of THOMASTON
FEDERAL as of December 31, 1998, and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules, if
any) for the period ended December 31, 1998, and (ii) the consolidated balance
sheets of THOMASTON FEDERAL (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 December 31, 1998.
"THOMASTON FEDERAL 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 condition,
business, or results of operations of THOMASTON FEDERAL and its Subsidiaries,
taken as a whole, or (ii) the ability of THOMASTON FEDERAL to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that a "THOMASTON FEDERAL
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 THOMASTON
FEDERAL (or any of its Subsidiaries) taken with the prior informed written
Consent of FLAG in contemplation of the transactions contemplated hereby.
55
<PAGE>
"THOMASTON FEDERAL Subsidiaries" shall mean the Subsidiaries of THOMASTON
FEDERAL, which shall include the THOMASTON FEDERAL Subsidiaries described in
Section 5.4 and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of THOMASTON FEDERAL in the future and
held as a Subsidiary by THOMASTON FEDERAL at the Effective Time.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
Allowance Section 5.9
Certificates Section 4.1
Closing Section 1.3
Effective Time Section 1.4
ERISA Affiliate Section 5.16(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)
Indemnified Party Section 8.13
Merger Section 1.2
Tax Opinion Section 9.1(g)
THOMASTON FEDERAL Benefit Plans Section 5.16(a)
THOMASTON FEDERAL Contracts Section 5.17
THOMASTON FEDERAL ERISA Plan Section 5.16(a)
THOMASTON FEDERAL Pension Plan Section 5.16(a)
(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.
- --------------
Except as otherwise provided in Section 10.1(f), each Party shall bear and
pay all direct costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated hereunder, including filing, registration and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel.
11.3 Brokers and Finders.
- -------------------------
Except as disclosed in Section 11.3 of the FLAG Disclosure Memorandum, and
except as disclosed in Section 11.3 of the THOMASTON FEDERAL Disclosure
Memorandum, each of the Parties represents and warrants that neither it nor any
of its officers, directors, employees, or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a claim
by any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by THOMASTON FEDERAL or by FLAG,
each of THOMASTON FEDERAL 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.
56
<PAGE>
11.4 Entire Agreement.
- ----------------------
Except for the Non-Disclosure Agreement dated March 22, 1999 between FLAG
and THOMASTON FEDERAL, and except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
11.5 Amendments.
- ----------------
To the extent permitted by Law, this Agreement may be amended by a
subsequent writing signed by each of the Parties upon the approval of each of
the Parties, whether before or after shareholder approval of this Agreement has
been obtained; provided, that after any such approval by the holders of
THOMASTON FEDERAL Common Stock, there shall be made no amendment that, pursuant
to OTS regulations, requires further approval by such shareholders without the
further approval of such shareholders.
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
THOMASTON FEDERAL, to waive or extend the time for the compliance or fulfillment
by THOMASTON FEDERAL 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, THOMASTON FEDERAL, 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 or INTERIM, 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 THOMASTON
FEDERAL 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 THOMASTON FEDERAL.
(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.
57
<PAGE>
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. The Parties intend that the
directors of THOMASTON FEDERAL be third party beneficiaries of the
Indemnification provisions of Section 8.13 of this Agreement.
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:
THOMASTON FEDERAL: THOMASTON FEDERAL SAVINGS BANK
206 North Church Street
P. O. Drawer 1186
Thomaston, GA 30286-1186
Telecopy Number: (706) 647-6019
Attention: Robert G. Cochran
Copy to Counsel: Long Aldridge & Norman
303 Peachtree Street, N.E.
Suite 5300
Atlanta, GA 30308
Telecopy Number: (404) 527-4198
Attention: David M. Calhoun, Esq.
FLAG: Citizens Bank
100 Union Street
P. O. Box 156
Vienna, GA 31092
Telecopy Number: (912) 268-1370
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) 572-5954
Attention: Walter G. Moeling IV, Esq.
58
<PAGE>
11.9 Governing Law.
- -------------------
This Agreement shall be governed by and construed in accordance with the
Laws of the State of Georgia, without regard to any applicable conflicts of
Laws.
11.10 Counterparts.
- -------------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
11.11 Captions, Articles and Sections.
- --------------------------------------
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement. Unless otherwise indicated, all references
to particular Articles or Sections shall mean and refer to the referenced
Articles and Sections of this Agreement.
11.12 Interpretations.
- ----------------------
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against any party, whether under any rule of construction
or otherwise. No party to this Agreement shall be considered the draftsman. The
parties acknowledge and agree that this Agreement has been reviewed, negotiated,
and accepted by all parties and their attorneys and shall be construed and
interpreted according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto.
11.13 Enforcement of Agreement.
- --------------------------------
The Parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement was not performed in accordance
with its specific terms or was otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.14 Severability.
- --------------------
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
[SIGNATURES APPEAR ON NEXT PAGE]
59
<PAGE>
SIGNATURES TO AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
FLAG FINANCIAL CORPORATION
By: /s/ J. Daniel Speight, Jr.
------------------------------
J. Daniel Speight, Jr.
President and Chief Executive Officer
THOMASTON FEDERAL SAVINGS BANK
By: /s/Robert G. Cochran
--------------------------
Robert G. Cochran
President and Chief Executive Officer
<PAGE>
APPENDIX B
DISSENTERS' RIGHTS
<PAGE>
OFFICE OF THRIFT SUPERVISION
TITLE 12, CODE OF FEDERAL REGULATIONS, SECTION 552.14
DISSENTERS' RIGHTS
ss. 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with ss. 552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to
make a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy or
vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten
days after the effective date of the combination, the resulting association
shall;
(i) Give written notice by mail to stockholders of constituent Federal
Stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of
the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the
fair value thereof; and
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (6) of this section (set out in the
notice) must be satisfied.
B-1
<PAGE>
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty
days of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholders may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholders who fails to submit his stock certificates for such notation shall
no longer be entitled to appraisal rights under this section and shall be deemed
to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any
time within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
Staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares, direct payment by
the resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distribution
described above.
B-2
<PAGE>
(11) STATUS. Shares of the resulting association into which shares
of the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
B-3
<PAGE>
APPENDIX C
OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC
<PAGE>
The Robinson-Humphrey Company
CORPORATE FINANCE INVESTMENT BANKERS
FINANCIAL SERVICES GROUP SINCE 1894
May 6, 1999
Thomaston Federal Savings Bank
206 North Church Street
Thomaston, GA 30286
Dear Sirs:
We understand that Thomaston Federal Savings Bank (the "Company") has
entered into an agreement to merge with and into FLAG Financial Corporation
("FLAG"). The consideration for the merger will be in the form of FLAG common
stock at an exchange ratio of 1.7275 shares of FLAG stock for every share of the
Company's stock and cash in lieu of fractional shares (the "Proposed
Transaction"). The terms and conditions of the Proposed Transaction are set
forth in more detail in Agreement and Plan of Merger (the "Agreement").
We have been requested by the Company to render our opinion with
respect to the fairness, from a financial point of view, to the Company of the
consideration to be received in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the
Agreement, (2) publicly available information concerning the Company and FLAG
which we believe to be relevant to our inquiry, (3) financial and operating
information with respect to the business, operations and prospects of the
Company furnished to us by the Company, (4) Financial and operating information
with respect to the business, operations and prospects of FLAG furnished to us
by FLAG, (5) a comparison of the historical financial results and present
financial condition of the Company with those of other companies which we deemed
relevant, (6) a comparison of the historical financial results, present
financial condition and market trading history of FLAG with those of other
companies which we deemed relevant, and (7) a comparison of the financial terms
of the Proposed Transaction with the terms of certain other recent transactions
which we deemed relevant. In addition, we have had discussions with the
management teams of the Company and FLAG concerning each company's business,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts/projections of
the Company and of FLAG, we have assumed that such forecasts/projections have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company and of the management
of FLAG as to the
ATLANTA FINANCIAL CENTER
3333 PEACHTREE ROAD, NE O ATLANTA, GEORGIA 30326
(404) 266-6000
C-1
<PAGE>
Thomaston Federal Savings Bank
May 6, 1999
Page Two
- ---------------------------------
future financial performance of the Company and FLAG respectively. In arriving
at our opinion, we have not conducted a physical inspection of the properties
and facilities of the Company or of FLAG and have not made nor obtained any
evaluations or appraisals of the assets or liabilities of the Company or of
FLAG. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the equity securities of FLAG for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the consideration to be
received in the Proposed Transaction is fair to the Company.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, LLC
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The FLAG Articles and Bylaws generally provide that any director who is
deemed eligible will be indemnified against liability and other expenses
incurred in a proceeding in which the director was made a party by reason of the
fact he is or was a director, to the fullest extent authorized by the Georgia
Business Corporation Code; 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 Georgia Business Corporation Code 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 Georgia Business Corporation Code, the purchase of insurance by FLAG against
any liability of the director arising from his duties and actions as a director,
the survival of such indemnification to the director's heirs, executors and
administrators, and the limitation of the directors' liability to the
corporation (except under the four situations described above). The
indemnification provisions are non-exclusive, and shall not impair any other
rights to which those seeking indemnification or advancement of expenses may be
entitled. The FLAG Bylaws also provide for a similar amount of indemnification
for the officers of FLAG. In the Bylaws of FLAG, shareholders are entitled to
notification of any indemnification paid to the directors. The Georgia Business
Corporation Code's provisions for indemnification are summarized below.
Section 14-2-851 of the Georgia Business Corporation Code empowers a
corporation to indemnify any person who was or is a party to any proceeding by
reason of the fact that he is or was a director of the corporation or is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan, or other entity
against liability incurred in connection with such proceeding, if he: (i)
conducted himself in good faith; and (ii) reasonably believed (a) in the case of
conduct in his official capacity, that such conduct was in the best interests of
the corporation, (b) in all other cases, that such conduct was at least not
opposed to the best interests of the corporation (for example, this Section
states that a director's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the participants in
and beneficiaries of the plan is conduct that satisfies this requirement), and
(c) in the case of any criminal proceeding, that he had no reasonable cause to
believe his conduct was unlawful. This Section further provides that the
termination of proceeding by judgment, order, settlement, or conviction or upon
a plea of nolo contendere or its equivalent is not, of itself, determinative
that the director did not meet the standards of conduct described above. This
Section also provides that a corporation is not permitted to indemnify any
director of the corporation under this Section in connection with a proceeding
by or in the right of the corporation (except for reasonable expenses incurred
in connection with the proceeding if it is determined that the director has met
the standards of conduct as outlined in this Section), nor may a corporation
indemnify a director under this Section in connection with any proceeding with
respect to conduct for which he or she was adjudged liable on the basis that
improper personal benefit was received by him (whether or not the conduct
involved action in his official capacity).
II-1
<PAGE>
Section 14-2-852 requires a corporation to indemnify a director against
reasonable expenses incurred by the director in connection with any proceeding
to which he was a party because he was a director of the corporation where the
director is wholly successful, on the merits or otherwise, in the defense of
such proceeding.
Section 14-2-853 empowers a corporation to advance funds to a director,
before the final disposition of a proceeding to which he was a party because he
was a director of the corporation, in order to pay for or reimburse the
reasonable expenses incurred by the director if the director delivers to the
corporation a written affirmation to the corporation of his belief that he has
satisfied the relevant standard of conduct described in Section 14-2-851 (or
that the proceeding involves conduct for which a director's liability has been
eliminated under the corporation's articles of incorporation), and a written
undertaking by the director to repay any funds so advanced (which must be an
unlimited general obligation of the director, but which need not be secured, and
which may be accepted by the corporation without reference to the financial
ability of the director to repay the advancement) if it is ultimately determined
that the director is not entitled to indemnification under the provisions of the
Georgia Business Corporation Code. This Section further provides that any
advancement of expenses to be made pursuant to this Section must be authorized
(i) by the Board of Directors: (a) when there are two or more disinterested
directors, by a majority vote of all the disinterested directors (a majority of
whom will constitute a quorum for such purposes) or by a majority of the members
of a committee consisting of two or more disinterested directors who are
appointed by such a vote; or (b) if there are fewer than two disinterested
directors, by majority vote of a quorum of the Board of Directors, in which
authorization the directors who do not qualify as disinterested directors may
take part; or (ii) by the shareholders of the corporation, but no shares owned
by a director who does not qualify as a disinterested director may be voted on
the authorization.
Section 14-2-854 provides that a director who is a party to a
proceeding by virtue of the fact that he is a director may apply to the court
conducting the proceeding or another court of competent jurisdiction for
indemnification or the advancement of expenses. Once a court receives such an
application, and after the court gives any notice which it deems necessary, the
court considering the application must order indemnification or advance for
expenses (i) if the court determines that the director is entitled to such
indemnification, or (ii) if the court determines that, taking into account all
of the relevant circumstances, it is fair and reasonable to indemnify the
director or to advance expenses to the director, even if the director failed to
satisfy the standards of conduct set forth in Section 14-2-851, failed to comply
with the requirements of Section 14-2-853, or was adjudged liable in any
proceeding by or in right of the corporation or any proceeding initiated on the
basis that improper personal benefit was received by the director (provided
that, if the director is adjudged so liable, the indemnification must be limited
to the reasonable expenses incurred by the director in connection with such
proceeding). In addition, Section 14-2-851 states that, if the court determines
that the director is entitled to indemnification or advance for expenses, the
court may also direct the corporation to pay the director's reasonable expenses
incurred in connection with obtaining such court-ordered indemnification or
advance for expenses.
Section 14-2-855 states that a corporation may not indemnify a director
under Section 14-2-851 unless such indemnification is authorized thereunder and
a determination is made that the indemnification of the director in a particular
proceeding is permissible due to the fact that the director has satisfied the
relevant standard of conduct set forth in Section 14-2-851. Such a determination
must be made: (i) if there are two or more disinterested directors, by the board
of directors by a majority vote of all such disinterested directors (a majority
of whom constitutes a quorum for such purposes) or by a majority of the members
of a committee of two or more disinterested directors appointed by such a vote;
(ii) by special legal counsel selected in the manner described in (i) above, or,
if there are fewer than two disinterested directors, selected by the board of
directors (including the directors who are not considered disinterested
II-2
<PAGE>
directors); or (iii) by the shareholders of the corporation, but no shares owned
by a director who does not qualify as a disinterested director may be voted on
the determination. The authorization of indemnification and evaluation as to the
reasonableness of the expenses involved with such indemnification must be
obtained in the same manner as the determination that indemnification is
permissible (as described above), except that, if there are fewer than two
disinterested directors, or the determination as to the permissibility of the
indemnification is made by special legal counsel, then the authorization of such
indemnification and the evaluation as to the reasonableness of the expenses
involved must be made by the board of directors (in which authorization and
evaluation directors who do not qualify as disinterested directors may
participate).
Section 14-2-856 states that, if authorized by the corporation's
articles of incorporation or a bylaw, contract, or resolution approved or
ratified by the shareholders by a majority of the votes entitled to be cast, a
corporation will be permitted to indemnify a director made a party to a
proceeding (including a proceeding brought by or in right of the corporation),
without regard to the other limitations on indemnification contained within
Title 14, Chapter 2, Article 8, Part 5 of the Georgia Business Corporation Code,
but any director, who at the time does not qualify as a disinterested director
with respect to an existing or threatened proceeding that would be covered by
such authorization, will not be permitted to vote the shares owned or voted
under the control of such director with respect to such authorization. However,
Section 14-2-856 further states that no corporation may indemnify a director
under Section 14-2-856 for any liability incurred in a proceeding in which the
director is adjudged liable to the corporation (or is subjected to injunctive
relief in favor of the corporation): (i) for any appropriation, in violation of
his duties, of any business opportunity of the corporation; (ii) for any acts or
omissions involving intentional misconduct or a knowing violation of law; (iii)
for the types of liability set forth in Section 14-2-832 of the Georgia Business
Corporation Code (relating to unlawful distributions); or (iv) for any
transaction from which he received an improper personal benefit. Where approved
or authorized in the manner described above, a corporation may advance or
reimburse expenses incurred by the director in advance of final disposition of
the proceeding only if the director delivers a written affirmation to the
corporation which indicates his good faith belief that his conduct does not fall
within any of the four categories of conduct listed above, and a written
undertaking by the director (executed personally or on his behalf) to repay any
advances made to him by the corporation if it is ultimately determined that the
director is not entitled to indemnification under this Section.
Section 14-2-857 provides that a corporation may indemnify and advance
expenses to an officer of the corporation who is made a party to a proceeding by
virtue of his status as an officer of the corporation. A corporation's officers
may be indemnified to the same extent as the corporation's directors (as
discussed above), and any officer who is not also a director (or who was made a
party to a proceeding solely due to an act or omission committed in his role as
an officer) may be indemnified to any further extent as provided in the articles
of incorporation, the bylaws, a resolution of the board of directors, or
contract except for liability arising out of conduct which constitutes: (i) an
appropriation, in violation of his duties as an officer, of any business
opportunity of the corporation; (ii) any acts or omissions which involve
intentional misconduct or a knowing violation of law; (iii) the types of
liability set forth in Section 14-2-832; or (iv) the receipt of an improper
personal benefit. In addition, this Section provides that a corporation may
indemnify and advance expenses to its employees or agents (who are not also
directors) to the extent provided in the corporation's articles of
incorporation, bylaws, general or specific action of its board of directors, or
contract (so long as such indemnification or advancement of expenses is
consistent with public policy).
Section 14-2-858 provides that the corporation is empowered to purchase
and maintain insurance on behalf of any person who is a director, officer,
employee, or agent of the corporation or who, while a director, officer,
employee or agent of the corporation serves at the request of the corporation as
a director, officer, partner, trustee, employee, or agent of another domestic or
foreign corporation, partnership, joint venture, trust, employee benefit plan,
II-3
<PAGE>
or other entity against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or advance expenses against
such liability under the provisions of Title 14, Chapter 2, Article 8, Part 5 of
the Georgia Business Corporation Code.
The Registrant maintains an insurance policy insuring the Registrant
and directors and officers of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933.
Item 21. Exhibits And Financial Statement Schedules
- ---------------------------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1 - Agreement and Plan of Merger, dated as of May 7, 1999, by
and between FLAG and Thomaston Federal (included in Appendix A
to the Proxy Statement/Prospectus and incorporated by
reference herein).
2.2 - Agreement and Plan of Merger dated as of June 1, 1999, by
and between FLAG and First Hogansville Bankshares, Inc.
(incorporated by reference herein from the registrant's
Current Report on Form 8-K filed June __, 1999)
2.3 - Agreement and Plan of Merger, dated as of March 31, 1999, by
and between FLAG and Abbeville Capital Corporation
(incorporated by reference herein from the registrant's
Current Report on Form 8-K filed April 7, 1999)
4.1 - Articles of Incorporation of FLAG, as amended (incorporated
herein by reference from Exhibit 3.1(i) of the registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993)
4.2 - Bylaws of FLAG, as amended (incorporated herein by reference
from Exhibit 3.1(ii) of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993)
5 - Opinion of Powell, Goldstein, Frazer & Murphy LLP (including
consent)
8 - Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
federal income tax matters (including consent)
10.1 - Employment Agreement between J. Daniel Speight, Jr. and the
Company dated as of April 1, 1998*+
10.2 - Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*+
10.3 - Employment Agreement between Ellison C. Rudd and the Company
dated as of April 1, 1998*+
10.4 - Employment Agreement between Patti S. Davis and the Compan
dated as of April 1, 1998*+
10.5 - Separation Agreement between Charles O. Hinely and the Compan
dated April 1, 1998*+
II-4
<PAGE>
10.6 - Separation Agreement between J. Preston Martin and the Company
dated May 13, 1998*+
10.7 - Split Dollar Insurance Agreement between J. Daniel Speight,Jr.
and Citizens Bank dated November 2, 1992*+
10.8 - Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*+
10.9 - Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank)for individuals listed on
exhibit cover page*+
10.10 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*+
10.11 - Tax Sharing Agreement dated March 1, 1994, among the
Company, the Bank and Piedmont Mortgage Service, Inc.
(Incorporated herein by reference from Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.12 - Director Indexed Fee Continuation Program for FLAG effective
February 3, 1995*+
10.13 - Form of Director Agreement (pursuant to Director Indexed Fee
Construction Program for FLAG) for individuals listed on
exhibit cover page*+
10.14 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed Fee
Continuation Program of FLAG) for individuals listed on
exhibit cover page*+
10.15 - Form of Indexed Executive Salary Continuation Plan Agreement
by and between FLAG and individuals listed on exhibit coverage
page*+
10.16 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Executive Salary
Continuation Plan for FLAG) for individuals listed on exhibit
cover page*+
10.17 - Indexed Executive Salary Continuation Plan Agreement by and
between FLAG and William F. Holle, Jr. dated February 3,
1995*+
10.18 - FLAG Financial Corporation 1994 Employees Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)*
10.19 - FLAG Financial Corporation 1994 Directors Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993)*
10.20 - Separation Agreement between Leonard H. Bateman and the
Company dated December 11, 1998 (incorporated herein by
reference from Exhibit 10.1 to the Company's Current Report on
Form 8-K dated June __, 1999)
II-5
<PAGE>
10.21 - Separation Agreement between Dennis D. Allen and the Company
dated December 31, 1998 (incorporated herein by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K dated
June __, 1999
11 - Statement regarding Computation of Per Share Earnings+
13 - Registrant's Annual Report for the fiscal year ended
December 31, 1997 (incorporated herein by reference from
Exhibit 13 to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997)
21 - Subsidiaries of the registrant +
23.1 - Consent of Porter Keadle Moore, LLP (with respect to financial
statements of FLAG Financial Corporation)
23.2 - Consent of Robinson, Grimes and Company, P.C. (with respect to
financial statements of FLAG Financial Corporation)
23.3 - Consent of Porter Keadle Moore, LLP (with respect to financial
statements of Middle Georgia Bankshares, Inc.)
23.4 - Consent of Thigpen, Jones, Seaton & Co., P.C. (with respect to
financial statements of Three Rivers Bancshares, Inc.)
23.5 - Consent of Driver & Adams, CPA, P.C.(with respect to financial
statements of Thomaston Federal Savings Bank)
23.6 - Consents of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibits 5 and 8)
24 - Powers of Attorney (appears on the signature page to this
Registration Statement)
99.1 - Form of Proxy of Thomaston Federal
99.2 - Form of Proxy for the Thomaston Federal Profit Sharing Plan
99.3 - Consent of Robert G. Cochran to be Named in Registration
Statement/Prospectus
99.4 - FLAG Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (without exhibits)
99.5 - FLAG Quarterly Report on Form 10-Q for the quarter ended March
31, 1999
*The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Registration Statement on Form S-4.
+Incorporated by reference from exhibit of the same number from the
Registrant's Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
II-6
<PAGE>
Item 22. Undertakings
- -------- ------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's Articles of Incorporation or Bylaws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
II-7
<PAGE>
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of LaGrange, State of Georgia, on June 2, 1999.
FLAG FINANCIAL CORPORATION
By: /s/ J.Daniel Speight, Jr.
-------------------------
J. Daniel Speight, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Daniel Speight, Jr. and John S. Holle,
and each of them, as true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including any Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
which said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities indicated on June 2, 1999.
Signature Title
--------- -----
/s/ Dr. Dennis D. Allen Director
-----------------------
Dennis D. Allen
/s/ Dr. A. Glenn Bailey Director
-----------------------
Dr. A. Glenn Bailey
/s/ H. Speer Burkette, III Director
--------------------------
H. Speer Burdette, III
/s/ Patti S. Davis Director, Senior Vice President and Chief
------------------ Financial Officer (principal financial
Patti S. Davis and accounting officer)
<PAGE>
/s/ Fred A. Durand, III Director
-----------------------
Fred A. Durand, III
/s/ John S. Holle Chairman of the Board and Director
-----------------
John S. Holle
/s/ James W. Johnson Director
--------------------
James W. Johnson
/s/ Kelly R. Linch Director
------------------
Kelly R. Linch
/s/ J. Preston Martin Director
---------------------
J. Preston Martin
/s/ J. Daniel Speight, Jr. President, Chief Executive Officer and
-------------------------- Director (principal executive officer
J. Daniel Speight, Jr.
/s/ John W. Stewart, Jr. Director
------------------------
John W. Stewart, Jr.
/s/ Robert W. Walters Director
---------------------
Robert W. Walters
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1 - Agreement and Plan of Merger, dated as of March 31, 1999, by
and between FLAG and Thomaston Federal (included in Appendix A
to the Proxy Statement/Prospectus and incorporated by
reference herein)
2.2 - Agreement and Plan of merger, dated as of June 1, 1999 by
and between FLAG and First Hogansville Bankshares, Inc.
(incorporated by reference herein from the registrant's
Current Report on Form 8-K filed June __, 1999)
2.3 - Agreement and Plan of Merger, dated as of March 31, 1999, by
and between FLAG and Abbeville Capital Corporation
(incorporated by reference herein from the registrant's
Current Report on Form 8-K filed April 7, 1999)
4.1 - Articles of Incorporation of FLAG, as amended (incorporated
herein by reference from Exhibit 3.1(i) of the registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993)
4.2 - Bylaws of FLAG, as amended (incorporated herein by reference
from Exhibit 3.1(ii) of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993)
5 - Opinion of Powell, Goldstein, Frazer & Murphy LLP (including
consent)
8 - Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
federal income tax matters (including consent)
10.1 - Employment Agreement between J. Daniel Speight, Jr. and the
Company dated as of April 1, 1998*+
10.2 - Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*+
10.3 - Employment Agreement between Ellison C. Rudd and the Company
dated as of April 1, 1998*+
10.4 - Employment Agreement between Patti S. Davis and the Company
dated as of April 1, 1998*+
10.5 - Separation Agreement between Charles O. Hinely and the Company
dated April 1, 1998*+
10.6 - Separation Agreement between J. Preston Martin and the Company
dated May 13, 1998*+
10.7 - Split Dollar Insurance Agreemen between J. Daniel Speight,
Jr. and Citizens Bank dated November 2, 1992*+
10.8 - Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*+
<PAGE>
10.9 - Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*+
10.10 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*+
10.11 - Tax Sharing Agreement dated March 1, 1994, among the
Company, the Bank and Piedmont Mortgage Service, Inc.
(Incorporated herein by reference from Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.12 - Director Indexed Fee Continuation Program for FLAG effective
February 3, 1995*+
10.13 - Form of Director Agreement (pursuant to Director Indexed Fee
Construction Program for FLAG) for individuals listed on
exhibit cover page*+
10.14 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed Fee
Continuation Program of FLAG) for individuals listed on
exhibit cover page*+
10.15 - Form of Indexed Executive Salary Continuation Plan Agreement
by and between FLAG and individuals listed on exhibit coverage
page*+
10.16 - Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Executive Salary
Continuation Plan for FLAG) for individuals listed on exhibit
cover page*+
10.17 - Indexed Executive Salary Continuation Plan Agreement by and
between FLAG and William F. Holle, Jr.dated February 3, 1995*+
10.18 - FLAG Financial Corporation 1994 Employees Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)*
10.19 - FLAG Financial Corporation 1994 Directors Stock Incentive
Plan (Incorporated herein by reference from Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993)*
10.20 - Separation Agreement between Leonard H. Bateman and the
Company dated December 11, 1998 (incorporated herein by
reference from Exhibit 10.1 to the Company's Current Report on
Form 8-K dated June __, 1999)
10.21 - Separation Agreement between Dennis D. Allen and the Company
dated December 31, 1998 (incorporated herein by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K dated
June __, 1999)
11 - Statement regarding Computation of Per Share Earnings+
<PAGE>
13 - Registrant's Annual Report for the fiscal year ended
December 31, 1997 (incorporated herein by reference from
Exhibit 13 to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997)
21 - Subsidiaries of the registrant +
23.1 - Consent of Porter Keadle Moore, LLP (with respect to financial
statements of FLAG Financial Corporation)
23.2 - Consent of Robinson, Grimes and Company, P.C. (with respect to
financial statements of FLAG Financial Corporation)
23.3 - Consent of Porter Keadle Moore LLP (with Respect to financial
statements of Middle Georgia
Bankshares, Inc.)
23.4 - Consent of Thigpen, Jones, Seaton & Co., P.C. (with respect to
financial statements of Three Rivers Bancshares, Inc.)
23.5 - Consent of Driver & Adams, CPA, P.C.(with respect to financia
statements of Thomaston Federal Savings Bank)
23.6 - Consents of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibits 5 and 8)
24 - Powers of Attorney (appears on the signature page to this
Registration Statement)
99.1 - Form of Proxy of Thomaston Federal
99.2 - Form of Proxy for the Thomaston Federal Profit Sharing Plan
99.3 - Consent of Robert G. Cochran to be Named in Registration
Statement/Prospectus
99.4 - FLAG Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (without exhibits)
99.5 - FLAG Quarterly Report on Form 10-Q for the quarter ended March
31, 1999
*The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Registration Statement on Form S-4.
+Incorporated by reference from exhibit of the same number from the
Registrant's Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
EXHIBIT 5
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E.
SIXTEENTH FLOOR
ATLANTA, GEORGIA 30303
(404) 572-6600
May 28, 1999
FLAG Financial Corporation
101 North Greenwood Street
LaGrange, Georgia 30204
Ladies and Gentlemen:
This opinion is given in connection with the filing of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission, by FLAG Financial Corporation, a corporation organized and
existing under the laws of the State of Georgia ("FLAG"), with respect to the
registration under the Securities Act of 1933, as amended, of 1,175,000 shares
of the $1.00 par value common stock of FLAG (the "FLAG common stock") to be
issued in connection with the proposed merger of Thomaston Federal Savings Bank
("Thomaston Federal") with a wholly-owned subsidiary of FLAG (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger dated as of May 7, 1999 between FLAG and Thomaston Federal, pursuant
to which each outstanding share of $1.00 par value common stock of Thomaston
Federal (other than shares held by FLAG, Thomaston Federal or their subsidiaries
or by shareholders who perfect dissenters' rights) will be converted into and
exchanged for the right to receive 1.7275 shares of FLAG common stock.
In rendering this opinion, we have examined such corporate records and
documents as we have deemed relevant and necessary as the basis for the opinion
set forth herein.
Based upon the foregoing, it is our opinion that the shares of FLAG
common stock when issued to holders of Thomaston Federal common stock on the
terms and upon fulfillment of the conditions set forth in the Agreement, will be
validly issued, fully paid and nonassessable under the Georgia Business
Corporation Code.
We consent to the use of this opinion and to the reference made to the
firm in the Proxy Statement/Prospectus of FLAG and Thomaston Federal
constituting part of the Registration Statement.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
EXHIBIT 8
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E.
SIXTEENTH FLOOR
ATLANTA, GEORGIA 30303
(404) 572-6600
June 1, 1999
FLAG Financial Corporation
100 Union Street
P. O. Box 156
Vienna, Georgia 31092
Attention: J. Daniel Speight, Jr.
Thomaston Federal Savings Bank
206 North Church Street
P. O. Drawer 1186
Thomaston, Georgia 30286-1186
Attention: Robert G. Cochran
Re: Merger of FFC Federal Savings Bank into
Thomaston Federal Savings Bank
Ladies and Gentlemen:
You have requested our opinion as to the tax consequences under the
Internal Revenue Code of 1986, as amended (the "Code") of the proposed merger
(the "Merger") of FFC Federal Savings Bank ("Interim"), a corporation organized
and existing under the laws of the State of Georgia and wholly-owned by FLAG
Financial Corporation ("FLAG"), a corporation organized and existing under the
laws of the State of Georgia, with and into Thomaston Federal Savings Bank
("Thomaston Federal"), a federally-chartered savings association located in the
State of Georgia, with Thomaston Federal as the surviving entity, in accordance
with that certain Agreement and Plan of Merger (the "Merger Agreement") dated
May 7, 1999, and incorporated herein by reference. Specifically, you have
requested us to opine that the Merger will constitute a "tax-free"
reorganization within the meaning of Section 368 of the Code.
In rendering the opinions expressed below, we have examined the
following documents (the "Document"):
(a) The Merger Agreement and amendments thereto;
(b) The Statements of Facts and Representations of Thomaston Federal
Savings Bank and FLAG Financial Corporation that have been delivered to the
undersigned and incorporated herein by reference; and
<PAGE>
FLAG Financial Corporation
Thomaston Federal Savings Bank
June 1, 1999
Page 2
(c) Such other documents and records as we have deemed necessary in order
to enable us to render the opinions expressed below.
Terms not otherwise defined in this opinion letter have the meaning
given those terms in the Documents.
In rendering the opinions expressed below, we have assumed, without any
independent investigation or verification of any kind, that all of the
information as to factual matters contained in the Documents is true, correct,
and complete. Any inaccuracy with respect to factual matters contained in the
Documents or incompleteness in our understanding of the facts could alter the
conclusion reached in this opinion.
In addition, for purposes of rendering the opinions expressed below, we
have assumed with your permission, that (i) all signatures on all Documents
reviewed by u s are genuine, (ii) all Documents submitted to us as originals are
true and correct, (iii) all Documents submitted to us as copies are true and
correct copies of the originals thereof, (iv) each natural person signing any
Document reviewed by us had the legal capacity to do so, and (v) the Merger and
the transactions contemplated in the Merger Agreement will be effected in
accordance with the terms thereof.
Finally, with your permission we have assumed that FLAG will acquire in
the Merger at least 80 percent of Thomaston Federal stock for FLAG stock (taking
into account any shares of Thomaston Federal stock acquired from dissenters for
cash and any cash issued in lieu of the issuance of fractional shares of FLAG
stock). In addition, we have assumed that the sum of (i) the amount of any cash
and the value of any property other than FLAG stock paid to Thomaston Federal
shareholders who exercise their statutory right to dissent to the Merger, (ii)
the amount of cash and the value of any property other than FLAG stock given as
consideration by FLAG (or a person related to FLAG within the meaning of
Treasure Regulation Section 1.368-1(e)(2)) in exchange for Thomaston Federal
stock prior to, but in contemplation of, the Merger or in redemption of FLAG
stock after the Merger, and (iii) the amount of cash paid to Thomaston Federal
shareholders in lieu of the issuance of fractional shares of FLAG stock will not
exceed 50 percent of the total value of the Thomaston Federal stock outstanding
immediately prior to the effective time of the Merger.
OPINION
Based upon the foregoing, it is our opinion that the Merger will
constitute a reorganization within the meaning of Code Sections 368(a)(1)(A) and
(a)(2)(E). Accordingly, it is our opinion that:
<PAGE>
FLAG Financial Corporation
Thomaston Federal Savings Bank
June 1, 1999
Page 3
a. No gain or loss will be recognized for federal income tax purposes by
Thomaston Federal shareholders upon the exchange of shares of
Thomaston Federal stock for shares of FLAG stock. Code Section 354(a).
b. Cash received in lieu of fractional shares will be treated for federal
income tax purposes as if the fractional shares were distributed and
then redeemed by FLAG. The cash payments will be treated as having
been received as a distribution in exchange for the fractional shares
redeemed. Code Section 302(a); Rev. Rul. 66-365, 1966-2 C.B. 116.
c. Thomaston Federal shareholders that receive FLAG stock, including
fractional shares (that are treated as issued in the Merger and
immediately redeemed), will have a basis in that FLAG stock equal to
their basis in the Thomaston Federal stock surrendered therefor. Code
Section 358(a)(1).
d. The holding period of the FLAG stock received by Thomaston Federal
shareholders will include the period during which the Thomaston
Federal shareholders held the Thomaston Federal stock surrendered
therefor, provided the Thomaston Federal stock was held as a capital
asset. Code Section 1223(1).
e. Thomaston Federal shareholders who receive solely cash pursuant to
their statutory right to dissent will be treated as having received
such payment in redemption of their stock, as provided in Code Section
302(a). Generally, any gain or loss recognized by any such Thomaston
Federal shareholder will be capital gain or loss, provided (i) the
Thomaston Federal common stock constitutes a capital asset in the
hands of such shareholder, and (ii) the requirements of Section
302(b)(1), (2) or (3) of the Code are met. Each affected Thomaston
Federal shareholder should consult such shareholder's own tax advisor
for the tax effect of such redemption (i.e., exchange treatment or
dividend).
f. No gain or loss will be recognized by Thomaston Federal of FLAG as a
consequence of the Merger, except for gain or loss recognized by
Thomaston pursuant to Treasury Regulations issued under Code Section
1502. Code Section 361(a).
g. FLAG's basis in and holding period for the Thomaston Federal stock
received from each of Thomaston Federal shareholders as part of the
Merger will equal such shareholders basis in and holding period for
such stock immediately prior to the Merger. Code Section 362(b).
<PAGE>
FLAG Financial Corporation
Thomaston Federal Savings Bank
June 1, 1999
Page 4
Our opinions are based upon the facts as they exist today, the existing
provisions of the Code, Treasury Regulations issued or proposed thereunder,
published Revenue Rulings and releases of the Internal Revenue Service, and
existing federal case law, any of which could be changed at any time. Any such
change may be retroactive in application and could modify the legal conclusion
upon which our opinions are based.
In addition, this opinion does not address any tax considerations under
foreign, state, or local laws, or the tax considerations to certain Thomaston
Federal shareholders in light of their particular circumstances, including
persons who are not United States persons, dealers in securities, tax-exempt
entities, shareholders who do not hold Thomaston Federal common stock as
"capital assets" within the meaning of Section 1221 of the Internal Revenue
Code, and shareholders who acquired their shares of Thomaston Federal stock
pursuant to the exercise of Thomaston Federal options or otherwise as
compensation.
This opinion letter is being furnished only to the parties to which it
is addressed and is solely for their benefit. No other person shall be entitled
to rely on the opinions without our prior express written consent. This opinion
letter may not be used, circulated, quoted, published, or otherwise referred to
for any purpose without our prior express written consent, except that we
consent to the inclusion of this opinion as an exhibit to the registration
statements required under the Securities Act of 1933 (the "Securities Act") in
connection with the Merger. In giving such consent, we do not thereby admit that
we are acting within the category of persons whose consent is required under
Section 7 of the Securities Act and the rules and regulations of the Securities
and Exchange Commission thereunder. Our opinions are limited to the matters
stated herein, and no opinion is implied or may be inferred beyond the opinions
expressly stated herein.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 29, 1999, except for note 18 as
to which the date is March 12, 1999, accompanying the consolidated financial
statements of FLAG Financial Corporation and subsidiaries incorporated by
reference in the Form S-4 Registration Statement and Prospectus. We consent to
the use of the aforementioned report in this Form S-4 Registration Statement and
Prospectus and to the use of our name as it appears under the caption "Experts."
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
June 4, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 31, 1997, accompanying the
consolidated financial statements of FLAG Financial Corporation and subsidiaries
incorporated by reference in the Form S-4 Registration Statement and Prospectus.
We consent to the use of the aforementioned report in this Form S-4 Registration
Statement and Prospectus and to the use of our name as it appears under the
caption "Experts."
/s/ ROBINSON, GRIMES AND COMPANY, P.C.
Columbus, Georgia
June 4, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 28, 1998, except for note S as
to which the date is February 18, 1998, accompanying the consolidated financial
statements of Three Rivers Bancshares, Inc. and subsidiaries incorporated by
reference in the Form S-4 Registration Statement and Prospectus. We consent to
the use of the aforementioned report in this Form S-4 Registration Statement and
Prospectus and to the use of our name as it appears under the caption "Experts."
/s/ THIGPEN, JONES, SEATON & CO., P.C.
Dublin, Georgia
June 4, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 28, 1999 accompanying the
financial statements of Thomaston Federal Savings Bank contained in the Form S-4
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in this Form S-4 Registration Statement and Prospectus and
to the use of our name as it appears under the caption "Experts."
/s/ DRIVER & ADAMS, CPA, P.C.
Thomaston, Georgia
June 3, 1999
Exhibit 99.1
REVOCABLE PROXY
THOMASTON FEDERAL SAVINGS BANK
ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints Robert G. Cochran and
Norman S. Morris, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of Thomaston Federal
Savings Bank, a federally-chartered savings association ("Thomaston Federal"),
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Thomaston Federal Shareholders to be held at the main office
of Thomaston Federal located at 206 North Church Street, Thomaston, Georgia
30286, on ____________, ________________, 1999, at 2:00 p.m., local time, and at
any adjournment or postponement thereof (the "Annual Meeting") upon the
proposals described in the Proxy Statement/Prospectus and the Notice of Annual
Meeting of Shareholders, dated _____________, 1999, the receipt of which is
acknowledged in the manner specified below.
1. Merger. To approve, ratify, confirm and adopt the Agreement and Plan
of Merger, dated as of May 7, 1999 (the "Merger Agreement"), by and
between FLAG Financial Corporation ("FLAG") and Thomaston Federal and
the transactions contemplated thereby pursuant to which (i) Thomaston
Federal will become a wholly-owned subsidiary of FLAG, and (ii) each
share of the $1.00 par value common stock of Thomaston Federal issued
and outstanding at the effective time of the Merger will be exchanged
for 1.7275 shares of $1.00 par value common stock of FLAG.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Election of Directors. To elect as directors the two nominees listed
below to serve for three year terms and until their successors are
elected and qualified (except as marked to the contrary below).
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR
(EXCEPT AS MARKED TO THE CONTRARY NOMINEES LISTED BELOW
BELOW)
To withhold your vote for any individual nominee, strike a line
through the nominee's name on the list below.
Robert G. Cochran W. Wallace Rhodes
3. In the discretion of the proxies on such other matters as may properly
come before the Annual Meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND PROPOSAL 2 ABOVE.
Please sign this proxy exactly as your name appears below. When shares
are held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: _________________________ , 1999
_______________________________________
Signature
_______________________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THOMASTON FEDERAL
SAVINGS BANK, AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
I _____will _____will not attend the Annual Meeting.
Exhibit 99.2
REVOCABLE PROXY
THOMASTON FEDERAL SAVINGS BANK
ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints C. Ronald Barfield who
acts as Trustee for the Thomaston Federal Savings Bank Profit Sharing Plan (the
"Plan"), as proxy, with full power of substitution, to vote the number of shares
of common stock of Thomaston Federal Savings Bank, a federally-chartered savings
association ("Thomaston Federal"), which have been allocated to the account of
the undersigned pursuant to the Plan at the Annual Meeting of Thomaston Federal
Shareholders to be held at the main office of Thomaston Federal located at 206
North Church Street, Thomaston, Georgia 30286, on ____________,
________________, 1999, at 2:00 p.m., local time, and at any adjournment or
postponement thereof (the "Annual Meeting") upon the proposals described in the
Proxy Statement/Prospectus and the Notice of Annual Meeting of Shareholders,
dated _____________, 1999, the receipt of which is acknowledged in the manner
specified below.
1. Merger. To approve, ratify, confirm and adopt the Agreement and Plan
of Merger, dated as of May 7, 1999 (the "Merger Agreement"), by and
between FLAG Financial Corporation ("FLAG") and Thomaston Federal and
the transactions contemplated thereby pursuant to which (i) Thomaston
Federal will become a wholly-owned subsidiary of FLAG, and (ii) each
share of the $1.00 par value common stock of Thomaston Federal issued
and outstanding at the effective time of the Merger will be exchanged
for 1.7275 shares of $1.00 par value common stock of FLAG.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Election of Directors. To elect as directors the two nominees listed
below to serve for three year terms and until their successors are
elected and qualified (except as marked to the contrary below).
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR
(EXCEPT AS MARKED TO NOMINEES LISTED BELOW
THE CONTRARY BELOW)
To withhold your vote for any individual nominee, strike a line through
the nominee's name on the list below.
Robert G. Cochran W. Wallace Rhodes
3. In the discretion of the proxies on such other matters as may properly
come before the Annual Meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND PROPOSAL 2 ABOVE.
Please sign this proxy exactly as your name appears below. When shares
are held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED:______________________________ , 1999
____________________________________________
Signature
____________________________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THOMASTON FEDERAL SAVINGS
BANK, AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
EXHIBIT 99.3
CONSENT TO BE NAMED IN
REGISTRATION STATEMENT OF
FLAG FINANCIAL CORPORATION
The undersigned hereby consents to be named as a director nominee of
FLAG in the prospectus contained in the Registration Statement on Form S-4 of
FLAG Financial Corporation.
/s/ Robert G. Cochran
---------------------
Robert G. Cochran
May 20, 1999
------------
Date
