<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST STERLING BANKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
GEORGIA 6025 58-2104977
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
POST OFFICE BOX 2147
MARIETTA, GEORGIA 30061
(770) 499-2265
------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
T. KENNERLY CARROLL, JR., ESQ.
W. SCOTT MCGINNESS, JR., ESQ.
MILLER & MARTIN, LLP
100 GALLERIA PARKWAY, N.W., SUITE 1200
ATLANTA, GEORGIA 30339-3122
(770) 953-3500
------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------
COPY TO:
STANLEY H. POLLOCK, ESQ.
HOLLAND & KNIGHT LLP
ONE ATLANTIC CENTER, SUITE 2000
1201 WEST PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-3400
(404) 817-8500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE OFFERING
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PRICE AMOUNT OF
OF SECURITIES REGISTERED PER UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock(1) 1,460,570(1) N/A $16,248,841 $4,517
</TABLE>
(1) Based upon the maximum number of shares that may be issued upon consummation
of the transaction described herein.
(2) Estimated solely for the purpose of computing the registration fee. Computed
in accordance with Rule 457(c) and (f)(1) under the Securities Act of 1933,
based on the average of the high and low sales prices of the stock of
Georgia Bancshares, Inc. on January 12, 1999 equal to $11.125, as reported
on The Nasdaq SmallCap Market.
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
FIRST STERLING BANKS, INC.
1200 BARRETT PARKWAY
KENNESAW, GEORGIA 30144
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
------------------------
NOTICE IS HEREBY GIVEN that First Sterling Banks, Inc. will hold a Special
Meeting of shareholders at , in , Georgia, at local time
on , 1999, to vote on the following proposals:
1. The approval and adoption of a Merger Agreement, dated December 30,
1998, between First Sterling Banks, Inc. and Georgia Bancshares, Inc., which
provides, among other things, for: (i) the merger of Georgia Bancshares,
Inc. with and into First Sterling Banks, Inc; and (ii) the conversion of
each share of stock of Georgia Bancshares, Inc. outstanding immediately
prior to the merger (other than dissenting shares) into the right to receive
one share of stock of First Sterling Banks, Inc.; and (iii) the issuance of
up to 1,460,570 shares of First Sterling stock to Georgia Bancshares
shareholders to effect the merger.
2. Any other matters that properly come before this Special Meeting, or
any adjournments or postponements of this Special Meeting.
Record holders of First Sterling Banks, Inc. stock at the close of business
on 1999, will receive notice of and may vote at the Special Meeting,
including any adjournments or postponements. The approval of the merger and the
issuance of First Sterling stock requires the affirmative vote of a majority of
those shares present, in person or by proxy, at the Special Meeting.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Edward C. Milligan
Chairman of the Board of Directors
and Chief Executive Officer
Kennesaw, Georgia
, 1999
<PAGE>
GEORGIA BANCSHARES, INC.
3333 LAWRENCEVILLE HIGHWAY
TUCKER, GEORGIA 30084
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
------------------------
NOTICE IS HEREBY GIVEN that Georgia Bancshares, Inc. will hold a Special
Meeting of shareholders at , in , Georgia, at local time on
, 1999, to vote on the following proposals:
1. The approval and adoption of a Merger Agreement, dated December 30,
1998, between First Sterling Banks, Inc. and Georgia Bancshares, Inc., which
provides, among other things, for: (i) the merger of Georgia Bancshares,
Inc. with and into First Sterling Banks, Inc. and (ii) the conversion of
each share of stock of Georgia Bancshares, Inc. outstanding immediately
prior to the merger (other than dissenting shares) into the right to receive
one share of stock of First Sterling Banks, Inc.
2. Any other matters that properly come before this Special Meeting, or
any adjournments or postponements of this Special Meeting.
Record holders of Georgia Bancshares, Inc. stock at the close of business on
1999, will receive notice of and may vote at the Special Meeting,
including any adjournments or postponements. The Merger Agreement with First
Sterling Banks, Inc. requires approval by a majority of the outstanding shares
of Georgia Bancshares, Inc.
Pursuant to Sections 14-2-1301 ET SEQ. of the Georgia Business Corporation
Code, shareholders of Georgia Bancshares are entitled to dissent from the
transactions contemplated by the Merger Agreement. A copy of the provisions of
the Georgia Business Corporation Code regarding such rights of dissent is
annexed as Appendix C to the accompanying Joint Proxy Statement/Prospectus.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Ted A. Murphy
President and Chief Executive Officer
Tucker, Georgia
, 1999
<PAGE>
[Joint letterhead of First Sterling Banks, Inc. and Georgia Bancshares, Inc.]
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
The boards of directors of First Sterling and Georgia Bancshares have agreed
that Georgia Bancshares will merge into First Sterling and the shareholders of
Georgia Bancshares will receive shares of First Sterling stock for all
outstanding Georgia Bancshares stock.
Before this transaction can be completed, Georgia Bancshares and First
Sterling shareholders must vote to approve it. We are sending you this Joint
Proxy Statement/Prospectus to ask you to vote in favor of the transaction.
Georgia Bancshares shareholders would receive one share of stock of First
Sterling for each share of Georgia Bancshares that they own just before the
transaction. We estimate that Georgia Bancshares shareholders will own about 30%
of the outstanding stock of First Sterling immediately after the merger.
THE BOARDS OF DIRECTORS OF FIRST STERLING AND GEORGIA BANCSHARES UNANIMOUSLY
RECOMMEND A VOTE "FOR" THE PROPOSALS DESCRIBED IN THIS DOCUMENT.
Whether or not you plan to attend the shareholders' meetings, please take
the time to vote by completing and mailing the enclosed proxy card. If you sign,
date and mail your proxy card without indicating how you want to vote, we will
vote your proxy in favor of the merger of First Sterling and Georgia Bancshares.
By signing the proxy, you also authorize us to vote in our discretion for any
procedural motions, such as a motion for adjournment, that may come up at the
meeting.
The date, time and place of First Sterling shareholders' meeting is:
, 1999
local time
The date, time and place of Georgia Bancshares shareholders' meeting is:
, 1999
local time
This Joint Proxy Statement/Prospectus provides you with detailed information
about the merger of Georgia Bancshares into First Sterling. Information about
our companies is contained in our Forms 10-KSB for December 31, 1997, and our
Forms 10-QSB for September 30, 1998, which accompany the enclosed Joint Proxy
Statement/Prospectus. You can also get information about our companies from
documents we have each filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
Edward C. Milligan
Chairman of the Board of Directors
and Chief Executive Officer
First Sterling Banks, Inc.
Ted A. Murphy
President and Chief Executive Officer
Georgia Bancshares, Inc.
<PAGE>
JOINT PROXY STATEMENT
FIRST STERLING BANKS, INC.
Special Meeting of Shareholders to be held on , 1999
GEORGIA BANCSHARES, INC.
Special Meeting of Shareholders to be held on , 1999
------------------------
PROSPECTUS
FIRST STERLING BANKS, INC.
1,460,570 shares of common stock
------------------------
First Sterling Banks, Inc. ("First Sterling") engages in banking through its
subsidiaries, The Westside Bank & Trust Company ("Westside") and The Eastside
Bank & Trust Company ("Eastside"). Georgia Bancshares, Inc. ("Georgia
Bancshares") engages in banking through its sole subsidiary, Community Bank of
Georgia ("Community Bank"). We are sending you this Joint Proxy Statement/
Prospectus to help you decide how to vote on the agreement by which Georgia
Bancshares will merge into First Sterling.
This document also contains important investor information about the
business and operations of Westside, Eastside, First Sterling, Community Bank
and Georgia Bancshares.
First Sterling has filed with the Securities and Exchange Commission ("SEC")
a Registration Statement on Form S-4 under the Securities Act of 1933 (the
"Registration Statement"). This Joint Proxy Statement/Prospectus is the
prospectus filed as part of the Registration Statement. This Joint Proxy
Statement/Prospectus does not contain all of the information in the Registration
Statement nor does it include the exhibits to the Registration Statement, as the
SEC permits. Please see "Where You Can Get More Information." First Sterling
stock trades on the Nasdaq National Market under the symbol "FSLB" and Georgia
Bancshares stock trades on The Nasdaq SmallCap Market under the symbol "GABS."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF
ANY BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY
OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN FIRST STERLING STOCK WILL INVOLVE CERTAIN RISKS. SEE "RISK
FACTORS."
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1999 AND
IT WAS FIRST MAILED TO SHAREHOLDERS ON , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER OF GEORGIA BANCSHARES INTO FIRST STERLING........................... 1
SUMMARY.................................................................................................... 3
The Companies............................................................................................ 3
First Sterling Banks, Inc.............................................................................. 3
Georgia Bancshares, Inc................................................................................ 3
The Merger............................................................................................... 4
Reasons for the Merger................................................................................... 4
Special Meetings of Shareholders......................................................................... 4
First Sterling Special Shareholders' Meeting........................................................... 4
Georgia Bancshares Special Shareholders' Meeting....................................................... 5
Management After the Merger.............................................................................. 6
What Shareholders Will Receive in the Merger............................................................. 6
Georgia Bancshares Stock Options......................................................................... 6
Dividend Policy of First Sterling After the Merger....................................................... 7
Comparative Rights of Shareholders....................................................................... 7
Federal Income Tax Considerations........................................................................ 7
Accounting Treatment..................................................................................... 7
Fairness Opinion of Georgia Bancshares' Financial Advisor................................................ 7
Status of First Sterling Stock........................................................................... 8
Conditions to the Merger................................................................................. 8
Termination of the Merger Agreement...................................................................... 9
Regulatory Approvals..................................................................................... 9
Dissenting Shareholders' Rights.......................................................................... 9
Forward-Looking Statements May Prove Inaccurate.......................................................... 9
Comparative Stock Prices and Dividends................................................................... 10
First Sterling Stock................................................................................... 10
Georgia Bancshares Stock............................................................................... 11
Comparative Market Values of Stock Prior to Announcement of Merger....................................... 12
Comparative Per Share Information........................................................................ 12
RISK FACTORS............................................................................................... 14
Dependence on Key Personnel.............................................................................. 14
Regulation............................................................................................... 14
Trading Volume; Market Prices............................................................................ 15
Competition.............................................................................................. 15
Need for Government Approvals; Possible Operating Restrictions........................................... 15
Risks Related to Year 2000 Issues........................................................................ 16
Potential Impact of Changes in Interest Rates............................................................ 16
SELECTED FINANCIAL DATA.................................................................................... 16
First Sterling Selected Financial Data................................................................... 17
Georgia Bancshares Selected Financial Data............................................................... 19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA...................................................... 20
PRO FORMA FINANCIAL INFORMATION............................................................................ 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SPECIAL MEETINGS OF SHAREHOLDERS......................................................................... 28
Date, Time and Place..................................................................................... 28
Matters To Be Considered at the Special Shareholders' Meetings........................................... 28
Record Dates; Shares Outstanding; Quorums................................................................ 29
Votes Required; Voting Agreements........................................................................ 29
Voting of Proxies........................................................................................ 30
Effect of Abstentions and Broker Non-Votes............................................................... 31
Revocability of Proxies.................................................................................. 31
Solicitation of Proxies.................................................................................. 31
THE MERGER................................................................................................. 32
Background of the Merger................................................................................. 32
Reasons for the Merger................................................................................... 32
First Sterling's Reasons for the Merger................................................................ 32
Recommendation of the First Sterling Board of Directors................................................ 33
Georgia Bancshares' Reasons for the Merger............................................................. 33
Recommendation of the Georgia Bancshares Board of Directors............................................ 34
Terms of the Merger...................................................................................... 34
Exchange of Georgia Bancshares Stock Certificates........................................................ 35
Opinion of Financial Advisor to Georgia Bancshares....................................................... 35
Effective Date........................................................................................... 41
Representations and Warranties........................................................................... 41
Conduct of Business Pending the Merger................................................................... 43
Conditions to the Merger................................................................................. 44
Regulatory Approval...................................................................................... 45
Waiver, Amendment, and Termination....................................................................... 45
Stock Price.............................................................................................. 46
Management and Operations After the Merger............................................................... 47
Effect on Certain Employees and Benefit Plans............................................................ 47
Federal Income Tax Consequences of the Merger............................................................ 47
Accounting Treatment..................................................................................... 49
Expenses and Fees........................................................................................ 50
Resales of First Sterling Stock.......................................................................... 50
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................. 51
Shares Owned by Management and the Board................................................................. 51
CERTAIN REGULATORY CONSIDERATIONS.......................................................................... 51
General.................................................................................................. 51
Payment of Dividends..................................................................................... 52
Borrowings; Etc.......................................................................................... 52
Capital Adequacy......................................................................................... 53
Prompt Corrective Action................................................................................. 54
INFORMATION WITH RESPECT TO FIRST STERLING, WESTSIDE AND EASTSIDE.......................................... 55
INFORMATION WITH RESPECT TO GEORGIA BANCSHARES AND COMMUNITY BANK.......................................... 57
DESCRIPTION OF FIRST STERLING CAPITAL SECURITIES........................................................... 57
Common Stock............................................................................................. 57
Antitakeover Provisions.................................................................................. 58
Classification of the Board of Directors............................................................... 58
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Change in Number of Directors.......................................................................... 58
Removal of Directors................................................................................... 59
Advantages and Disadvantages of Articles 7, 8 and 9.................................................... 59
Supermajority Voting on Certain Transactions........................................................... 60
Evaluation of an Acquisition Proposal.................................................................. 60
Amendment of Antitakeover Provisions................................................................... 62
COMPARISON OF THE RIGHTS OF HOLDERS OF GEORGIA BANCSHARES STOCK AND FIRST STERLING STOCK................... 62
General.................................................................................................. 62
Capital Structure........................................................................................ 62
Voting Rights............................................................................................ 63
Directors................................................................................................ 63
Limitation of Liability and Indemnification of Directors, Officers and Employees......................... 63
STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS........................................................... 63
LEGAL MATTERS.............................................................................................. 65
EXPERTS.................................................................................................... 66
OTHER MATTERS.............................................................................................. 66
WHERE YOU CAN GET MORE INFORMATION......................................................................... 66
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 67
APPENDIX A: MERGER AGREEMENT............................................................................... A-1
APPENDIX B: OPINION OF MORGAN KEEGAN....................................................................... B-1
APPENDIX C: GEORGIA DISSENTERS' RIGHTS STATUTE............................................................. C-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER OF
GEORGIA BANCSHARES INTO FIRST STERLING
Q: WHY IS GEORGIA BANCSHARES MERGING INTO FIRST STERLING? HOW DO SHAREHOLDERS
BENEFIT?
A. The merger of Georgia Bancshares into First Sterling means that shareholders
of both companies will have an investment in a larger bank holding company.
The three subsidiary banks will have the ability to serve customers in a
wider area of metro Atlanta, Georgia. This transaction will allow the
combined company to increase market share and geographic reach and position
First Sterling to manage planned growth by adding experienced personnel from
Georgia Bancshares. We believe you will benefit as a result of the greater
liquidity and marketability of the First Sterling stock. To review the
reasons for the merger in more detail, see "The Merger--Reasons for the
Merger."
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and then sign, date
and return it as soon as possible. If you sign and send in your proxy card
and do not indicate how you want to vote, your proxy will be voted in favor
of the merger.
You may attend the shareholders' meeting and vote your shares in person,
rather than completing and returning your proxy card. If you do complete and
return your proxy card, you may revoke it at any time prior to the vote at
the shareholders' meetings by following the directions described under
"Special Meetings of Shareholders--Revocability of Proxies."
THE BOARDS OF DIRECTORS OF FIRST STERLING AND GEORGIA BANCSHARES HAVE EACH
UNANIMOUSLY VOTED TO RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THE
PROPOSALS ON WHICH YOU WILL BE VOTING.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send all Georgia Bancshares
shareholders written instructions for exchanging their share certificates.
The First Sterling shareholders will not exchange their certificates and
should not send in their certificates.
Q: PLEASE EXPLAIN THE EXCHANGE RATIOS IN THE TRANSACTION.
A: Georgia Bancshares shareholders will receive one share of First Sterling
stock in exchange for each share of Georgia Bancshares stock that they own.
Immediately prior to the merger, First Sterling will have a stock split and
issue additional stock to its shareholders of approximately 0.2858 shares
for each share they own (or cash for any fractional shares). The stock split
will result in an effective exchange ratio of approximately 0.7777 shares of
First Sterling stock for each share of Georgia Bancshares stock.
Q: WILL FIRST STERLING PAY DIVIDENDS TO SHAREHOLDERS?
A: After the merger, First Sterling anticipates paying dividends at the current
quarterly rate of $0.05 per share, or $0.0389 per share after the adjustment
for the 0.2858 stock split. However, the directors of First Sterling will
use their discretion to decide whether to declare dividends and the amount
of any dividends.
Q: WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In
addition to shareholder approvals, we must also obtain regulatory approvals.
We hope the merger will be completed approximately two weeks after the
shareholders' meetings.
1
<PAGE>
Q: WHAT ARE THE TAX CONSEQUENCES TO GEORGIA BANCSHARES SHAREHOLDERS?
A: We expect the transactions to be tax-free for federal income tax purposes to
Georgia Bancshares shareholders. Please see "The Merger--Federal Income Tax
Consequences of the Merger" for a description of certain federal income tax
consequences of the transactions.
Q: MY SHARES ARE HELD IN MY BROKER'S NAME. HOW DO I GO ABOUT VOTING?
A: Copies of the Joint Proxy Statement/Prospectus have been sent to your broker,
who must forward one to you. The broker will request instructions from you
as to how you want your shares to be voted, and the broker will vote your
shares according to your instructions.
Q: WHAT WILL HAPPEN IF I DON'T SEND IN MY PROXY CARD?
A: If you don't send in your Proxy Card, your shares will not be voted unless
you attend the meeting and vote in person. If a significant number of
shareholders do not return their Proxy Cards, there may not be enough shares
represented at each meeting to approve the transactions even if all those
present are in favor of approval. In that case, the transactions could not
take place at that time. Therefore, the failure to return your Proxy Card or
vote in person at the meeting could have the same effect as a vote against
the transactions.
Q: IF I'VE LOST MY GEORGIA BANCSHARES STOCK CERTIFICATE, CAN I STILL GET MY NEW
STOCK?
A: Yes. However, you will have to provide an indemnity or, in some cases, a paid
surety bond that will protect First Sterling against a loss in the event
someone finds or has your lost certificate and is able to transfer it. To
avoid having to pay for a surety bond, you should do everything you can to
find your lost Georgia Bancshares certificate before the time comes to send
it in.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and
documents incorporated by reference. It does not contain all the information
that is important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you. See "Where You
Can Get More Information" and "Incorporation of Certain Documents by Reference."
THE COMPANIES
FIRST STERLING BANKS, INC.
First Sterling was organized on March 16, 1994 as a Georgia business
corporation and is headquartered in Kennesaw, Georgia. It is a bank holding
company. First Sterling owns all of the outstanding capital stock of two
subsidiary banks: Westside and Eastside.
As of September 30, 1998, First Sterling had assets of $195,580,884. First
Sterling's principal executive office is located at 1200 Barrett Parkway,
Kennesaw, Georgia 30144, and its telephone number is (770) 499-2265.
THE WESTSIDE BANK & TRUST COMPANY--Westside is a bank chartered under the
laws of the State of Georgia. At September 30, 1998, Westside conducted
operations through two full service branches in Kennesaw and Marietta in Cobb
County, Georgia. Westside's primary business consists of attracting deposits and
originating commercial, consumer and real estate loans in the communities served
by these offices.
THE EASTSIDE BANK & TRUST COMPANY--Eastside is a bank chartered under the
laws of the State of Georgia. Eastside conducts operations through one full
service branch located at Snellville, Gwinnett County, Georgia. Eastside's
primary business consists of attracting deposits and originating commercial,
consumer and real estate loans in its primary service area.
For further information concerning First Sterling and its subsidiaries, see
"Where You Can Get More Information," "Incorporation of Certain Documents by
Reference," and "Information With Respect to First Sterling, Westside and
Eastside."
GEORGIA BANCSHARES, INC.
Georgia Bancshares was organized on February 15, 1995 as a Georgia business
corporation headquartered in Tucker, Georgia. It is a bank holding company.
Georgia Bancshares owns all of the outstanding capital stock of a subsidiary
bank named Community Bank, formerly named DeKalb State Bank.
The principal executive offices of Georgia Bancshares are located at 3333
Lawrenceville Highway, Tucker, Georgia 30084, and its telephone number is (770)
491-3333.
COMMUNITY BANK OF GEORGIA--Community Bank is a bank chartered under the laws
of the State of Georgia. Prior to September 16, 1996, Community Bank's name was
DeKalb State Bank. On that date, the bank's name was changed to Community Bank
of Georgia.
At September 30, 1998, Community Bank conducted operations through its main
office in Tucker, DeKalb County, Georgia and one branch office located at 4794
Highway 29, Lilburn, Gwinnett County, Georgia. Community Bank is engaged in the
commercial and retail banking business.
For further information concerning Georgia Bancshares and its subsidiary,
see "Where You Can Get More Information," "Incorporation of Certain Documents by
Reference," "Information With Respect to Georgia Bancshares and Community Bank."
3
<PAGE>
THE MERGER
Georgia Bancshares will merge into First Sterling and First Sterling will be
the surviving company. The merger will combine our businesses under a single
holding company named First Sterling. As a result of the merger, First Sterling
will become the holding company for Community Bank, in addition to its other
subsidiary banks--Westside and Eastside.
The Merger Agreement ("Merger Agreement") is attached as Appendix A to this
document. We encourage you to read the Merger Agreement. It is the legal
document governing the merger.
REASONS FOR THE MERGER
The merger means that shareholders of both companies will have an investment
in a larger bank holding company. We believe that the combination of the two
companies as a result of the merger should also serve a wider area of metro
Atlanta, reduce administration expenses and increase profitability, strengthen
management, enhance the competitive position of the three subsidiary banks,
increase liquidity and marketability of First Sterling stock and enhance
shareholder value.
SPECIAL MEETINGS OF SHAREHOLDERS
FIRST STERLING SPECIAL SHAREHOLDERS' MEETING
TIME AND PLACE OF THE FIRST STERLING SPECIAL SHAREHOLDERS' MEETING--First
Sterling will hold its special shareholders' meeting ("First Sterling Meeting ")
on , 1999 at a.m. local time at .
PURPOSE OF FIRST STERLING MEETING--The purpose of the First Sterling Meeting
is to vote on the Merger Agreement which provides for the merger of Georgia
Bancshares into First Sterling and the issuance of up to 1,460,570 shares of
First Sterling stock to Georgia Bancshares shareholders.
RECORD DATE FOR FIRST STERLING MEETING; VOTING POWER--First Sterling
shareholders are entitled to vote at the First Sterling Meeting if you owned
First Sterling stock on , (the "First Sterling Record Date "). On the
First Sterling Record Date there were outstanding 2,635,144 shares of First
Sterling stock. Each shareholder is entitled to one vote for each share of First
Sterling stock.
BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS--At the close of
business on the First Sterling Record Date the directors and executive officers
of First Sterling beneficially owned in the aggregate shares of its stock,
or % of total shares entitled to vote. We expect these persons to vote in
favor of the merger and issuance of shares.
RECOMMENDATION TO SHAREHOLDERS--The board of directors of First Sterling
believes the merger is fair to you and in your best interest and unanimously
recommends that you vote "for" approving the Merger Agreement and the issuance
of the First Sterling stock.
VOTE REQUIRED--The affirmative vote by shareholders owning at least a
majority of those shares present, in person or by proxy, at the First Sterling
Meeting is required to approve the merger and the issuance of the First Sterling
stock.
ADDITIONAL INFORMATION--For additional information, please call Mr. Edward
C. Milligan, President and CEO of First Sterling, at (770) 499-2265.
GEORGIA BANCSHARES SPECIAL SHAREHOLDERS' MEETING
TIME AND PLACE OF THE GEORGIA BANCSHARES SPECIAL SHAREHOLDERS'
MEETING--Georgia Bancshares will hold its special shareholders' meeting (the
"Georgia Bancshares Meeting ") on , 1999 at a.m. local time
.
4
<PAGE>
PURPOSE OF THE GEORGIA BANCSHARES MEETING--The purpose of the Georgia
Bancshares Meeting is to vote on the Merger Agreement by which Georgia
Bancshares will be merged into First Sterling and the Georgia Bancshares
shareholders will exchange each of their shares of Georgia Bancshares stock for
one newly issued share of First Sterling stock.
RECORD DATE FOR GEORGIA BANCSHARES MEETING; VOTING POWER--Georgia Bancshares
shareholders are entitled to vote at the Georgia Bancshares Meeting if you owned
Georgia Bancshares stock on , (the "Georgia Bancshares Record Date"). On
the Georgia Bancshares Record Date there were outstanding 1,460,570 shares of
Georgia Bancshares stock. Each shareholder is entitled to one vote for each
share of Georgia Bancshares stock.
BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS--At the close of
business on the Georgia Bancshares Record Date the directors and executive
officers of Georgia Bancshares beneficially owned in the aggregate shares
of its stock, or % of total shares entitled to vote. We expect these
persons to vote in favor of the Merger Agreement.
VOTE REQUIRED--The affirmative vote by shareholders owning at least a
majority of the outstanding Georgia Bancshares stock is required to approve the
Merger Agreement.
ADDITIONAL INFORMATION--For additional information, please call Mr. Ted A.
Murphy, President and CEO of Georgia Bancshares at (770) 491-3333.
MANAGEMENT AFTER THE MERGER
After the merger the First Sterling board of directors shall initially have
ten members, including Edward C. Milligan who shall continue to serve as
Chairman of the board and CEO of First Sterling and three members from the
boards of each of the subsidiary banks as follows:
WESTSIDE--P. Harris Hines and Benjamin H. Wofford shall continue to serve on
the First Sterling board and one additional person from the Westside board shall
be added to the First Sterling board.
EASTSIDE--Harry L. Hudson, Jr. and John S. Thibadeau, Jr. shall continue to
serve and Christopher H. Burnett, the President and CEO of Eastside, shall be
added to the First Sterling board.
COMMUNITY--Ted A. Murphy, Eugene L. Argo, and James L. Armstrong, Jr. shall
be added to the First Sterling board.
Barbara J. Bond shall continue to serve as chief financial officer of First
Sterling after the merger. The board of directors and management of each
subsidiary bank shall initially continue in such offices after the merger.
WHAT SHAREHOLDERS WILL RECEIVE IN THE MERGER
Each Georgia Bancshares shareholder shall receive for each share of Georgia
Bancshares stock one share of First Sterling stock.
Prior to the merger, First Sterling will declare a stock split effected so
that each First Sterling shareholder shall receive for each share of First
Sterling stock he or she owns 0.2858 additional shares of First Sterling stock.
Because of the stock split, the shareholders of Georgia Bancshares
effectively shall receive 0.7777 shares of First Sterling stock for each share
of Georgia Bancshares stock. This is the effective exchange ratio taking the
stock split into consideration.
5
<PAGE>
GEORGIA BANCSHARES STOCK OPTIONS
All of Georgia Bancshares outstanding stock options shall be assumed by
First Sterling. After the merger the stock options may only be exercised for
First Sterling stock. The number of shares subject to the options and the
exercise prices shall be the same as before the merger.
DIVIDEND POLICY OF FIRST STERLING AFTER THE MERGER
After the merger, it is presently expected that dividends will continue at
First Sterling's current quarterly dividend rate of $0.05 per share or $0.0389
per share after adjustment for the stock split. First Sterling's board of
directors determines the level of dividends to be declared each quarter based on
various economic and financial factors.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Both First Sterling and Georgia Bancshares are incorporated under the laws
of the State of Georgia and are subject to the Georgia Business Corporation
Code. Upon consummation of the merger, the shareholders of Georgia Bancshares
will become shareholders of First Sterling and their rights will be governed by
the Articles of Incorporation and Bylaws of First Sterling. The Articles of
Incorporation and Bylaws of both companies are very similar and there are no
material differences between them.
FEDERAL INCOME TAX CONSIDERATIONS
As a precondition to the merger, we must receive an opinion from First
Sterling's outside counsel stating that, as a general matter, Georgia Bancshares
shareholders will not recognize gain or loss for federal income tax purposes as
a result of the merger, unless the Georgia Bancshares shareholders exercise
dissenters' rights.
ACCOUNTING TREATMENT
The merger will be accounted for by First Sterling under the pooling of
interests method of accounting.
FAIRNESS OPINION OF GEORGIA BANCSHARES' FINANCIAL ADVISOR
In deciding to approve the merger, the board of directors of Georgia
Bancshares considered the opinion of its financial advisor, Morgan Keegan &
Company, Inc. ("Morgan Keegan"), as to the fairness of the merger to its
shareholders from a financial point of view.
The financial advisor performed several analyses in connection with
delivering its opinion, including the following:
- Examination of the Merger Agreement;
- Discussions with various members of management and representatives of
Georgia Bancshares and First Sterling concerning each company's historical
and current operations, financial condition and prospects;
- Review of historical consolidated financial and operating data that was
publicly available or furnished by Georgia Bancshares and First Sterling;
- Review of internal financial analyses, financial and operating forecasts,
reports and other information prepared by officers and representatives of
Georgia Bancshares and First Sterling;
6
<PAGE>
- Review of certain publicly available information with respect to certain
other companies comparable to Georgia Bancshares and First Sterling and
the trading markets for such other companies' securities;
- Review of certain publicly available information concerning the terms of
certain other transactions; and
- Consideration of the relative contributions of Georgia Bancshares and
First Sterling to the combined company.
This opinion is attached as Appendix B to this document. WE ENCOURAGE YOU TO
READ THE OPINION CAREFULLY.
STATUS OF FIRST STERLING STOCK
Shares of First Sterling stock received in the merger will be
freely-tradeable except for shares issued to directors and executive officers of
Georgia Bancshares.
CONDITIONS TO THE MERGER
We will complete the merger only if several conditions are satisfied,
including the following:
- The required majority of Georgia Bancshares and First Sterling shares vote
in favor of the Merger Agreement;
- No legal restraints or prohibitions exist which prevent the merger from
being completed;
- We receive all necessary regulatory approvals;
- First Sterling's counsel delivers an opinion concerning certain federal
income tax consequences of the merger;
- We receive an opinion from First Sterling's independent accounting firm
that the merger will qualify for pooling of interests accounting
treatment; and
- The number of shares of First Sterling stock that are not issued in the
merger due to the exercise of dissenters' rights by Georgia Bancshares
shareholders does not exceed 146,000 shares or create a liability in
excess of $1,460,000.
TERMINATION OF THE MERGER AGREEMENT
Our boards of directors can jointly agree to terminate the Merger Agreement
at any time without completing the merger. In addition, either company can
terminate the Merger Agreement if:
- We do not complete the merger by April 30, 1999;
- The shareholders of Georgia Bancshares and First Sterling do not vote in
favor of the Merger Agreement;
- Either party materially breaches its representations, warranties or
covenants it made or obligations it has under the Merger Agreement, or,
the conditions to completing the merger are not satisfied; or
- The Board of Governors of the Federal Reserve System (the "Federal
Reserve") or the Georgia Department of Banking and Finance (the
"Department") denies approval of the merger.
REGULATORY APPROVALS
The merger is subject to prior approval by the Federal Reserve and the
Department. Applications for approval are pending with the agencies but the
approvals have not yet been received.
7
<PAGE>
DISSENTING SHAREHOLDERS' RIGHTS
Shareholders of Georgia Bancshares who follow certain procedural
requirements for a dissenting shareholder may be entitled to receive cash in the
amount of the fair value of their Georgia Bancshares shares instead of the
shares of First [Sterling stock.
ANY GEORGIA BANCSHARES' SHAREHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS
- MUST FILE A WRITTEN NOTICE OF INTENT TO DISSENT PRIOR TO THE VOTE;
- MUST NOT VOTE IN FAVOR OF THE MERGER AGREEMENT; AND
- MUST COMPLY WITH ALL OF THE PROCEDURAL REQUIREMENTS PROVIDED BY GEORGIA
LAW.
A copy of the dissenters' rights statute is attached as Appendix C to this
document. We encourage you to read the statute carefully and to consult with
legal counsel if you desire to exercise your dissenter's rights. See "Statutory
Provisions for Dissenting Shareholders."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this document, and in documents
that we incorporate by reference, that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of First Sterling or Georgia Bancshares or
the combined company. When we use words such as "believes, "expects,"
"anticipates," or similar expressions, we are making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect the future financial results of First Sterling,
Georgia Bancshares or the combined company. These factors could cause those
results to differ materially from those expressed in our forward-looking
statements contained or incorporated by reference in this document. These
factors include the following:
- Operating, legal and regulatory risks;
- Economic, political and competitive forces affecting our banking
businesses; and
- The risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
COMPARATIVE STOCK PRICES AND DIVIDENDS
FIRST STERLING STOCK
As of , 1999, there were approximately holders of record of
First Sterling stock. Shares of stock of First Sterling trade on the Nasdaq
National Market under the symbol ("FSLB"). The following table sets forth, for
each quarter other than the first quarter of 1997, the high and low sales prices
per share as reported on the Nasdaq National Market. The high and low bid
information as reported by J.C. Bradford & Co. is given for the first quarter of
1997. The table also shows the regular
8
<PAGE>
cash dividends declared for First Sterling stock. All information is adjusted to
reflect the 2-for-1 stock split paid on March 30, 1998.
<TABLE>
<CAPTION>
FIRST STERLING
COMMON STOCK
--------------------
<S> <C> <C> <C>
1997 HIGH LOW DIVIDEND
- ---------------------------------------------------------------------------------- --------- --------- -------------
BID INFORMATION
First Quarter*.................................................................... $ 9.00 $ 8.13 $ 0.04
SALES PRICE INFORMATION
Second Quarter.................................................................... $ 9.00 $ 7.75 $ 0.05
Third Quarter..................................................................... $ 9.63 $ 8.50 $ 0.05
Fourth Quarter.................................................................... $ 12.50 $ 9.31 $ 0.05
<CAPTION>
1998
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter..................................................................... $ 18.50 $ 11.75 $ 0.05
Second Quarter.................................................................... $ 16.75 $ 14.50 $ 0.05
Third Quarter..................................................................... $ 15.25 $ 13.63 $ 0.05
Fourth Quarter.................................................................... $ 14.50 $ 13.88 $ 0.05
</TABLE>
- ------------------------
* First Sterling started trading on the Nasdaq National Market in the second
quarter of 1997. In the first quarter of 1997, J.C. Bradford & Co. and
Sterne Agee & Leach made a market in the stock and it was quoted regularly
in the Nasdaq system known as the "Bulletin Board Market." The high and low
bid information for this quarter as reported by J.C. Bradford is set forth
above. These are over-the-counter market quotations which reflect
interdealer prices without retail mark-up, mark-down or commissions and may
not represent actual transactions.
GEORGIA BANCSHARES STOCK
As of , there were approximately holders of record of
Georgia Bancshares stock. The following table sets forth, for the fourth quarter
of 1998, the high and low bid information per share as reported by J.C. Bradford
& Co., one of the market makers in the Georgia Bancshares stock. Georgia
Bancshares stock was first listed on The Nasdaq SmallCap Market in the fourth
quarter of 1998. Prior to the fourth quarter of 1998, there was no established
trading market in Georgia Bancshares stock and the information for these
quarters are negotiated trades which are known to Georgia Bancshares or J.C.
Bradford & Co. The regular cash dividends declared for Georgia Bancshares stock
are also given in the table below. All information is adjusted to reflect the
5-for-2 stock split effective June 23, 1998.
9
<PAGE>
GEORGIA BANCSHARES
<TABLE>
<CAPTION>
COMMON STOCK
NEGOTIATED TRADES
-----------------------
<S> <C> <C> <C>
1997 HIGH LOW DIVIDEND
- ------------------------------------------------------------------------------- ------------ --------- -------------
First Quarter.................................................................. $5.20 $ 4.80 $ 0.04
Second Quarter................................................................. $4.80 $ 4.80 --
Third Quarter.................................................................. $5.00 $ 5.00 --
Fourth Quarter................................................................. $5.00 $ 4.60 $ 0.04
<CAPTION>
1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter.................................................................. $6.25 $ 6.25 $ 0.04
Second Quarter................................................................. No Trades --
Third Quarter.................................................................. $7.41 $ 7.41 --
</TABLE>
<TABLE>
<CAPTION>
BID INFORMATION
--------------------
<S> <C> <C> <C>
HIGH LOW
--------- ---------
Fourth Quarter*........................................................................ $ 9.50 $ 8.00 $ 0.05
</TABLE>
- ------------------------
* Georgia Bancshares started trading on The Nasdaq SmallCap Market in the
fourth quarter of 1998. The high and low bid information for this quarter as
reported by J.C. Bradford & Co. is set forth above. These are
over-the-counter market quotations which reflect interdealer prices without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
COMPARATIVE MARKET VALUES OF STOCK PRIOR TO ANNOUNCEMENT OF MERGER
The following table sets forth the market values of the stock of First
Sterling and Georgia Bancshares as of September 30, 1998, the last trading day
before the announcement of the proposed merger and as of the the latest
practical trading day before the printing of this Joint Proxy
Statement/Prospectus as well as the equivalent pro forma per share value of
Georgia Bancshares stock based on the effective exchange ratio of 0.7777. The
current market quotations for the stock of First Sterling and Georgia Bancshares
may be obtained on the World Wide Web at http://www.nasdaq.com.
<TABLE>
<CAPTION>
GEORGIA BANCSHARES
FIRST STERLING GEORGIA BANCSHARES EQUIVALENT PER
STOCK VALUE STOCK VALUE SHARE PRICE
----------------- ------------------------- -------------------------
<S> <C> <C> <C>
September 30, 1998........................ $ 13.75 $ 7.53* $ 10.69
, 1999 $
</TABLE>
- ------------------------
* Based on the price of the last trade known by Georgia Bancshares on August
28, 1998, prior to announcement of the proposed merger on October 1, 1998.
COMPARATIVE PER SHARE INFORMATION
The following table sets forth certain unaudited comparative per share data
relating to book value per common share, cash dividends declared per common
share and income from continuing operations per common share. This information
is presented: (i) on an historical basis for First Sterling and Georgia
Bancshares, (ii) on a pro forma basis per share of First Sterling stock to
reflect completion of the merger, and (iii) on an equivalent pro forma basis per
share of Georgia Bancshares stock to reflect completion of the merger, assuming
the merger was effective for the periods presented. The pro forma data reflects
the proposed First Sterling stock split of 0.2858 shares of First Sterling stock
for each
10
<PAGE>
share outstanding immediately prior to the time of the merger. The pro forma
information has been prepared giving effect to the merger using the pooling of
interests accounting method. The following equivalent per share data assume an
exchange ratio of one share of First Sterling stock for each share of Georgia
Bancshares stock. This information should be read in conjunction with the
consolidated financial statements of First Sterling and Georgia Bancshares which
are contained in the Forms 10-KSB as of December 31, 1997, and Forms 10-QSB as
of September 30, 1998, which accompany this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
FOR THE 9 MONTHS -------------------------------
ENDED SEPTEMBER 30, 1998 1997 1996 1995
------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic income per share:
First Sterling, historical................................... $ 0.67 $ 0.83 $ 0.57 $ 0.60
First Sterling, pro forma combined(2)(3)..................... $ 0.50 $ 0.58 $ 0.42 $ 0.52
Georgia Bancshares, historical............................... $ 0.44 $ 0.42 $ 0.37 $ 0.65
Georgia Bancshares, equivalent pro forma(2)(3)(4)............ $ 0.50 $ 0.58 $ 0.42 $ 0.52
Diluted income per share:
First Sterling, historical................................... $ 0.61 $ 0.78 $ 0.55 $ 0.60
First Sterling, pro forma combined(2)(3)..................... $ 0.46 $ 0.55 $ 0.41 $ 0.52
Georgia Bancshares, historical............................... $ 0.43 $ 0.42 $ 0.36 $ 0.65
Georgia Bancshares, equivalent share(2)(3)(4)................ $ 0.46 $ 0.55 $ 0.41 $ 0.52
Cash dividends declared per share:
First Sterling, historical................................... $ 0.15 $ 0.17 $ 0.13 $ 0.06
First Sterling, pro forma combined........................... $ 0.15 $ 0.17 $ 0.13 $ 0.06
Georgia Bancshares, historical............................... $ 0.09 $ 0.08 $ 0.06 $ 0.00
Georgia Bancshares, equivalent pro forma(4).................. $ 0.15 $ 0.17 $ 0.13 $ 0.06
Book value per share (end of period):
First Sterling, historical(1)................................ $ 6.69 $ 6.14 -- --
First Sterling, pro forma combined(1)(2)..................... $ 5.12 $ 4.71 -- --
Georgia Bancshares, historical(1)............................ $ 4.95 $ 4.55 -- --
Georgia Bancshares, equivalent pro forma(2)(3)(4)............ $ 5.12 $ 4.71 -- --
</TABLE>
- ------------------------
(1) Historical book value per common share is computed by dividing total
stockholders' equity by the number of common shares outstanding at the end
of the period. Pro forma combined book value per common share is calculated
by dividing the pro forma book value for the combined company by the number
of shares of Georgia Bancshares stock outstanding at the end of the period,
plus the number of shares of First Sterling stock outstanding at the end of
the period multiplied by First Sterling's stock split ratio of 1.2858.
(2) The unaudited pro forma condensed combined balance sheet as of September 30,
1998 gives effect to the merger as if it had occurred on September 30, 1998,
and combines the unaudited consolidated balance sheet of First Sterling and
the unaudited consolidated balance sheet of Georgia Bancshares as of
September 30, 1998. The unaudited pro forma condensed combined statements of
operations give effect to the merger as if it had occurred at the beginning
of the earliest period presented.
(3) Pro forma combined basic earnings per share is calculated by dividing the
pro forma net income for the combined company by the weighted average number
of Georgia Bancshares shares outstanding during the period, plus the
weighted average number of First Sterling shares outstanding during the
period multiplied by the First Sterling stock split ratio of 1.2858. Pro
forma combined diluted earnings per share is calculated by dividing the pro
forma net income for the combined company by the weighted average number of
shares and potential shares outstanding of
11
<PAGE>
Georgia Bancshares stock during the period, plus the weighted average number
of shares and potential shares outstanding of First Sterling stock during
the period multiplied by the First Sterling stock Split ratio of 1.2858.
(4) The Equivalent Pro Forma amounts are calculated by multiplying the pro forma
combined amounts by the Georgia Bancshares exchange ratio of 1.0.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, WE URGE YOU TO CONSIDER THE FOLLOWING
FACTORS BEFORE DECIDING HOW TO VOTE AT THE FIRST STERLING AND GEORGIA BANCSHARES
SHAREHOLDERS' MEETINGS.
DEPENDENCE ON KEY PERSONNEL
First Sterling currently depends heavily on the services of its Chief
Executive Officer, Edward C. Milligan, and a number of other key management
personnel in its subsidiary banks. The loss of Mr. Milligan's services or of
other key personnel could affect First Sterling in a material and adverse way.
First Sterling's success will also depend in part on its ability to attract and
retain additional qualified management personnel. Competition for such personnel
is strong in the banking industry and First Sterling may not be successful in
attracting or retaining the personnel it requires.
REGULATION
Current and future legislation and the policies established by federal and
state regulatory authorities will affect First Sterling's future operations.
First Sterling is subject to supervision and periodic examination by the Federal
Reserve and the Department. The bank subsidiaries are subject to regulation by
the Federal Deposit Insurance Corporation ("FDIC") and the Department. Banking
legislation and regulations, designed primarily for the protection of
depositors, may limit our growth and the return to our investors by restricting
such activities as:
- the payment of dividends;
- mergers with or acquisitions by other institutions;
- investments;
- loans and interest rates;
- interest rates paid on deposits;
- expansion of branch offices; and
- providing securities or trust services.
In addition, capital requirements could be changed and have the effect of
restricting our activities or requiring additional capital to be maintained. We
cannot predict what changes, if any, will be made to existing federal and state
legislation and regulations or the effect that such changes may have on First
Sterling's business. The cost of compliance with regulatory requirements may
adversely affect our ability to operate profitably. See "Certain Regulatory
Considerations."
TRADING VOLUME; MARKET PRICES
The trading volume in First Sterling stock on the Nasdaq National Market has
been relatively low when compared with larger companies listed on the Nasdaq
National Market or other stock exchanges. We cannot say with any certainty that
a more active and liquid trading market for First Sterling stock will develop.
12
<PAGE>
The share price of First Sterling stock on the Nasdaq National Market is by
nature subject to the general price fluctuations in the market for
publicly-traded equity securities. Such fluctuations are not necessarily related
to a change in the financial performance or condition of First Sterling.
COMPETITION
The banking and financial services business in the Atlanta metro area
generally, and in First Sterling's market areas specifically, is highly
competitive. The increasingly competitive environment is a result primarily of:
- changes in regulation;
- changes in technology and product delivery systems; and
- the accelerating pace of consolidation among financial services providers.
We will compete for loans, deposits and customers with various bank and
nonbank financial service providers, many of which are much larger in total
assets and capitalization, have greater access to capital markets and offer a
broader array of financial services. We may not be able to compete effectively
in our markets, and our results of operations could be adversely affected by the
competition.
NEED FOR GOVERNMENT APPROVALS; POSSIBLE OPERATING RESTRICTIONS
We are seeking to obtain all required regulatory approvals prior to our
shareholders' meetings. However, it is possible we will not obtain the
regulatory approvals we seek. In addition, governmental agencies may impose
restrictions on the combined company as a condition to obtaining such approvals.
If the parties comply with any restrictions imposed, this could adversely affect
the value of the combined institutions.
RISKS RELATED TO YEAR 2000 ISSUES
We use software that will be affected by the date change in the Year 2000.
Date sensitive systems may recognize the Year 2000 as 1900, or not at all. This
may cause systems to process critical financial and operational information
incorrectly. We have taken action over the past year to correct this problem. We
expect to take further action over the next year to address this issue. We have
taken various actions to understand the nature and work required to make our
systems Year 2000 compliant. We continue to evaluate the estimated costs and
have commenced portions of the work required to achieve compliance. We have
implemented a Year 2000 program and have, in our opinion, allocated adequate
resources for this purpose. While compliance has and will involve additional
costs, we believe, based on current information, that we will achieve year 2000
compliance without a material adverse effect on our businesses. We cannot assure
you, however, that our estimates of costs involved will prove to be accurate or
that we will have resolved all Year 2000 related issues. Thus, despite our work
and planning on this issue, it is still possible that we could experience a
material adverse effect on our business.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The profitability of First Sterling depends to a large extent upon its net
interest income which is the difference between interest income on
interest-earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. The net interest
income of First Sterling would be adversely affected if changes in market
interest rates resulted in the cost of interest-bearing liabilities increasing
faster than the increase in the yield on the interest-earning assets of First
Sterling.
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical financial information of First Sterling
and Georgia Bancshares has been derived from our respective historical financial
statements and should be read in conjunction with these consolidated financial
statements and notes included elsewhere or incorporated by reference in this
Joint Proxy Statement/Prospectus. The selected historical financial information
as of September 30, 1998, and for the nine-month period ended September 30, 1997
and 1998, for First Sterling and Georgia Bancshares have been derived from the
unaudited consolidated financial statements of First Sterling and Georgia
Bancshares, and in the opinion of management reflects all adjustments,
consisting only of normal recurring accruals, considered necessary for the fair
presentation of the unaudited interim financial information. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire fiscal year or any future period.
FIRST STERLING SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
FOR THE NINE MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Interest income............................... $ 10,984 $ 8,782 $ 13,307 $ 10,432 $ 9,705 $ 7,491 $ 6,007
Interest expense.............................. $ 4,755 $ 3,722 $ 5,562 $ 4,393 $ 4,087 $ 2,916 $ 2,678
Net interest income........................... $ 6,229 $ 5,060 $ 7,745 $ 6,039 $ 5,618 $ 4,575 $ 3,329
Provision for loan losses..................... $ 205 $ 212 $ 444 $ 137 $ 256 $ 257 $ 134
Net interest income after provisions for loan
losses...................................... $ 6,024 $ 4,848 $ 7,301 $ 5,902 $ 5,362 $ 4,318 $ 3,195
Other income.................................. $ 677 $ 810 $ 1,040 $ 760 $ 571 $ 513 $ 538
Other expenses................................ $ 4,050 $ 3,449 $ 5,054 $ 4,280 $ 3,623 $ 3,281 $ 2,824
Income before income taxes.................... $ 2,651 $ 2,209 $ 3,287 $ 2,381 $ 2,310 $ 1,550 $ 909
Applicable income taxes....................... $ 886 $ 741 $ 1,120 $ 872 $ 694 $ 341 $ 55
Net income.................................... $ 1,765 $ 1,468 $ 2,167 $ 1,509 $ 1,616 $ 1,209 $ 854
CONSOLIDATED BALANCE SHEET AT END OF PERIOD:
Total assets.................................. $ 195,581 $ 154,574 $ 169,041 $ 136,706 $ 121,172 $ 100,860 $ 92,937
Loans, gross.................................. $ 123,559 $ 101,617 $ 106,730 $ 83,726 $ 73,148 $ 63,897 $ 52,333
Allowance for loan losses..................... $ 1,556 $ 1,165 $ 1,380 $ 1,095 $ 1,015 $ 904 $ 727
Non-interest bearing Deposits................. $ 24,619 $ 20,735 $ 21,029 $ 18,708 $ 16,909 $ 13,446 $ 10,235
Interest-bearing Deposits..................... $ 151,638 $ 117,141 $ 130,294 $ 101,832 $ 89,556 $ 74,726 $ 71,175
Stockholders' equity.......................... $ 17,606 $ 15,510 $ 16,120 $ 14,742 $ 13,591 $ 12,160 $ 11,246
PER SHARE DATA:
Net income.............................. Basic $ 0.67 $ 0.56 $ 0.83 $ 0.57 $ 0.60 $ 0.50 $ 0.36
Diluted $ 0.61 $ 0.54 $ 0.78 $ 0.55 $ 0.60 -- --
Cash dividends declared....................... $ 0.1450 $ 0.1275 $ 0.1700 $ 0.1300 $ 0.0750 $ 0.0500 --
Book value.................................... $ 6.69 $ 5.91 $ 6.14 $ 5.57 $ 5.03 $ 4.50 $ 4.16
Number of shares outstanding, at end of
period...................................... 2,629,962 2,625,830 2,625,830 2,649,162 2,703,662 2,702,432 2,702,432
Average number of shares outstanding.... Basic 2,628,329 2,598,961 2,608,212 2,643,036 2,702,744 2,702,432 2,702,432
Diluted 2,879,702 2,743,989 2,773,446 2,769,146 2,773,724 -- --
SELECTED FINANCIAL RATIOS:
Return on average stockholders' equity........ 13.94% 13.21% 14.47% 10.79% 12.48% 10.35% 8.02%
Return on average total assets................ 1.35% 1.41% 1.30% 1.20% 1.38% 1.24% 0.99%
Net interest income to average interest
earning assets.............................. 5.19% 5.34% 5.10% 5.31% 5.24% 5.20% 4.31%
Dividend payout ratio......................... 21.64% 22.77% 20.48% 22.81% 12.71% 10.00% n/a
Average stockholders' equity to average total
assets...................................... 9.70% 10.65% 9.01% 11.14% 11.03% 12.02% 12.33%
Loans to deposits, at end of period........... 70.10% 73.70% 70.53% 69.46% 68.71% 72.47% 64.28%
</TABLE>
- ------------------------
* All per share data have been adjusted to reflect all stock dividends and
stock splits declared or effected through the date of this Joint Proxy
Statement/Prospectus.
14
<PAGE>
GEORGIA BANCSHARES SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
FOR THE NINE MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Interest income............................... $ 4,666 $ 3,856 $ 5,368 $ 4,120 $ 3,554 $ 2,714 $ 2,057
Interest expense.............................. $ 2,036 $ 1,707 $ 2,428 $ 1,828 $ 1,550 $ 1,109 $ 873
Net interest income........................... $ 2,630 $ 2,149 $ 2,940 $ 2,292 $ 2,004 $ 1,605 $ 1,184
Provision for loan losses..................... $ 195 $ 153 $ 236 $ 90 $ 127 $ 115 $ 54
Net interest income after provision for loan
losses...................................... $ 2,435 $ 1,996 $ 2,704 $ 2,202 $ 1,877 $ 1,490 $ 1,130
Other income.................................. $ 375 $ 317 $ 454 $ 373 $ 301 $ 299 $ 272
Other expenses................................ $ 1,867 $ 1,631 $ 2,197 $ 1,813 $ 1,533 $ 1,473 $ 1,346
Income before income taxes.................... $ 943 $ 682 $ 961 $ 762 $ 645 $ 316 $ 57
Applicable income taxes....................... $ 307 $ 239 $ 339 $ 227 $ (310) -- --
Net income.................................... $ 636 $ 443 $ 622 $ 535 $ 955 $ 316 $ 57
CONSOLIDATED BALANCE SHEET AT END OF PERIOD:
Total assets.................................. $ 77,110 $ 79,356 $ 79,356 $ 58,350 $ 47,389 $ 39,693 $ 35,054
Loans, gross.................................. $ 51,072 $ 44,649 $ 44,649 $ 31,181 $ 25,220 $ 21,567 $ 18,331
Allowance for loan losses..................... $ 763 $ 697 $ 697 $ 459 $ 401 $ 325 $ 211
Non-interest bearing Deposits................. $ 12,219 $ 10,547 $ 10,547 $ 8,216 $ 7,430 $ 5,045 $ 4,057
Interest-bearing Deposits..................... $ 56,877 $ 61,867 $ 61,867 $ 43,827 $ 34,035 $ 29,901 $ 26,190
Stockholders' equity.......................... $ 7,227 $ 6,650 $ 6,651 $ 6,096 $ 5,730 $ 4,551 $ 4,546
PER SHARE DATA:
Net income.................................... $ 0.44 $ 0.29 $ 0.42 $ 0.37 $ 0.65 $ 0.22 $ 0.04
Cash dividends declared....................... $ 0.09 $ 0.08 $ 0.08 $ 0.06 -- -- --
Book value.................................... $ 4.94 $ 4.55 $ 4.55 $ 4.17 $ 3.92 $ 3.12 $ 3.11
Number of shares outstanding at end of
period...................................... 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570
Average number of shares outstanding.... Basic 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570 1,460,570
Diluted 1,481,331 1,474,240 1,474,240 1,467,557 1,460,570 1,460,570 1,460,570
SELECTED FINANCIAL RATIOS:
Return on average stockholders' equity........ 13.17% 10.01% 10.42% 9.22% 19.03% 6.95% 1.33%
Return on average total assets................ 1.17% .88% .94% 1.02% 2.17% .83% .18%
Net interest income to average interest
earning assets.............................. 5.05% 5.08% 5.03% 4.92% 4.99% 4.72% 4.42%
Dividend payout ratio......................... 20.45% 27.59% 19.05% 16.22% -- -- --
Average stockholders' equity to average total
assets...................................... 8.91% 9.83% 9.04% 11.10% 11.41% 11.95% 13.79%
Loans to deposits, at end of period........... 73.89% 62.79% 61.66% 59.91% 60.82% 61.72% 60.60%
</TABLE>
- ------------------------
* All per share data have been adjusted to reflect all stock dividends and
stock splits declared or effected through the date of this Joint Proxy
Statement/Prospectus.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The selected pro forma combined financial information set forth below is
derived from the unaudited pro forma condensed combined financial statements
included in this Joint Proxy Statement/ Prospectus. The pro forma information is
presented for illustrative purposes only. It is not necessarily indicative of
future operating results or financial position that would have occurred if the
merger had been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of future operating results or financial position.
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED DECEMBER 31,
ENDED ----------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income........................................ $ 15,650 $ 18,676 $ 14,552 $ 13,259
Interest expense....................................... $ 6,791 $ 7,989 $ 6,221 $ 5,637
Net interest income.................................... $ 8,859 $ 10,687 $ 8,331 $ 7,622
Provision for loan losses.............................. $ 400 $ 680 $ 227 $ 383
Noninterest income..................................... $ 1,051 $ 1,493 $ 1,132 $ 872
Noninterest expenses................................... $ 5,916 $ 7,252 $ 6,094 $ 5,156
Income before income taxes............................. $ 3,594 $ 4,248 $ 3,142 $ 2,955
Income tax expense..................................... $ 1,193 $ 1,459 $ 1,098 $ 385
NET EARNINGS........................................... $ 2,401 $ 2,789 $ 2,044 $ 2,570
Basic earnings per share............................... $ 0.27 $ 0.58 $ 0.42 $ 0.52
Diluted earnings per share............................. $ 0.25 $ 0.55 $ 0.41 $ 0.52
Dividends per common share............................. $ 0.145 $ 0.17 $ 0.13 $ 0.06
DIVIDENDS
Cash dividends declared................................ $ 381 $ 448 $ 341 $ 92
Book value per common share............................ $ 5.12 $ 4.71 $ 4.42 $ 3.99
Average shares outstanding
Basic.............................................. 4,840,075 4,814,209 4,862,843 4,916,865
Diluted............................................ 5,180,625 5,040,337 5,031,983 4,939,666
</TABLE>
16
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheets as of
September 30, 1998, and December 31, 1997, and the unaudited pro forma condensed
consolidated statements of income for the nine months ended September 30, 1998,
and for the years ended December 31, 1997, 1996 and 1995, have been prepared to
reflect the proposed merger of Georgia Bancshares into First Sterling. First
Sterling's proposed merger with Georgia Bancshares is presented as if it had
occurred on December 31, 1997, with respect to the balance sheet and as of
January 1, 1995, with respect to the statements of income for the nine months
ended September 30, 1998, and for the years ended December 31, 1997, 1996 and
1995 in each case after providing the effect to the pro forma adjustments
described in the accompanying notes. The pro forma adjustments are based on
estimates made for the purposes of preparing these pro forma financial
statements. The actual adjustments to the accounts of First Sterling will be
made based on the underlying historical financial data at the time of the
transaction. First Sterling's management believes that the estimates used in
these pro forma financial statements are reasonable under the circumstances. The
pro forma information gives effect to the proposed merger of First Sterling and
Georgia Bancshares under the pooling of interests method of accounting. No
adjustments to these pro forma financial statements were necessary to conform
accounting methods as contemplated by APB Opinion No. 16.
These pro forma financial statements should be read in conjunction with the
historical financial statements and related notes presented elsewhere in this
Joint Proxy Statement/Prospectus. The unaudited pro forma condensed consolidated
balance sheet as of December 31, 1997 and September 30, 1998, are not
necessarily indicative of the combined financial position had the transactions
been effective at those dates. The unaudited pro forma condensed consolidated
statements of income are not necessarily indicative of the results of operations
that would have occurred had the merger with Georgia Bancshares been effective
at the beginning of the periods indicated, or of the future results of
operations of First Sterling.
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA PRO FORMA
STERLING BANCSHARES ADJUSTMENTS CONSOLIDATED
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................................... $ 7,156 $ 3,937 $ $ 11,093
Interest-bearing deposits in banks........................... 20 -- 20
Federal funds sold and securities purchased under resell
agreements................................................. 29,630 5,580 35,210
Securities available-for-sale................................ 28,121 11,907 40,028
Securities held-to-maturity.................................. 753 -- 753
Loans, net................................................... 122,004 51,072 173,076
Premises and equipment....................................... 5,776 2,781 8,557
Other assets................................................. 2,121 1,833 3,954
---------- ----------- ------------
Total assets................................................. $ 195,581 77,110 $ 272,691
---------- ----------- ------------
---------- ----------- ------------
LIABILITIES
Deposits..................................................... $ 176,258 $ 69,097 $ 245,355
Securities sold under repurchase agreements.................. 683 -- 683
Other liabilities............................................ 1,034 786 1,820
---------- ----------- ------------
Total liabilities.................................... 177,975 69,883 247,858
---------- ----------- ------------
---------- ----------- ------------
Stockholders' equity
Common stock................................................. 12,377 2,337(a) 3,544 18,258
Capital surplus.............................................. -- 3,544(a) (3,544) --
Retained earnings............................................ 6,081 1,401 7,482
Accumulated other comprehensive income....................... 182 (55) 127
Treasury stock............................................... (1,034) -- (1,034)
Total stockholders' equity........................... 17,606 7,227 24,833
---------- ----------- ------------
Total liabilities and stockholders' equity........... 195,581 77,110 $ 272,691
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(a) To reclassify capital surplus of Georgia Bancshares to common stock
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA PRO FORMA
STERLING BANCSHARES ADJUSTMENTS CONSOLDIATED
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................................... $ 7,652 $ 3,528 $ $ 11,180
Interest-bearing deposits in banks........................... 131 -- 131
Federal funds sold and securities purchased
under resell agreements...................................... 27,485 7,436 34,921
Securities available-for-sale................................ 18,963 18,835 37,798
Securities held-to-maturity.................................. 2,249 -- 2,249
Loans, net................................................... 105,350 44,649 149,999
Premises and equipment....................................... 5,107 2,853 7,960
Other assets................................................. 2,104 2,055 4,159
---------- ----------- ------------
Total assets........................................... $ 169,041 $ 79,356 $ 248,397
---------- ----------- ------------
---------- ----------- ------------
LIABILITIES
Deposits..................................................... $ 151,323 $ 72,414 $ 223,737
Securities sold under repurchase agreements.................. 354 354
Other liabilities............................................ 1,244 291 1,535
---------- ----------- ------------
Total liabilities...................................... 152,921 72,705 225,626
---------- ----------- ------------
STOCKHOLDERS' EQUITY
Common stock............................................... 12,350 2,337(a) 3,537 18,224
Capital surplus............................................ -- 3,537(a) (3,537) --
Retained earnings.......................................... 4,697 896 5,593
Accumulated other comprehensive income/(loss).............. 107 (119) (12)
Treasury stock............................................. (1,034) -- (1,034)
---------- ----------- ------------
Total stockholders' equity............................. 16,120 6,651 22,771
---------- ----------- ------------
Total liabilities and stockholders' equity............. $ 169,041 $ 79,356 248,397
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(a) To reclassify capital surplus of Georgia Bancshares to common stock
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA
STERLING BANCSHARES CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Interest income
Loans...................................................................... $ 9,038 $ 3,809 $ 12,847
Taxable securities......................................................... 859 719 1,578
Nontaxable securities...................................................... 167 -- 167
Deposits in banks.......................................................... 3 -- 3
Federal funds sold and securities purchased under resell agreements........ 918 137 1,055
----------- ----------- ------------
Total interest income.................................................. 10,985 4,665 15,650
----------- ----------- ------------
Interest expense
Deposits................................................................... 4,739 2,036 6,775
Federal funds purchased and securities sold under repurchase agreements.... 16 -- 16
----------- ----------- ------------
Total interest expense................................................. 4,755 2,036 6,791
----------- ----------- ------------
Net interest income.................................................... 6,230 2,629 8,859
Provision for loan losses.................................................... 205 195 400
----------- ----------- ------------
Net interest income after provision for loan losses.................... 6,025 2,434 8,459
----------- ----------- ------------
Other income
Service charges on deposit accounts........................................ 318 237 555
Net realized gains on sales of securities available-for-sale............... -- 19 19
Gains on sale of loans..................................................... 122 -- 122
Other operating income..................................................... 236 119 355
----------- ----------- ------------
Total other income..................................................... 676 375 1,051
----------- ----------- ------------
Other expense
Salaries and employee benefits............................................. 2,324 920 3,244
Equipment and occupancy expenses........................................... 415 300 715
Other operating expenses................................................... 1,311 646 1,957
----------- ----------- ------------
Total other expenses................................................... 4,050 1,866 5,916
----------- ----------- ------------
Income before income taxes............................................. 2,651 943 3,594
Income tax expense........................................................... 886 307 1,193
----------- ----------- ------------
Net income............................................................. $ 1,765 $ 636 $ 2,401
----------- ----------- ------------
----------- ----------- ------------
Basic earnings per common share.............................................. $ 0.67 $ 0.44 $ 0.50
----------- ----------- ------------
----------- ----------- ------------
Diluted earnings per common share............................................ 0.61 0.43 $ 0.46
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA
STERLING BANCSHARES CONSOLIDATED
--------- ----------- ------------
<S> <C> <C> <C>
Interest income
Loans..................................................................... $ 10,027 $ 4,108 $ 14,135
Taxable securities........................................................ 1,234 997 2,231
Nontaxable securities..................................................... 184 8 192
Deposits in banks......................................................... 6 -- 6
Federal funds sold and securities purchased under resell agreements....... 1,856 256 2,112
--------- ----------- ------------
Total interest income................................................. 13,307 5,369 18,676
--------- ----------- ------------
Interest expense
Deposits.................................................................. 5,543 2,428 7,971
Federal funds purchased and securities sold under repurchase agreements... 18 -- 18
--------- ----------- ------------
Total interest expense................................................ 5,561 2,428 7,989
--------- ----------- ------------
Net interest income................................................... 7,746 2,941 10,687
Provision for loan losses................................................... 444 236 680
--------- ----------- ------------
Net interest income after provision for loan losses................... 7,302 2,705 10,007
--------- ----------- ------------
Other income
Service charges on deposit accounts....................................... 390 306 696
Net realized losses on sales of securities available-for-sale............. (1) (3) (4)
Gains on sale of loans.................................................... 279 -- 279
Other operating income.................................................... 371 151 522
--------- ----------- ------------
Total other income.................................................... 1,039 454 1,493
--------- ----------- ------------
Other expense
Salaries and employee benefits............................................ 2,994 1,099 4,093
Equipment and occupancy expenses.......................................... 629 324 953
Other operating expenses.................................................. 1,431 775 2,206
--------- ----------- ------------
Total other expenses.................................................. 5,054 2,198 7,252
--------- ----------- ------------
Income before income taxes............................................ 3,287 961 4,248
Income tax expense.......................................................... 1,120 339 1,459
--------- ----------- ------------
Net income............................................................ $ 2,167 $ 622 $ 2,789
--------- ----------- ------------
--------- ----------- ------------
Basic earnings per common share............................................. $ 0.83 $ 0.42 $ 0.58
--------- ----------- ------------
--------- ----------- ------------
Diluted earnings per common share........................................... $ 0.78 $ 0.42 $ 0.55
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA
STERLING BANCSHARES CONSOLIDATED
--------- ----------- ------------
<S> <C> <C> <C>
Interest income
Loans..................................................................... $ 8,439 $ 2,958 $ 11,397
Taxable securities........................................................ 1,229 922 2,151
Nontaxable securities..................................................... 108 108
---
Deposits in banks......................................................... 3 10 13
Federal funds sold and securities purchased under resell agreements....... 653 230 883
--------- ----------- ------------
Total interest income................................................. 10,432 4,120 14,552
--------- ----------- ------------
Interest expense
Deposits.................................................................. 4,383 1,828 6,211
Federal funds purchased and securities sold under repurchase agreements... 10 -- 10
--------- ----------- ------------
Total interest expense................................................ 4,393 1,828 6,221
--------- ----------- ------------
Net interest income................................................... 6,039 2,292 8,331
Provision for loan losses................................................... 137 90 227
--------- ----------- ------------
Net interest income after provision for loan losses................... 5,902 2,202 8,104
--------- ----------- ------------
Other income
Service charges on deposit accounts....................................... 371 297 668
Net realized losses on sales of securities available-for-sale............. (4) -- (4)
Gains on sale of loans.................................................... 237 237
---
Other operating income.................................................... 155 76 231
--------- ----------- ------------
Total other income.................................................... 759 373 1,132
--------- ----------- ------------
Other expense
Salaries and employee benefits............................................ 2,250 924 3,174
Equipment and occupancy expenses.......................................... 526 266 792
Other operating expenses.................................................. 1,504 624 2,128
--------- ----------- ------------
Total other expenses.................................................. 4,280 1,814 6,094
--------- ----------- ------------
Income before income taxes............................................ 2,381 761 3,142
Income tax expense.......................................................... 872 226 1,098
--------- ----------- ------------
Net income............................................................ $ 1,509 $ 535 $ 2,044
--------- ----------- ------------
--------- ----------- ------------
Basic earnings per common share............................................. $ 0.57 $ 0.37 $ 0.42
--------- ----------- ------------
--------- ----------- ------------
Diluted earnings per common share........................................... $ 0.55 $ 0.36 $ 0.41
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FIRST GEORGIA PRO FORMA
STERLING BANCSHARES CONSOLIDATED
----------- ----------- -------------
<S> <C> <C> <C>
Interest income
Loans...................................................................... $ 7,349 $ 2,558 $ 9,907
Taxable securities......................................................... 1,240 750 1,990
Nontaxable securities...................................................... 52 -- 52
Deposits in banks.......................................................... -- 26 26
Federal funds sold and securities purchased under resell agreements........ 1,064 220 1,284
----------- ----------- ------
Total interest income.................................................. 9,705 3,554 13,259
----------- ----------- ------
Interest expense
Deposits................................................................... 4,087 1,550 5,637
Federal funds purchased and securities sold under repurchase agreements.... -- -- --
----------- ----------- ------
Total interest expense................................................. 4,087 1,550 5,637
----------- ----------- ------
Net interest income.................................................... 5,618 2,004 7,622
Provision for loan losses.................................................... 256 127 383
----------- ----------- ------
Net interest income after provision for loan losses.................... 5,362 1,877 7,239
----------- ----------- ------
Other income
Service charges on deposit accounts........................................ 342 247 589
Net realized losses on sales of securities available-for-sale.............. -- (11) (11)
Gains on sale of loans..................................................... 141 141
Other operating income..................................................... 88 65 153
----------- ----------- ------
Total other income..................................................... 571 301 872
----------- ----------- ------
Other expense
Salaries and employee benefits............................................. 1,871 759 2,630
Equipment and occupancy expenses........................................... 448 278 726
Other operating expenses................................................... 1,304 496 1,800
----------- ----------- ------
Total other expenses................................................... 3,623 1,533 5,156
----------- ----------- ------
Income before income taxes............................................. 2,310 645 2,955
Income tax expense/(benefit)................................................. 694 (309) 385
----------- ----------- ------
Net income............................................................. $ 1,616 $ 954 $ 2,570
----------- ----------- ------
----------- ----------- ------
Basic earnings per common share.............................................. $ 0.60 $ 0.65 $ 0.52
----------- ----------- ------
----------- ----------- ------
Diluted earnings per common share............................................ $ 0.60 $ 0.65 $ 0.52
----------- ----------- ------
----------- ----------- ------
</TABLE>
23
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS
DATE, TIME AND PLACE
FIRST STERLING--The shareholders' special meeting of First Sterling will be
held at located at , at a.m. local time, on ,
1999.
GEORGIA BANCSHARES--The shareholders' special meeting of Georgia Bancshares
will be held at located at , at a.m. local time, on
, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL SHAREHOLDERS' MEETINGS
FIRST STERLING. At the First Sterling Meeting, holders of First Sterling
stock will be asked to consider and vote upon the approval and adoption of the
Merger Agreement and the issuance of up to 1,460,570 shares of First Sterling
stock to Georgia Bancshares shareholders in exchange for their Georgia
Bancshares stock. Shareholders may also consider such other matters as may
properly be brought before the meeting.
THE BOARD OF DIRECTORS OF FIRST STERLING HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND SHARE ISSUANCE AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE ISSUANCE OF THE SHARES.
GEORGIA BANCSHARES. At the Georgia Bancshares Meeting, holders of Georgia
Bancshares stock will be asked to consider and vote upon the approval and
adoption of the Merger Agreement. Shareholders may also consider such other
matters as may properly be brought before the meeting.
THE BOARD OF DIRECTORS OF GEORGIA BANCSHARES HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATES; SHARES OUTSTANDING; QUORUMS
FIRST STERLING. Only shareholders of record of First Sterling stock at the
close of business on , 1999 (the "First Sterling Record Date") will
be entitled to notice of, and to vote at, the First Sterling Meeting. On the
First Sterling Record Date, First Sterling had outstanding shares. There
is no other class of First Sterling stock outstanding. Each share of First
Sterling stock entitles the holder to one vote. The presence at the First
Sterling Meeting, in person or by proxy, of shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting will constitute a
quorum.
GEORGIA BANCSHARES. Only shareholders of record of Georgia Bancshares stock
at the close of business on , 1999 (the "Georgia Bancshares Record
Date") will be entitled to notice of, and to vote at, the Georgia Bancshares
Meeting. On , 1999, Georgia Bancshares had outstanding shares
of Georgia Bancshares stock. There is no other class of Georgia Bancshares stock
outstanding. Each share of Georgia Bancshares stock entitles the holder to one
vote. The presence at the Georgia Bancshares Meeting, in person or by proxy, of
shareholders entitled to cast a majority of all the votes entitled to be cast at
the meeting will constitute a quorum.
VOTES REQUIRED; VOTING AGREEMENTS
FIRST STERLING. The approval of the Merger Agreement and the issuance of
First Sterling stock will require the affirmative vote of a majority of those
shares present, in person or by proxy, at the First Sterling Meeting.
As of the First Sterling Record Date, directors of First Sterling had voting
power over approximately shares of First Sterling stock, or approximately
% of the shares of First Sterling stock outstanding on the First Sterling
Record Date.
Management of First Sterling is not aware of any person or entity
beneficially owning 5% or more of the outstanding shares of First Sterling
stock, as of , 1999.
24
<PAGE>
GEORGIA BANCSHARES. The approval of the Merger Agreement will require the
affirmative vote of a majority of the outstanding shares of Georgia Bancshares.
As of the Georgia Bancshares Record Date, directors of Georgia Bancshares
had sole voting power over approximately shares of Georgia Bancshares
stock, or approximately % of the shares of Georgia Bancshares stock
outstanding on the Georgia Bancshares Record Date.
Other than Mr. Eugene L. Argo, who is Chairman of the board of directors of
Georgia Bancshares, management of Georgia Bancshares is not aware of any person
or entity owning 5% or more of the outstanding shares of Georgia Bancshares
stock.
VOTING OF PROXIES
FIRST STERLING. All executed proxy received prior to the First Sterling
Meeting will be voted at the First Sterling Meeting in the manner specified,
unless the proxy is revoked prior to the vote. Properly executed proxies which
do not contain voting instructions will be voted in favor of the Merger
Agreement and issuance of shares.
It is not expected that any other matter will be brought before the First
Sterling Meeting. If, however, other matters are properly presented, the persons
named as proxies will vote in accordance with their best judgment with respect
to such matters.
If a quorum is not obtained, the First Sterling Meeting may be adjourned for
the purpose of obtaining additional proxies. At any subsequent reconvening of
the First Sterling Meeting, all proxies will be voted in the same manner as the
proxies would have been voted at the original convening of the meeting (except
for any proxies which have been revoked or withdrawn).
GEORGIA BANCSHARES. All executed proxies received prior to the Georgia
Bancshares Meeting will be voted at the Georgia Bancshares Meeting in the manner
specified, unless the proxy is revoked prior to the vote. Properly executed
proxies which do not contain voting instructions will be voted in favor of the
Merger Agreement.
It is not expected that any other matter will be brought before the Georgia
Bancshares Meeting. If, however, other matters are properly presented, the
persons named as proxies will vote in accordance with their best judgment with
respect to such matters.
If a quorum is not obtained, the Georgia Bancshares Meeting may be adjourned
for the purpose of obtaining additional proxies. At any subsequent reconvening
of the meeting, all proxies will be voted in the same manner as the proxies
would have been voted at the original convening of the meeting (except for any
proxies which have been revoked or withdrawn).
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
FIRST STERLING. You may abstain from voting on the Merger Agreement.
Abstentions will be considered shares present and entitled to vote at the First
Sterling Meeting, but will not be counted as votes cast at the meeting.
If your shares are held in a trust by your broker then the broker cannot
vote your shares without specific instructions from you ("broker non-votes").
Broker non-votes will not be counted as votes cast at the First Sterling
Meeting.
GEORGIA BANCSHARES. You may abstain from voting on the Merger Agreement.
Abstentions will be considered shares present and entitled to vote at the
Georgia Bancshares Meeting, but will not be counted as votes cast at the
meeting. Broker non-votes with respect to the Merger Agreement also will not be
counted as votes cast at the meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF ALL SHARES ENTITLED TO VOTE AT THE GEORGIA BANCSHARES MEETING,
ABSTENTIONS BY GEORGIA BANCSHARES SHAREHOLDERS AND BROKER NON-VOTES (RESULTING
FROM FAILURE TO GIVE VOTING INSTRUCTIONS) HAVE THE EFFECT OF VOTES AGAINST THE
MERGER AGREEMENT.
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REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed First Sterling or Georgia Bancshares
form does not preclude you from voting in person. You may revoke a proxy at any
time prior to its exercise by:
- filing with the secretary of First Sterling, in the case of a First
Sterling proxy, or the secretary of Georgia Bancshares, in the case of a
Georgia Bancshares proxy, a duly executed revocation of proxy;
- submitting a duly executed proxy bearing a later date; or
- appearing at the applicable meeting and voting in person at the meeting.
Attendance at the applicable meeting will not, in and of itself, constitute
revocation of a proxy.
SOLICITATION OF PROXIES
First Sterling and Georgia Bancshares will each bear the cost of the
solicitation of proxies from its own shareholders, except that First Sterling
and Georgia Bancshares will share equally the cost of printing and mailing this
Joint Proxy Statement/Prospectus. In addition to solicitation by mail, the
directors, officers, and employees of First Sterling and Georgia Bancshares and
their subsidiaries may solicit proxies from their respective shareholders by
telephone or telegram or in person without compensation other than
reimbursements of their actual expenses. First Sterling and Georgia Bancshares
will reimburse any custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection with forwarding proxy solicitation material
to beneficial owners of the stock they hold.
GEORGIA BANCSHARES SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER--EXCHANGE OF
GEORGIA BANCSHARES STOCK CERTIFICATES," EACH GEORGIA BANCSHARES SHAREHOLDER WILL
BE PROVIDED WITH MATERIALS FOR EXCHANGING SHARES OF GEORGIA BANCSHARES AS
PROMPTLY AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
THE MERGER
BACKGROUND OF THE MERGER
During July, 1998, the boards of directors of First Sterling and Georgia
Bancshares explored the possibility of merging the two bank holding companies.
We felt that a combination of the two holding companies should be explored
because management of the two companies have compatible philosophies concerning
conservative banking and growth. Also, the combination should provide a broader
geographical coverage in the northern Atlanta metro area. Community Bank, the
only subsidiary of Georgia Bancshares, is located in the northern portion of
DeKalb County, between the First Sterling bank subsidiaries of Westside, located
in northern Cobb County, and Eastside, located in southern Gwinnett County.
Following the discussions, a non-binding letter of intent was executed on
September 29, 1998.
After negotiations and due diligence investigations, the First Sterling
board of directors unanimously approved the Merger Agreement on December 18,
1998. The Georgia Bancshares board of directors unanimously approved the Merger
Agreement on December 29, 1998, after receiving the opinion of Morgan Keegan &
Company, Inc. as to the fairness, from a financial point of view, of the
consideration to be received by the Georgia Bancshares shareholders in the
merger. The Merger Agreement, a copy of which is attached hereto as Appendix A,
was executed on December 30, 1998.
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REASONS FOR THE MERGER
FIRST STERLING'S REASONS FOR THE MERGER
In deciding whether to enter into the Merger Agreement, First Sterling's
board of directors considered a number of factors, including the following:
- the financial condition, operating results and future prospects of First
Sterling and Georgia Bancshares;
- a comparison of the price being paid in this merger to other comparable
financial institution mergers, based, among other things, on multiples of
book value and earnings;
- the historical trading prices for Georgia Bancshares stock and First
Sterling stock;
- that the merger provides First Sterling with a natural extension of its
existing metro Atlanta community bank franchise by establishing a presence
in DeKalb County, Georgia;
- that the merger should reduce duplicative administrative expenses and
increase profitability;
- that the larger size of the combined institution and a larger shareholder
base should increase the liquidity in the trading of First Sterling stock;
and
- that the combined institution will have a greater lending capacity through
loan participations between the subsidiary banks.
In approving the transaction, First Sterling's board did not specifically
identify any one factor or group of factors as being more significant than any
other factor in the decision making process, although individual directors may
have given one or more factors more weight than other factors.
RECOMMENDATION OF THE FIRST STERLING BOARD OF DIRECTORS
The board of directors of First Sterling believes that the terms of the
merger are in the best interests of First Sterling and its shareholders and has
unanimously approved the Merger Agreement. The board of directors of First
Sterling unanimously recommends that the shareholders of First Sterling approve
the Merger Agreement.
GEORGIA BANCSHARES' REASONS FOR THE MERGER
At its meeting on December 29, 1998, the board of directors of Georgia
Bancshares unanimously determined that the terms of the Merger Agreement were in
the best interests of Georgia Bancshares and the shareholders of Georgia
Bancshares, and unanimously approved the Merger Agreement.
In the course of reaching its decision to approve the Merger Agreement, the
Georgia Bancshares board of directors consulted with its legal and financial
advisors, as well as Georgia Bancshares' management, and considered, among other
factors, the following:
- the opinion of Georgia Bancshares' financial advisors that the
consideration to be received by Georgia Bancshares shareholders was fair
from a financial point of view;
- the board's familiarity with and review of Georgia Bancshares' business
prospects and financial condition, including its capital position and
future prospects if it were to remain independent;
- the increasing level of competition in the markets served by Georgia
Bancshares from institutions with substantially greater resources than
Georgia Bancshares;
- a determination by Georgia Bancshares' management that a combination with
First Sterling would expand Georgia Bancshares' lending capabilities and
increase the range of financial products and services available to Georgia
Bancshares' customers;
- the historical, current and projected price to earnings and price to book
value multiples at which shares of Georgia Bancshares stock have traded
and may trade in the future;
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- the prices, multiples of earnings per share and premiums over book value
and market value paid in recent acquisitions of banks;
- the earnings and financial condition of First Sterling;
- the historical market prices for shares of First Sterling stock, and
historical price to earnings and price to book value trading multiples for
such shares; and
- the relatively greater liquidity of First Sterling stock compared to the
relatively illiquid market for Georgia Bancshares stock.
RECOMMENDATION OF THE GEORGIA BANCSHARES BOARD OF DIRECTORS
The board of directors of Georgia Bancshares believes that the terms of the
merger are in the best interests of Georgia Bancshares and its shareholders and
has unanimously approved the Merger Agreement. The board of directors of Georgia
Bancshares unanimously recommends that the shareholders of Georgia Bancshares
approve the Merger Agreement.
TERMS OF THE MERGER
Upon completion of the merger, the separate legal existence of Georgia
Bancshares will cease. All property, rights, powers, duties, obligations, debts
and liabilities of Georgia Bancshares will automatically be transferred to First
Sterling. The Articles of Incorporation and Bylaws of First Sterling in effect
immediately prior to the merger will govern the combined company.
Upon the merger, each outstanding share of Georgia Bancshares stock will be
automatically converted into, and become a right to receive one share of First
Sterling stock (the "Exchange Ratio").
Immediately prior to the time that the merger is consummated, First Sterling
shall declare and pay a stock split to the First Sterling shareholders of 0.2858
additional shares of First Sterling stock for each share outstanding. This stock
split reflects the greater value of First Sterling stock over the Georgia
Bancshares stock and allows the merger Exchange Ratio to be 1. Shareholders of
First Sterling will receive cash in lieu of fractional shares of First Sterling
stock. Because of this stock split, the shareholders of Georgia Bancshares
effectively shall receive 0.7777 shares of First Sterling stock for each share
of Georgia Bancshares stock. This is referred to as the effective exchange
ratio.
EXCHANGE OF GEORGIA BANCSHARES STOCK CERTIFICATES
As soon as practicable after the consummation of the merger, a letter of
transmittal furnishing instructions for exchanging Georgia Bancshares stock
certificates (and for replacing any lost, stolen or destroyed certificates) will
be mailed to each Georgia Bancshares shareholder of record as of the close of
business on the date prior to the merger. Each Georgia Bancshares shareholder
will be urged to return this letter of transmittal, as soon as possible,
together with his or her stock certificates to SunTrust Bank, the exchange agent
(the "Exchange Agent") for First Sterling. As soon as practicable after receipt
by the Exchange Agent of your Georgia Bancshares stock certificates, you will be
mailed the First Sterling stock to which you are entitled pursuant to the Merger
Agreement.
After the consummation of the merger, each Georgia Bancshares stock
certificate will be deemed for all corporate purposes only to evidence the right
to receive certificates representing shares of First Sterling stock pursuant to
the Merger Agreement. Until your Georgia Bancshares stock certificate is
surrendered (or suitable arrangements made for any lost, stolen or destroyed
certificate) you:
- will not be issued a certificate representing the shares of First Sterling
stock which you are entitled to receive;
- will not have any voting rights in respect to the shares of First Sterling
stock which you are entitled to receive; and
- will not be paid dividends or other distributions in respect of the shares
of First Sterling stock which you are entitled to receive.
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Any dividends or distributions or other cash payable to you will be
retained, without interest, for your account until surrender of your stock
certificate.
OPINION OF FINANCIAL ADVISOR TO GEORGIA BANCSHARES
Georgia Bancshares retained Morgan Keegan & Company, Inc. ("Morgan Keegan")
as its financial advisor to render an opinion to the Georgia Bancshares board of
directors concerning the fairness, from a financial point of view, to Georgia
Bancshares stockholders of the consideration to be received pursuant to the
Merger Agreement. Morgan Keegan was retained by Georgia Bancshares on the basis
of, among other things, its experience and expertise in the bank and thrift
industries. As part of its investment banking business, Morgan Keegan is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for various
purposes.
On December 22, 1998, Morgan Keegan delivered its written opinion to the
board of directors of Georgia Bancshares to the effect that, as of December 22,
1998 and based upon and subject to certain matters stated in such opinion, the
consideration to be received is fair, from a financial point of view, to Georgia
Bancshares stockholders.
The full text of the written opinion of Morgan Keegan, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached hereto as Appendix B and is incorporated herein by reference. You
are urged to read this opinion carefully in its entirety. Morgan Keegan's
opinion is directed only to the fairness to the Georgia Bancshares stockholders,
from a financial point of view, of the consideration to be received and does not
address any other aspect of the merger or related transactions and does not
constitute a recommendation to you as to how you should vote at the Georgia
Bancshares meeting. The summary of the opinion of Morgan Keegan set forth in
this Joint Proxy Statement/Prospectus is qualified in its entirety by reference
to the full text of such opinion.
In arriving at its opinion, Morgan Keegan reviewed the Merger Agreement and
had discussions with certain senior officers, directors and other
representatives and advisors of Georgia Bancshares and certain senior officers
and other representatives and advisors of First Sterling concerning the
businesses, operations and prospects of Georgia Bancshares and First Sterling.
Morgan Keegan examined certain publicly available business and financial
information relating to Georgia Bancshares and First Sterling as well as certain
financial forecasts and other data for Georgia Bancshares and First Sterling
which were provided to Morgan Keegan by or otherwise discussed with the
respective management teams of Georgia Bancshares and First Sterling, including
information relating to certain strategic implications and operational benefits
anticipated from the merger. Morgan Keegan reviewed the financial terms of the
merger as set forth in the Merger Agreement in relation to, among other things:
current and historical market prices and trading volumes of Georgia Bancshares
and First Sterling stock; the historical and projected earnings and operating
data of Georgia Bancshares and First Sterling; and the capitalization and
financial condition of Georgia Bancshares and First Sterling. Morgan Keegan
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which Morgan Keegan considered
relevant in evaluating the merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose businesses Morgan Keegan considered relevant in evaluating those
of Georgia Bancshares and First Sterling. Morgan Keegan also considered the
relative contributions of Georgia Bancshares and First Sterling to the combined
company. In addition to the foregoing, Morgan Keegan conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Morgan Keegan deemed appropriate to arrive at its opinion.
Morgan Keegan noted that its opinion was necessarily based upon information
available, and financial, stock market and other conditions and circumstances
existing and disclosed, to Morgan Keegan as of the date of its opinion.
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In conducting its review and rendering its opinion, Morgan Keegan assumed
and relied, without independent verification, upon the accuracy and completeness
of all financial and other information publicly available or furnished to or
otherwise reviewed by or discussed with Morgan Keegan. With respect to financial
forecasts and other information provided to or otherwise reviewed by or
discussed with Morgan Keegan, the management teams of Georgia Bancshares and
First Sterling advised Morgan Keegan that such forecasts and other information
were reasonably prepared on a basis reflecting the best currently available
estimates and judgements of the respective management teams of Georgia
Bancshares and First Sterling as to the future financial performance of Georgia
Bancshares and First Sterling and the strategic implications and operational
benefits anticipated from the merger. Morgan Keegan assumed, with the consent of
the board of directors of Georgia Bancshares, that the merger will be accounted
for as a pooling of interests in accordance with generally accepted accounting
principles and as a tax-free reorganization for federal income tax purposes.
Morgan Keegan did not express any opinion as to what the value of First Sterling
stock actually will be when issued pursuant to the merger or the price at which
First Sterling stock will trade subsequent to the merger. In addition, Morgan
Keegan did not make or obtain an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Georgia Bancshares or First
Sterling nor did Morgan Keegan make any physical inspection of the properties or
assets of Georgia Bancshares or First Sterling. Morgan Keegan was not asked to
consider, and its opinion does not address, the relative merits of the merger as
compared to any alternative business strategies that might exist for Georgia
Bancshares or the effect of any other transaction in which Georgia Bancshares
might engage. In addition, Morgan Keegan was not asked to and did not recommend
the specific consideration payable in the merger. No other limitations were
imposed by Georgia Bancshares on Morgan Keegan with respect to the
investigations made or procedures followed by Morgan Keegan in rendering its
opinion.
The following is a summary of the principal analyses performed by Morgan
Keegan in connection with its opinion.
SUMMARY TRANSACTION ANALYSIS. Morgan Keegan reviewed the terms of the
proposed transaction, including the consideration to be received (after giving
effect to the share split to First Sterling shareholders) and the aggregate
transaction value. Morgan Keegan reviewed the implied value of the consideration
offered based upon a market price per share of $13.80 which is the average of
the closing price per share of First Sterling stock on the Nasdaq National
Market (as reported by THE WALL STREET JOURNAL) during the five (5) trading day
period from September 24, 1998 through September 30, 1998. This indicates an
implied value of $10.73 per share of Georgia Bancshares stock (assuming a 28.58%
share split to First Sterling shareholders prior to the closing of the merger
and 1,488,471 fully diluted outstanding shares based on an exchange ratio of one
(1) First Sterling stock share for one (1) share of Georgia Bancshares stock
which includes any stock equivalents). The implied aggregate transaction value
is $15.97 million. Morgan Keegan calculated that as of September 30, 1998, the
aggregate transaction value represented 20.72% of the total assets of Georgia
Bancshares at September 30, 1998, 2.21x Georgia Bancshares's stated book value
at September 30, 1998, and 19.52x Georgia Bancshares earnings for the trailing
twelve months ending September 30, 1998.
CONTRIBUTION ANALYSIS. Morgan Keegan reviewed certain historical financial
and operating information for Georgia Bancshares, First Sterling and the pro
forma combined entity resulting from the merger based on financial data reported
by Georgia Bancshares and First Sterling. Morgan Keegan analyzed the relative
balance sheet contribution of Georgia Bancshares and First Sterling for certain
data to the combined company on a pro forma basis as of September 30, 1998. This
analysis indicated that Georgia Bancshares would have contributed 28.28% to
combined total assets, 29.51% to combined loans (net of allowances for loan
losses), 28.16% to deposits and 29.10% to tangible equity. Morgan Keegan also
analyzed the relative income statement contribution of Georgia Bancshares and
First Sterling for certain data to the combined company on a pro forma basis.
This analysis indicated that Georgia Bancshares would have contributed 27.73% to
combined net interest income for the latest twelve months ("LTM") ended
September 30, 1998, 24.73% to combined pretax income and 24.94% to combined net
income. At the consideration to be received (including the share split to First
Sterling
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shareholders) the holders of outstanding Georgia Bancshares stock would own
approximately 30.32% of First Sterling outstanding shares and 29.32% of First
Sterling on a fully diluted basis.
COMPARABLE COMPANY ANALYSIS FOR GEORGIA BANCSHARES. Morgan Keegan reviewed
and compared certain financial information relating to Georgia Bancshares to
corresponding financial information, public market multiples and ratios for six
publicly traded banks headquartered in the Southeast that it deemed to be
comparable to Georgia Bancshares. The companies Morgan Keegan used for the
purposes of this analysis were Bank of South Carolina Corp., Central Virginia
Bankshares, Inc., Community Bankshares, Inc., Golden Isles Financial Holdings,
Inc., Savannah Bancorp, Inc. and Summitt Financial Corp. (collectively, the
"Comparable Companies"). Morgan Keegan calculated a range of market multiples
for the Comparable Companies by dividing market value per share as of December
14, 1998 by each such company's LTM earnings per share ended September 30, 1998
and by dividing market value by tangible book value reported September 30, 1998.
This analysis indicated that the price per share/earnings multiples ("P/E") for
LTM EPS ranged from 13.15x to 29.31x, with a mean of 22.19x and a median of
24.43x, compared to a multiple of 17.48x for Georgia Bancshares. Using balance
sheet data as of September 30, 1998, Morgan Keegan's analysis of the Comparable
Companies indicated market value multiples of tangible book value that ranged
from 1.47x to 3.36x, with a mean of 2.36x and a median of 2.39x, compared to a
2.02x for Georgia Bancshares. For the LTM results ending September 30, 1998
Morgan Keegan also compared certain ratios (including, among other things,
return on latest assets, return on latest equity; loan loss reserve to total
loans; total equity capital to total assets; and total loans to total deposits)
of the Comparable Companies to Georgia Bancshares. For the Comparable Companies,
the analysis indicated a return on latest assets range of 0.90% to 1.44%, with a
mean of 1.13% and a median of 1.10% for the Comparable Companies, compared with
1.08% for Georgia Bancshares; a return on latest equity range of 7.92% to
12.82%, with a mean of 10.91% and a median of 11.34%, compared to 11.56% for
Georgia Bancshares; and a loan loss reserve to total loans range of 1.24% to
1.63%, with a mean of 1.41% and a median of 1.42% for the Comparable Companies,
compared with a 1.47% for Georgia Bancshares. Additionally, the analysis
indicated a total equity capital to total assets range of 8.99% to 11.63%, with
a mean of 10.43% and a median of 10.62% for the Comparable Companies, compared
to 9.37% for Georgia Bancshares; and a total loans to total deposits range of
69.07% to 85.06%, with a mean of 76.76% and a median of 75.95% for the
Comparable Companies, compared to 75.02% for Georgia Bancshares.
COMPARABLE COMPANY ANALYSIS FOR FIRST STERLING. Morgan Keegan reviewed and
compared certain financial information relating to First Sterling to
corresponding financial information, public market multiples and ratios for six
publicly traded banks headquartered in the southeast that it deemed to be
comparable to First Sterling. The companies Morgan Keegan used for the purposes
of this analysis were Atlantic Financial Corp., Britton & Koontz Capital Corp.,
Merit Holding Corp., Southern Financial Bancorp., Southwest Georgia Financial
Corp. and Summitt Bank Corporation (collectively, the "Comparable Companies").
Morgan Keegan calculated a range of market multiples for the Comparable
Companies by dividing market value per share as of December 14, 1998 by each
such company's LTM earnings per share ended September 30, 1998 and by dividing
market value by tangible book value reported September 30, 1998. This analysis
indicated that the price per share/earnings multiples ("P/E") for LTM EPS ranged
from 11.81x to 20.27x, with a mean of 16.48x and a median of 16.55x, compared to
a multiple of 16.49x for First Sterling. Using balance sheet data as of
September 30, 1998, Morgan Keegan's analysis of the Comparable Companies
indicated market value multiples of tangible book value that ranged from 1.42x
to 2.72x, with a mean of 2.01x and a median of 1.86x, compared to a 2.31x for
First Sterling. For the LTM results ending September 30, 1998 Morgan Keegan also
compared certain ratios (including, among other things, return on latest assets,
return on latest equity; loan loss reserve to total loans; total equity capital
to total assets; and total loans to total deposits) of the Comparable Companies
to First Sterling. For the Comparable Companies, the analysis indicated a return
on latest assets range of 1.01% to 1.72%, with a mean of 1.31% and a median of
1.22% for the Comparable Companies, compared with 1.26% for First Sterling; a
return on latest equity range of 9.74% to 13.76%, with a mean of 12.17% and a
median of 12.28%, compared to 13.99% for First Sterling; and a loan loss reserve
to total loans range of 0.67% to 2.15%, with a mean
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of 1.51% and a median of 1.67% for the Comparable Companies, compared with a
1.26% for First Sterling. Additionally, the analysis indicated a total equity
capital to total assets range of 8.10% to 12.80%, with a mean of 10.78% and a
median of 11.46% for the Comparable Companies, compared to 9.00% for First
Sterling; and a total loans to total deposits range of 57.54% to 80.15%, with a
mean of 69.37% and a median of 70.58% for the Comparable Companies, compared to
70.10% for First Sterling.
STOCK TRADING ANALYSIS. Morgan Keegan reviewed and analyzed the price
performance and the historical trading volume for Georgia Bancshares and First
Sterling's stock.
Morgan Keegan's analysis indicated that from Georgia Bancshares's first
recorded trade on February 28, 1996 to December 1, 1998, Georgia Bancshares had
a compound annual growth rate of 32.30%, compared to 22.58% for the Nasdaq
Banking Index, 24.49% for the S&P Bank Index and 24.40% for the S&P 500. The
average volume of shares traded per day from January 1, 1998 to December 1, 1998
was 269 shares or 0.02% of the fully diluted shares outstanding on September 30,
1998. During the same period, the trading volume as a percentage of outstanding
diluted shares for Georgia Bancshares' Comparable Companies ranged from 0.02% to
0.12%, with a mean of 0.06% and a median of 0.04%.
Morgan Keegan's analysis indicated that from First Sterling's first recorded
trade date on August 14, 1995 to December 1, 1998, First Sterling had a compound
annual growth rate of 52.99%, compared to 24.38% for the Nasdaq Banking Index,
29.60% for the S&P Bank Index and 26.00% for the S&P 500. The average volume of
shares traded per day from January 1, 1998 to December 1, 1998 was 3,371 shares
or 0.12% of the fully diluted shares outstanding on September 30, 1998. During
the same period, the trading volume as a percentage of outstanding diluted
shares for First Sterling's Comparable Companies ranged from 0.02% to 0.24%,
with a mean of 0.11% and a median of 0.08%.
ANALYSIS OF SELECTED COMPARABLE MERGERS AND ACQUISITIONS. In order to
assess market pricing for comparable mergers, Morgan Keegan reviewed overall
merger transactions in the banking industry. Morgan Keegan selected 16
transactions occurring between December 1, 1997 and December 1, 1998, involving
selling banks located within the state of Georgia with total assets less than
$100 million. Because no transaction was considered identical to the merger, the
medians of the overall transaction multiples were considered more relevant than
the multiples for any specific transaction. Morgan Keegan calculated market
value multiples of LTM net income ranging from 12.59x to 34.35x, with a mean of
23.21x and a median of 23.13x, of latest reported book values ranging from 1.56x
to 4.51x, with a mean of 3.02x and a median of 3.07x and of latest reported
total assets ranging from 12.95% to 50.62%, with a mean of 31.06% and a median
of 31.36%.
Georgia Bancshares' transaction multiples are 19.52x latest twelve month
earnings for the period ending September 30, 1998, 2.21x stated book value as of
September 30, 1998, and 20.72% of total assets as of September 30, 1998.
No company or transaction used in the comparable companies and comparable
transactions analyses for comparative purposes is identical to Georgia
Bancshares or the merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations concerning differences in
financial and operating characteristics of the companies and other factors.
Mathematical analysis (such as determining the average or median) is not, in
itself, a meaningful method of using comparable company or transaction data.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Keegan performed a discounted cash
flow analysis of the projected cash flow available for dividends of Georgia
Bancshares for fiscal years 1999 through 2003, based on projections provided by
Georgia Bancshares management. Using this information, Morgan Keegan calculated
a range of equity values for Georgia Bancshares based on the sum of (a) the
present value of the cash flow available for dividends to Georgia Bancshares and
(b) the present value of the estimated terminal value for Georgia Bancshares
assuming that it was sold at the end of fiscal year 2003. In performing its
discounted cash flow analysis, Morgan Keegan assumed, among other things,
discount rates of 13.0% to 15.0% and terminal multiples of net income of 12.0x
to 14.0x. Those
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discount rates and terminal multiples reflect Morgan Keegan's qualitative
judgements concerning the specific risk associated with such an investment and
the historical and projected operating performance of Georgia Bancshares. This
analysis resulted in a range of equity values for Georgia Bancshares of $14.13
million to $17.45 million, or $9.49 to $11.72 per diluted share.
The summary of the Morgan Keegan opinion set forth above does not purport to
be a complete description of the analyses performed by Morgan Keegan. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Morgan Keegan believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, would create an
incomplete view of the process underlying the analyses set forth in the opinion.
In addition, Morgan Keegan may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to represent the
actual value of Georgia Bancshares or the combined company.
In performing its analyses, Morgan Keegan made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Georgia Bancshares or
First Sterling. The analyses performed by Morgan Keegan are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Morgan Keegan's analysis of the fairness, from a
financial point of view, of the consideration to be paid by First Sterling. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Georgia Bancshares has agreed to pay Morgan Keegan a retainer fee of
$10,000, payable in advance upon the signing of its engagement letter, an
initial advisory and opinion fee of $40,000, payable in cash promptly upon
delivery by Morgan Keegan of an Opinion at the signing of a definitive
agreement, and a final advisory and opinion fee of $15,000, payable in cash
promptly upon delivery by Morgan Keegan of an Opinion five days prior to the
closing of the Transaction. Georgia Bancshares has also agreed to reimburse
Morgan Keegan for its reasonable out-of-pocket expenses and to indemnify Morgan
Keegan against certain liabilities, including liabilities under the federal
securities laws.
EFFECTIVE DATE
The effective date of the merger ("Effective Date") will be the date on
which the Articles of Merger are filed with the Georgia Secretary of State. We
presently expect that the Effective Date will occur in the second quarter of
1999.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
relating to, among other things:
- the organization of First Sterling and Georgia Bancshares;
- the capital structures of First Sterling and Georgia Bancshares;
- the due authorization, execution, delivery, performance and enforceability
of the Merger Agreement;
- consents or approvals of regulatory authorities or third parties necessary
to complete the merger;
- the consistency of financial statements with generally accepted accounting
principles;
- the absence of material adverse changes, since September 30, 1998, in the
consolidated assets, business, financial condition or results of
operations of First Sterling or Georgia Bancshares;
- the filing of tax returns and payment of taxes;
- the absence of undisclosed material pending or threatened litigation;
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- compliance with applicable laws and regulations
- retirement and other employee plans and matters being in compliance with
the Employee Retirement Income Security Act of 1974;
- the quality of title to assets and properties;
- the maintenance of adequate insurance;
- the absence of undisclosed brokers' or finders' fees;
- the absence of material environmental violations, actions or liabilities;
- the consistency of the allowance for loan losses with generally accepted
accounting principles and all applicable regulatory criteria;
- documents filed with the SEC or other regulatory agencies and the accuracy
of information contained in these documents; and
- the validity and binding nature of loans reflected as assets in the
financial statements of First Sterling and Georgia Bancshares.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, First Sterling and Georgia Bancshares each
agreed to use their reasonable efforts to preserve their business organizations
intact and to maintain satisfactory relationships with its customers, suppliers,
regulators and employees. In addition, First Sterling and Georgia Bancshares
agreed to conduct their businesses and to engage in transactions only in the
ordinary course of business as conducted at the date of the Merger Agreement,
and in compliance in all material respects with all applicable laws and
regulations and all contracts to which either is a party.
In addition, each party has agreed, without the prior consent of the other,
not to:
- engage in certain activities such as selling property, making capital
contributions to affiliates, making capital expenditures;
- enter into any compensation agreements or increase salaries or benefits;
- change employee benefit plans;
- enter into any agreements with officers, directors or affiliates of the
banks;
- enter into agreements that call for payment of $50,000, or more, with
certain exceptions; and
- fail to maintain books and records in the normal course, other than in the
ordinary course of business.
We have agreed, among other things:
- to submit the Merger Agreement to our shareholders for approval at
meetings to be held as soon as practicable;
- to prepare all applications for, and use our reasonable best efforts to
obtain, all required regulatory approvals;
- subject to the terms of the Merger Agreement, to take all actions
necessary to complete the transactions contemplated by the Merger
Agreement;
- to maintain accurate books and records;
- to file all reports required to be filed with regulatory agencies for
periods ending on or after December 31, 1997; and
- to allow representatives of the other attend our board of directors and
loan and executive committee meetings (except during discussions of the
merger).
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CONDITIONS TO THE MERGER
Our obligations to consummate the merger are subject to various conditions,
which include the following:
- the Merger Agreement shall have been duly approved by our stockholders;
- all necessary governmental approvals for the merger shall have been
obtained, and all waiting periods required by law or imposed by any
governmental authority with respect to the merger shall have expired (see
"The Merger--Regulatory Approvals");
- there shall not be any order, decree, or injunction in effect preventing
the completion of the transactions contemplated by the Merger Agreement;
- we shall have received an opinion of our tax counsel that, among other
things, the merger will be treated for federal income tax purposes as a
tax-free "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986 (the "Code") (see "The Merger--Certain
Federal Income Tax Consequences");
- we shall each have received an opinion from Mauldin & Jenkins, LLC,
independent public accountants, that the merger will be treated as a
pooling of interests for financial accounting purposes (see "The
Merger--Accounting Treatment");
- the aggregate number of shares of Georgia Bancshares stock dissenting to
the merger shall not exceed 146,000 shares and shall not create, in the
reasonable judgment of the board of directors of First Sterling, ultimate
liability of Georgia Bancshares to dissenting shareholders that is likely
to exceed $1,460,000 unless we shall agree to a larger amount.
- the accuracy in all material respects as of December 30, 1998 and as of
the Effective Date of our representations and warranties, except as to any
representation or warranty which specially relates to an earlier date and
except as otherwise contemplated by the Merger Agreement;
- our performance in all material respects of all covenants and obligations
required to be performed by us at or prior to the Effective Date; and
- other conditions which are customary for transactions of the type
contemplated by the Merger Agreement. See "The Merger--Representations and
Warranties" and "The Merger--Conduct of Business Pending the Merger."
Except for the requirements of shareholder approval, regulatory approvals
and the absence of any order, decree, or injunction preventing the transactions
contemplated by the Merger Agreement, each of the conditions described above may
be waived as described in "The Merger--Amendment; Waivers". We do not, however,
anticipate waiving the condition that we receive an opinion from Mauldin &
Jenkins that the merger will be treated as a pooling of interests for financial
accounting purposes and an opinion from tax counsel that, provides among other
things, that the merger will be treated as a tax-free "reorganization" within
the meaning of Section 368(a) of the Code.
REGULATORY APPROVAL
The merger may not proceed unless we receive the required regulatory
approvals. We cannot assure you that such regulatory approvals will be obtained
or when we will obtain them, Applications for the approvals described below have
been submitted to the appropriate regulatory authorities.
We are not aware of any other material governmental approvals or actions
that are required for consummation of the merger, except as described in this
Joint Proxy Statement/Prospectus. Should any other approval or action be
required, we presently contemplate that such approval or action would be sought.
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The merger is subject to the prior approval of the Federal Reserve. In
evaluating the merger, the Federal Reserve must consider, among other factors,
the financial and managerial resources and future prospects of the institutions
and the convenience and needs of the communities to be served. The relevant
statutes prohibit the Federal Reserve from approving the merger if (i) it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States or (ii) its effect in any section of the country could be to
lessen substantially competition or to tend to create a monopoly, or if it would
result in a restraint of trade in any other manner, unless the Federal Reserve
should find that any anti-competitive effects are outweighed clearly by the
public interest and the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The merger may not be
consummated until the 30th day (which the Federal Reserve may reduce to 15 days)
following the date of the Federal Reserve approval, during which time the United
States Department of Justice would be afforded the opportunity to challenge the
transaction on antitrust grounds. The commencement of any antitrust action would
stay the effectiveness of the approval of the agencies, unless a court of
competent jurisdiction should specifically order otherwise.
WAIVER, AMENDMENT, AND TERMINATION
We may by agreement amend the Merger Agreement. However, after approval of
the Merger Agreement by our shareholders, we cannot make any amendment which
modifies the number of shares of First Sterling stock into which each share of
Georgia Bancshares stock will be converted and which changes the First Sterling
stock split unless the amendment is also approved by our shareholders. One party
may waive any breach of the Merger Agreement by the other party or the failure
of the other party to meet any conditions or terms of the Merger Agreement.
The Merger Agreement may be terminated and the merger abandoned at any time
prior to the Effective Date, even though we have received the approval of our
shareholders:
- by our mutual consent;
- by either one of us if, without our fault, the closing of the merger does
not occur on or before April 30, 1999;
- by either of us if regulatory approval is denied; or
- by either of us if the other breaches certain terms of the Merger
Agreement and the breach is not corrected for 10 days after notice.
If the merger is terminated as described above, the Merger Agreement will
have no effect, except for certain provisions of the Merger Agreement, including
those relating to the obligations to maintain the confidentiality of certain
information, and to return all documents obtained from the other party under the
Merger Agreement. In the event of a termination, we shall share equally in the
cost, expenses and fees which have been reasonably incurred by us in attempting
to accomplish the transactions contemplated in the Merger Agreement, except that
each of us shall be responsible for the expenses associated with our own
financial advisors, attorneys and consultants.
STOCK PRICE
Georgia Bancshares shall not be required to consummate the merger if:
- the average sales price of First Sterling stock as reported by the Nasdaq
National Market for the 20 days preceding the Effective Date is less than
$12.50 per share; or
- the last sales price prior to the Effective Date is less than $12.50 per
share.
However, even if the First Sterling stock price drops below these minimums,
Georgia Bancshares can nevertheless be required to consummate the merger if
First Sterling agrees to adjust the Exchange Ratio. The adjustment required is
for the product of the adjusted exchange ratio times (i) the lower of
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the average sales price of First Sterling's stock as reported by Nasdaq for the
20 trading days immediately preceding the merger or (ii) the sales price for the
last trading day immediately preceding the merger, to equal the product of the
original Exchange Ratio times $12.50.
Also, if the sales price of First Sterling stock as reported by the Nasdaq
National Market for the last trading day immediately preceding consummation of
the merger is less than $12.00 per share, Georgia Bancshares may, at its option,
not proceed with consummation of the merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger the First Sterling board of directors shall initially have
ten members. Edward C. Milligan shall continue to serve as Chairman of the board
and CEO of First Sterling. There shall be three members from the boards of each
of the subsidiary banks as follows:
WESTSIDE--P. Harris Hines and Benjamin H. Wofford (currently directors of
First Sterling) and one additional person from the Westside board.
EASTSIDE--Harry L. Hudson, Jr. and John S. Thibadeau, Jr. (currently
directors of First Sterling) and Christopher H. Burnett, the Eastside President
and CEO.
COMMUNITY--Ted A. Murphy, Eugene L. Argo, and James L. Armstrong, Jr.
Barbara J. Bond shall continue to serve as secretary and chief financial
officer of First Sterling after the merger. The board of directors and
management of each subsidiary bank shall initially continue in such offices
after the merger.
EFFECT ON CERTAIN EMPLOYEES AND BENEFIT PLANS
Upon consummation of the merger, First Sterling shall assume all outstanding
Georgia Bancshares' options to purchase shares of Georgia Bancshares stock. The
terms of the options shall remain the same except: (i) the Georgia Bancshares
options may be exercised only for shares of First Sterling stock, (ii) the
number of shares of First Sterling stock subject to such Georgia Bancshares
options will be equal to the number of shares of Georgia Bancshares stock
subject to such Georgia Bancshares option immediately prior to the Effective
Date, and (iii) the per share exercise price will be the same as the per share
exercise price under each such Georgia Bancshares option prior to the Effective
Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We have not requested an advance ruling from the Internal Revenue Service
("IRS") as to any of the federal income tax effects to us or our stockholders as
a result of the merger. Instead, we will rely upon an opinion of Miller & Martin
LLP as to the federal income tax consequences of the merger. The opinion of
Miller & Martin LLP is based entirely upon the Internal Revenue Code, treasury
regulations and rulings, practice, and judicial authority, all of which are
subject to change. The opinion of Miller & Martin LLP is based upon certain
factual assumptions. Unlike a ruling from the IRS, an opinion is not binding on
the IRS. There can be no assurance that the IRS will not take a position
contrary to one or more positions described below or that the opinion will be
upheld by the courts if challenged by the IRS.
In the opinion of Miller & Martin LLP, which opinion is based upon various
representations and subject to various assumptions and qualifications, the
following federal income tax consequences should result from the merger:
- The merger will, under current law, qualify as a tax-free reorganization
pursuant to Section 368(a)(1)(A) of the Code and that Georgia Bancshares
and First Sterling each will be parties to the reorganization within the
meaning of Section 368(b) of the Code.
- No gain or loss will be recognized by the shareholders of Georgia
Bancshares upon the receipt of First Sterling stock solely in exchange for
their shares of Georgia Bancshares stock.
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- The aggregate tax basis of the First Sterling stock to be received by the
Georgia Bancshares shareholders who exchange all of their Georgia
Bancshares stock solely for First Sterling stock in the merger will be the
same as the aggregate tax basis of their Georgia Bancshares stock
surrendered in the exchange.
- The holding period of the shares of First Sterling stock received by the
shareholders of Georgia Bancshares will include the period during which
the Georgia Bancshares stock surrendered in the exchange therefor was
held, provided that the shares of Georgia Bancshares stock were held as
capital assets within the meaning of Section 1221 of the Code as of the
time of the consummation of the merger.
- Georgia Bancshares shareholders who exercise dissenters' rights, and as a
result of which receive only cash, will be treated as having received the
cash as a distribution in redemption of their Georgia Bancshares stock,
subject to the provisions and limitations of Section 302 of the Code.
Accordingly, each such shareholder will generally recognize capital gain
or loss equal to the difference between the amount of cash received by
such shareholder and such shareholder's aggregate tax basis in his or her
Georgia Bancshares stock.
- No gain or loss will be recognized by Georgia Bancshares on the transfer
of its assets to First Sterling and the assumption by First Sterling of
its liabilities pursuant to the merger.
- Except as provided under the Treasury regulation promulgated under Section
1502 of the Code, no gain or loss will be recognized by First Sterling or
Georgia Bancshares upon First Sterling's receipt of Georgia Bancshares'
assets and First Sterling's assumption of Georgia Bancshares' liabilities
pursuant to the merger.
- The aggregate tax basis of the Georgia Bancshares assets in the hands of
First Sterling will be the same as the aggregate tax basis of such assets
in the hands of Georgia Bancshares immediately prior to the merger.
- The holding period of the Georgia Bancshares assets received by First
Sterling in the merger will include the holding period during which such
assets were held by Georgia Bancshares.
The opinion of Miller & Martin LLP is rendered solely with respect to
certain federal income tax consequences of the merger under the Code. It does
not extend to the income or other tax consequences of the merger under the laws
of any state or any political subdivision of any state. It does not extend to
any tax effects or consequences of the merger to the Georgia Bancshares
shareholders, Georgia Bancshares or First Sterling other than those expressly
stated in the opinion. No opinion is expressed as to the federal or state tax
treatments of the transaction under any other provisions of the Code and
treasury regulations. No opinion is expressed about the tax treatment of the
transactions that are not specifically covered by the opinion.
THIS DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF GEORGIA BANCSHARES
AND TO FIRST STERLING AND GEORGIA BANCSHARES. IT IS NOT A COMPLETE DESCRIPTION
OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN
SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED
STATES PERSONS, SHAREHOLDERS WHO DO NOT HOLD THEIR SHARES OF GEORGIA BANCSHARES
STOCK AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND
SHAREHOLDERS WHO ACQUIRED THEIR SHARES OF GEORGIA BANCSHARES STOCK PURSUANT TO
THE EXERCISE OF OPTIONS OR AS COMPENSATION. IT DOES NOT DISCUSS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE
DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS AND ADMINISTRATIVE
RULINGS AND COURT DECISIONS AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ALL OF THE FOREGOING IS SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. GEORGIA
BANCSHARES SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER
TO THEM.
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ACCOUNTING TREATMENT
It is anticipated that the merger will be accounted for as a pooling of
interests. Under the pooling of interests method of accounting, the recorded
amounts of the assets and liabilities of Georgia Bancshares will be carried
forward after the merger at their previously recorded amounts. Current and prior
period financial statements will be restated for all periods as though Georgia
Bancshares and First Sterling had been combined at the beginning of the earliest
period presented.
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. In addition, it is a condition to
closing that the parties receive assurances, in a form satisfactory to them,
from Mauldin & Jenkins, LLC to the effect that the merger will qualify for
pooling of interests accounting treatment.
EXPENSES AND FEES
The Merger Agreement provides that we shall share equally in the cost,
expenses and fees which have been reasonably incurred by us in attempting to
accomplish the merger. However, each of us shall be responsible for the expenses
associated with our own financial advisors, attorneys and consultants.
RESALES OF FIRST STERLING STOCK
First Sterling stock to be issued to shareholders of Georgia Bancshares in
connection with the merger will be registered under the Securities Act of 1933
(the "Securities Act"). All shares of First Sterling stock received by Georgia
Bancshares stockholders will be freely transferable upon consummation of the
merger by those shareholders of Georgia Bancshares not deemed to be "Affiliates"
of Georgia Bancshares. "Affiliates" generally are defined as persons or entities
who control, are controlled by, or are under common control with Georgia
Bancshares (generally, this will include executive officers, directors, and 10%
or greater shareholders).
Rule 145 promulgated under the Securities Act restricts the sale of First
Sterling stock received in the merger by Affiliates of Georgia Bancshares and
certain of their family members and related interests. Under the rule, during
the one-year period following the Effective Date, Affiliates of Georgia
Bancshares may resell publicly First Sterling stock received by them in the
merger within certain limitations as to the amount of First Sterling stock sold
in any three-month period and as to the manner of sale. After the one-year
period, such Affiliates of Georgia Bancshares who are not Affiliates of First
Sterling may resell their shares without restriction. The ability of Affiliates
to resell shares of First Sterling stock received in the merger under Rule 145
will be subject to First Sterling having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates also
would be permitted to resell First Sterling stock received in the merger
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Joint Proxy Statement/Prospectus does not cover any resales of First Sterling
stock received by persons who may be deemed to be Affiliates of Georgia
Bancshares.
Georgia Bancshares has agreed to use its best efforts to cause each person
who is an Affiliate of Georgia Bancshares to execute and deliver to First
Sterling at least 30 days prior to the Effective Date, a written letter
agreement (the "Affiliates' Agreement") providing that such Affiliate will not
sell, pledge, transfer, or otherwise dispose of any First Sterling stock held by
such Affiliate except as contemplated by the Merger Agreement or the Affiliates'
Agreement, and will not sell, pledge, transfer or otherwise dispose of any First
Sterling stock received by such Affiliate upon consummation of the merger (i)
except in compliance with the Securities Act and the rules and regulations
thereunder and (ii) until such time as financial results covering 30 days of
combined operations of First Sterling and Georgia Bancshares have been
published. Shares of First Sterling stock issued to such Affiliates of Georgia
Bancshares in exchange for shares of Georgia Bancshares stock will not be
transferable until
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such time as financial results covering at least 30 days of combined operations
of First Sterling and Georgia Bancshares have been published, regardless of
whether each such Affiliate has provided an Affiliate Agreement. Prior to
publication of such results, First Sterling will not transfer on its books any
shares of First Sterling stock received by Affiliate pursuant to the merger. The
stock certificates representing First Sterling stock issued to Affiliates in the
merger may bear a legend summarizing the foregoing restriction.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
None of our directors or officers, nor any of their associates, has any
direct or indirect material interest in the merger other than an interest
resulting solely from ownership of our stock or from his or her proposed
position as a director or executive officer of First Sterling or one of the
subsidiary banks.
SHARES OWNED BY MANAGEMENT AND THE BOARD
As of the Record Date, the directors and excutive officers of First Sterling
beneficially own approximately shares of First Sterling stock.
As of the Record Date, the directors and executive officers of Georgia
Bancshares beneficially own approximately shares of Georgia Bancshares
stock.
CERTAIN REGULATORY CONSIDERATIONS
AS A BANK HOLDING COMPANY, FIRST STERLING IS SUBJECT TO REGULATION UNDER THE
FEDERAL BANK HOLDING COMPANY ACT OF 1956, AS AMENDED ("BHCA"), AND TO ITS
EXAMINATION AND REPORTING REQUIREMENTS AND TO THE GEORGIA FINANCIAL INSTITUTIONS
CODE. THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF
THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR
SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO FIRST
STERLING. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND
REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
APPLICABLE STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES,
REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF
FIRST STERLING.
GENERAL
As a bank holding company, First Sterling is subject to regulation under the
BHCA and to its examination and reporting requirements. Under the BHCA, bank
holding companies may not directly or indirectly acquire the ownership or
control of more than five percent of the voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of, or a
waiver of the requirement for such approval by, the Federal Reserve. In
addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions.
The Georgia Financial Institutions Code requires annual registration with
the Department by all Georgia bank holding companies. Such registration includes
information with respect to the financial condition, operations, management of
intercompany relationships of the bank holding company and such other
information as is necessary to keep itself informed as to whether the
institution is in compliance with the provisions of Georgia law and the
regulations and orders issued by the Department.
The earnings of First Sterling are affected by the legislative and
governmental actions of various regulatory authorities, including the Federal
Reserve, the FDIC and the Department. In addition, there are numerous
governmental requirements and regulations which affect the activities of First
Sterling.
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PAYMENT OF DIVIDENDS
First Sterling is a legal entity separate and distinct from its bank
subsidiaries. A major portion of First Sterling's revenues result from amounts
paid as dividends to First Sterling by its subsidiaries, Eastside and Westside
and Community Bank, if the merger is consummated.
The Georgia Financial Institutions Code and the Department's regulations
provide (a) that dividends of cash or property may be paid only out of the
bank's retained earnings, (b) that dividends may not be paid if the banks'
paid-in capital and retained earnings which are set aside for dividend payment
and other distributions do not, in combination, equal at least 20% of the bank's
capital stock, and (c) that dividends may not be paid without prior approval of
the Department if (i) the bank's total classified assets at its most recent
examination exceed 80% of its equity capital, (ii) the aggregate amount of
dividends to be declared exceeds 50% of the bank's net profits after taxes but
before dividends for the previous calendar year or (iii) the ratio of equity
capital to total adjusted assets is less than 6%.
Under the foregoing dividend restrictions, and without prior approval of the
Department, as of September 30, 1998, Eastside and Westside could pay aggregate
dividends of $1,150,650.90 to First Sterling and Community Bank could pay
dividends of $320,000 to Georgia Bancshares. In the first nine months of 1998,
Eastside and Westside paid $381,006.35 in cash dividends to First Sterling and
Community Bank paid $87,634 in cash dividends to Georgia Bancshares.
The payment of dividends by any bank also may be affected by other factors,
such as the maintenance of adequate capital for the bank. In addition to the
foregoing restrictions, the Federal Reserve has the power to prohibit dividends
by bank holding companies if their actions constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses its view that a bank
holding company experiencing earnings weaknesses should not pay cash dividends
that exceed its net income or that could only be funded in ways that weaken the
bank holding company's financial health, such as by borrowing.
BORROWINGS; ETC.
There are also various legal restrictions on the extent to which First
Sterling can borrow or otherwise obtain credit from its banking subsidiaries. In
general, these restrictions require that any such extensions of credit must be
secured by designated amounts of specified collateral and are limited to ten
percent of any banking subsidiary's capital stock and surplus.
Under Federal Reserve policy, First Sterling is expected to act as a source
of financial strength to its banking subsidiaries and to commit resources to
support each banking subsidiary. This support may be required at times when,
absent such Federal Reserve policy, First Sterling may not find itself willing
or able to provide it.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other indebtedness of
the subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
CAPITAL ADEQUACY
The Federal Reserve has adopted certain risk-based and leverage capital
guidelines for bank holding companies. Under these risked-based capital
standards, the minimum consolidated ratio of total capital to risk-weighted
assets (including certain off-balance sheet activities, such as standby letters
of credit) is eight percent. At least half of the total capital is to be
composed of stockholder's equity,
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retained earnings, a limited amount of qualifying perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, less
goodwill and certain intangibles ("tier 1 capital" and, together with tier 2
capital, "total capital"). The remainder of total capital may consist of
mandatory convertible debt securities and a limited amount of subordinated debt,
qualifying preferred stock and loan loss allowance ("tier 2 capital"). At
September 30, 1998, First Sterling's tier 1 and total capital ratios were 10.34%
and 11.27%, respectively. On a First Sterling and Georgia Bancshares combined
basis, such ratios at September 30, 1998, would have been 10.79% and 11.80%,
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of tier 1 capital to adjusted average quarterly assets less
certain amounts ("leverage ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a leverage ratio of from at least four to five percent. First
Sterling's leverage ratio at September 30, 1998, was 9.29%. On a First Sterling
and Georgia Bancshares combined basis, such ratio at September 30, 1998, would
have been 9.43%. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve will continue to consider a "tangible tier 1
leverage ratio" (deducting all intangibles) in evaluating proposals for
expansion or new activity. The Federal Reserve has not advised First Sterling of
any specific minimum leverage ratio or tangible tier 1 leverage ratio applicable
to it.
The banking subsidiaries are also subject to similar capital requirements of
the FDIC. The FDIC has not advised any banking subsidiary of any specific
minimum leverage ratio applicable to it. The following chart shows relevant
regulatory ratios for each bank subsidiary as of September 30, 1998:
<TABLE>
<CAPTION>
TIER 1 TOTAL CAPITAL LEVERAGE RATIO
--------- ------------- -----------------
<S> <C> <C> <C>
Eastside................................................................... 10.19% 11.18% 9.80%
Westside................................................................... 12.56% 13.64% 8.71%
Community.................................................................. 12.09% 13.35% 9.85%
</TABLE>
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act ("FDIA"), among other things, requires the
federal regulatory agencies to take "prompt corrective action" if a depository
institution does not meet minimum capital requirements. The FDIA establishes
five capital tiers: "well capitalized"; "adequately capitalized";
"undercapitalized"; "significantly undercapitalized"; and "critically
undercapitalized". A depository institution's capital tier will depend upon how
its capital levels compare to various relevant capital measures and certain
other factors, as established by regulation.
The federal bank regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to FDIC-insured
banks. The relevant capital measures are the total capital ratio, tier 1 capital
ratio and the leverage ratio. Under the regulations, a FDIC-insured bank will
be:
- "well capitalized" if it has a total capital ratio of ten percent or
greater, a tier 1 capital ratio of six percent or greater and a leverage
ratio of five percent or greater and is not subject to any order or
written directive by the appropriate regulatory authority to meet and
maintain a specific capital level for any capital measure;
- "adequately capitalized" if it has a total capital ratio of eight percent
or greater, a tier 1 capital ratio of four percent or greater and a
leverage ratio of four percent or greater (three percent in certain
circumstances) and is not "well capitalized";
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- "undercapitalized" if it has a total capital ratio of less than eight
percent, a tier 1 capital ratio of less than four percent or a leverage
ratio of less than four percent (three percent in certain circumstances);
- "significantly undercapitalized" if it has a total capital ratio of less
than six percent, a tier 1 capital ratio of less than three percent or a
leverage ratio of less than three percent; and
- "critically undercapitalized" if its tangible equity is equal to or less
than two percent of average quarterly tangible assets.
An institution may be downgraded to, or deemed to be in, a capital category
that is lower than is indicated by its capital ratios if it is determined to be
in an unsafe or unsound condition or if it receives an unsatisfactory
examination rating with respect to certain matters. As of September 30, 1998,
First Sterling, Eastside, Westside, Georgia Bancshares and Community each had
capital levels that qualify each as being "well capitalized" under such
regulations.
The FDIA generally prohibits a FDIC-insured bank from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the bank would thereafter be "undercapitalized".
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. The federal regulators may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the bank's capital.
In addition, for a capital restoration plan to be acceptable, the bank's parent
holding company must guarantee that the institution will comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of: (i) an amount equal to five percent of the bank's
total assets at the time it became "undercapitalized"; and (ii) the amount which
is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a bank fails to
submit an acceptable plan, it is treated as if it is "significantly
undercapitalized".
"Significantly undercapitalized" insured banks may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become "adequately capitalized", requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions are subject to the appointment of a receiver or
conservator. A bank that is not "well capitalized" is subject to certain
limitations relating to so-called "brokered" deposits.
INFORMATION WITH RESPECT TO FIRST STERLING,
WESTSIDE AND EASTSIDE
Financial and other information relating to First Sterling, including
information relating to First Sterling's current directors and executive
officers, are set forth in First Sterling's 1997 Annual Report on Form 10-KSB,
First Sterling's 1998 Quarterly Reports on Form 10-QSB and First Sterling's 1998
Current Reports on Form 8-K, which are incorporated by reference herein, copies
of which may be obtained from First Sterling as indicated under "Where You Can
Get More Information". See "Incorporation of Certain Documents by Reference".
Copies of the First Sterling Form 10-KSB for its year ended December 31, 1997,
and 10-QSB for September 30, 1998 are being delivered with this Joint Proxy
Statement/Prospectus.
Upon consummation of the merger, Ted A. Murphy, Eugene L. Argo and James L.
Armstrong, Jr., each a director of Georgia Bancshares, and Christopher H.
Burnett, the President, CEO and a director of Eastside, will each become a
director of First Sterling.
The table below sets forth for each such person: (a) the person's name and
his proposed Class* designation on the First Sterling board; (b) his age at
February 1, 1999; (c) the year he was first elected
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as a director of Georgia Bancshares, if applicable; and (d) his positions with
Community Bank, Eastside or Georgia Bancshares and his other business experience
for the past five (5) years.
<TABLE>
<CAPTION>
NAME, YEAR FIRST
ELECTED TO BOARD OF
GEORGIA BANCSHARES POSITION WITH GEORGIA BANCSHARES AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Eugene L. Argo...................... 66 Mr. Argo serves as Chairman of the board of directors of Community
(1995) Bank. For the past five years he has been President of Stacy's
Class I Director Pharmacy, Inc. He also serves as Vice President of Medical Therapies,
Inc.
Ted A. Murphy....................... 61 Since 1989, Mr. Murphy has served as President and Chief Executive
(1995) Officer of Community Bank and has been a member of its board of
Class II Director directors. Mr. Murphy began his banking career with First National
Bank of Atlanta in 1954 and worked in several operational areas of
the bank. In 1962, he joined The Citizens and Southern National Bank.
In 1969, Mr. Murphy helped establish a new state bank charter in
Clarkston, Georgia (Citizens Bank of Clarkston, later Citizens DeKalb
Bank). He served Citizens DeKalb Bank in the capacity of President,
CEO and Chairman of the board of directors until 1986 when the bank
was purchased by First Union. After this acquisition, Mr. Murphy
served First Union in the area of Branch Supervision.
James L. Armstrong, Jr.............. 58 Mr. Armstrong is Vice Chairman of the board of directors of Community
(1995) Bank. For the past five years, he has been the owner of Jim Armstrong
Class III Director Insurance Agency.
Christopher H. Burnett.............. 37 Mr. Burnett is a member of the board of directors of Eastside and
Class II Director since January 1998 has served as its President and CEO. From 1991 to
1998, Mr. Burnett served as Senior Vice President and Senior Lending
and Credit Officer for First Bank of Georgia in East Point. From 1987
to 1991, he served as Vice President and Commercial Lending Officer
for the Chattahoochee Bank in Marietta. From 1980 to 1987, Mr.
Burnett served in various positions with the National Bank of Georgia
in Atlanta, including during the last three years, banking officer
and branch manager.
</TABLE>
- ------------------------
* First Sterling's Articles of Incorporation divides its board into three
classes, I, II and III. The directors in each class will hold office for the
staggered terms of three years each. See "Description of First Sterling
Capital Securities--Antitakeover Provisions--Classification of the Board of
Directors."
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INFORMATION WITH RESPECT TO GEORGIA BANCSHARES
AND COMMUNITY BANK
Financial and other information relating to Georgia Bancshares are set forth
in Georgia Bancshares' 1997 Annual Report on Form 10-KSB, as amended, (which
incorporated certain portions of Georgia Bancshares' proxy statement for its
1997 annual meeting of shareholders), Georgia Bancshares' 1998 Quarterly Reports
on Form 10-QSB and Georgia Bancshares' 1998 Current Reports on Form 8-K, which
are incorporated by reference herein. Copies of any of these documents may be
obtained from Georgia Bancshares as indicated under "Where You Can Get More
Information". See "Incorporation of Certain Documents by Reference". Copies of
Georgia Bancshare's 10-KSB, as amended, for the year ended December 31, 1997 and
its 10-QSB for September 30, 1998 are being delivered with this Joint Proxy
Statement/Prospectus.
DESCRIPTION OF FIRST STERLING CAPITAL SECURITIES
The authorized capital stock of First Sterling consists of 10,000,000 shares
of common stock, no par value. As of , 1998, there were 2,635,144
shares of First Sterling stock issued and outstanding. There are no other shares
of capital stock of First Sterling authorized, issued or outstanding. First
Sterling has no options, warrants or other rights authorized, issued or
outstanding other than options and rights granted under First Sterling's stock
option plans.
COMMON STOCK
The holders of First Sterling common stock are entitled to share ratably in
dividends when declared by First Sterling's board of directors. Declaration and
payment of cash dividends by First Sterling depends upon dividend payments by
First Sterling's banking subsidiaries, which are First Sterling's primary source
of revenue and cash flow.
For legal limitations on the ability of Eastside, Westside and Community
Bank to pay dividends to First Sterling, see "Certain Regulatory
Considerations--Payment of Dividends."
First Sterling's stockholders possess exclusive voting rights. Each
stockholder is entitled to one vote for each share held on matters upon which
shareholders have the right to vote. First Sterling stockholders are not
entitled to cumulate votes in the election of directors.
First Sterling's stockholders do not have pre-emptive rights to acquire any
additional shares of First Sterling stock.
The issuance of stock by First Sterling will not be subject to regulatory or
shareholder approval and such stock may be issued for cash or other property.
However, since First Sterling stock is included for quotation on the Nasdaq
National Market, under the Nasdaq National Market rules, approval of First
Sterling's shareholders is required for the issuance of additional shares of
First Sterling stock if the issuance of such stock (i) is in connection with the
acquisition of a company, and not in connection with a public offering for cash,
and the securities issued have or will have voting power equal to or exceeding
20% of the voting power outstanding before such issuance; (ii) is in connection
with the acquisition of a company in which a Director, officer or substantial
shareholder of First Sterling has a 5% or greater interest and the issuance of
the securities could result in an increase in outstanding First Sterling stock
or voting power of 5% or more; (iii) is in connection with a transaction, other
than a public offering, at a price less than the greater of book or market value
in which the shares issued will equal 20% or more of the shares of First
Sterling stock, or have 20% or more of the voting power, outstanding before
issuance; or (iv) would result in a change in control of First Sterling. Under
the Nasdaq National Market rules, shareholder approval is also required for the
establishment of a stock option or purchase plan in which stock may be acquired
by officers and directors other than pursuant
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to a broadly-based plan in which other security holders of First Sterling or
employees of First Sterling participate.
In the event of First Sterling's liquidation, dissolution or winding-up,
whether voluntary of involuntary, First Sterling's stockholders will be entitled
to share ratably in any of its assets or funds that are available for
distribution to its shareholders after the satisfaction of its liabilities (or
after adequate provision is made for the liabilities).
ANTITAKEOVER PROVISIONS
The following is a description of the antitakeover provisions included in
the First Sterling Articles of Incorporation and Bylaws. The Georgia Bancshares
Articles of Incorporation and Bylaws contain similar provisions.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Article 7 of First Sterling's Articles of Incorporation divides the board of
directors into three classes, Class I, Class II and Class III, each of which is
as nearly equal in numbers as possible. The directors in each class will hold
office for staggered terms of three years each, after initial terms of one year,
two years and three years, respectively. Each director also serves until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. If the number of directors is modified, any increase or
decrease in directorships would be apportioned among the classes so as to make
all classes as nearly equal in number as possible.
CHANGE IN NUMBER OF DIRECTORS
Article 3.2 of First Sterling's Bylaws provides that a change in the number
of directors of First Sterling would have to be made by the affirmative vote of
two-thirds of the entire board of directors or by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of First Sterling
stock. Article 8 of the Articles of Incorporation of First Sterling provides
that any amendment to this Bylaw will require the affirmative vote of at least
two-thirds of the outstanding shares of First Sterling stock. The total number
of directors for First Sterling is currently set at five and after the
consummation of the merger it shall be set at ten. The applicable provisions of
the Georgia Business Corporation Code provide that, in the absence of a
provision such as Article 8, the number of directors may be increased or
decreased from time to time as provided in the Bylaws unless the number of
directors is otherwise fixed by the shareholders.
REMOVAL OF DIRECTORS
Article 9 of the Articles of Incorporation of First Sterling provides that
directors of First Sterling may be removed during their terms for "cause" by the
affirmative vote of the holders of a majority of the outstanding shares of First
Sterling stock or by the affirmative vote of a majority of the directors then in
office. They may be removed without cause only by the affirmative vote of the
holders of at least two-thirds of the outstanding shares. "Cause" for this
purpose is defined as final conviction of a felony, request or demand for
removal by any bank regulatory authority having jurisdiction over First
Sterling, adjudication as an incompetent by a court, determination by at least
two-thirds of the incumbent directors of First Sterling that the conduct of the
director to be removed has been inimical to the best interest of First Sterling,
or the director was an employee or officer of First Sterling or any of its
subsidiaries and was discharged or resigned at the request of the board of
directors of First Sterling or any subsidiary of First Sterling for reasons
relating to the performance of his or her duties.
In the absence of a provision dealing with the removal of directors, such as
Article 9, the Georgia Business Corporation Code provides that if the directors
have staggered terms, then the shareholders
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may remove directors only for cause, unless the articles of incorporation or a
bylaw adopted by the shareholders provides otherwise.
ADVANTAGES AND DISADVANTAGES OF ARTICLES 7, 8 AND 9
Articles 7, 8 and 9 of First Sterling's Articles of Incorporation would make
it more difficult for shareholders of First Sterling, including those holding a
majority of the outstanding shares of First Sterling stock, to force an
immediate change in the composition of a majority of the board of directors,
even if the reason for the change were the performance of the present directors.
Under Article 7, the terms of only one-third of the incumbent directors will
expire each year, provided no new directorships are created and no directors
resign or are removed from office. Under Article 8 and Article 3.2 of First
Sterling's Bylaws, it will be more difficult to create new directorships, and
under Article 9, it will be more difficult to remove directors without cause.
Accordingly, generally two annual shareholders' meetings will be required to
change a majority of the directors of First Sterling instead of one such
meeting.
Although First Sterling has not encountered difficulties in the past due to
lack of continuity of management, the board believes that Articles 7, 8 and 9
will help to assure continuity and stability in the leadership and policies of
First Sterling. Management also believes that such Articles will enable First
Sterling to protect the interests of its shareholders in the event that another
party, through a takeover bid or otherwise, obtains a substantial number of
shares of First Sterling stock.
It would be impossible, assuming that no new directorships were created, no
directors resigned and no directors were removed from office, for shareholders
to change a majority of the directors at any one annual meeting should they
consider such a change desirable unless the shareholders controlled sufficient
votes to amend Articles 7, 8 or 9 (two-thirds of the outstanding shares).
Although Articles 7, 8 and 9 will make it more difficult to acquire operating
control of First Sterling in an unfriendly manner, directors who oppose or who
are discouraged by new controlling shareholders might resign, thereby allowing
directors elected by the new controlling shareholders to fill the vacancies
created by such resignations.
SUPERMAJORITY VOTING ON CERTAIN TRANSACTIONS
Article 13 of the Articles of Incorporation of First Sterling, provides,
with certain exceptions, that any merger or share exchange involving First
Sterling or any sale or other disposition of all or substantially all of its
assets will require the affirmative vote of the holders of at least two-thirds
of the outstanding shares of First Sterling stock. However, an exception to this
rule exists where the board of directors of First Sterling has approved the
particular transaction by the affirmative vote of two-thirds of the entire
board. In cases where this exception applies, the applicable provisions of the
Georgia Business Corporation Code govern, and shareholder approval of the
transaction would require a favorable vote by a majority of all votes entitled
to be cast.
The primary purpose of this Article is to discourage any party from
attempting to acquire control of First Sterling without negotiation with the
board of directors. Such a merger or sale might not be in the best interests of
First Sterling or its shareholders. This provision may also serve to reduce the
risk of a potential conflict of interest between a substantial shareholder on
the one hand and First Sterling and its other shareholders on the other.
It should be recognized that the foregoing provision could enable the
holders of a minority of the shares of First Sterling stock to prevent a
transaction favored by the holders of a majority of such shares. Also, in some
circumstances, the board of directors could, by withholding its consent to such
a transaction, cause a two-thirds vote to be required to approve the
transaction, thereby enhancing the ability of management to retain control over
the affairs of First Sterling and their positions with First
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Sterling. However, of the nine persons who will be directors of First Sterling
at the effective date of the merger, only three will be affiliated with First
Sterling in full-time management positions.
EVALUATION OF AN ACQUISITION PROPOSAL
Article 14 of First Sterling's Articles of Incorporation provides that the
response of First Sterling to any acquisition proposal made by another party
will be based on the board's evaluation of the best interests of First Sterling
and its shareholders. As used herein, the terms "acquisition proposal" refers to
any offer of another party (a) to make a tender offer or exchange offer for any
equity security of First Sterling, (b) to merge or consolidate First Sterling
with another corporation or (c) to purchase or otherwise acquire all or
substantially all of the properties and assets owned by First Sterling.
Article 14 charges the board, in evaluating an acquisition proposal, to
consider all relevant factors, including: (a) the expected social and economic
effects of the transaction on the employees, customers and other constituents
(e.g., suppliers of goods and services) of First Sterling; (b) the expected
social and economic effects on the communities within which First Sterling
operates; and (c) the consideration being offered by the other corporation in
relation (i) to the then current value of First Sterling as determined by a
freely negotiated transaction and (ii) to the board of directors' then estimate
of First Sterling's future value as an independent entity. The enumerated
factors are not exclusive, and the board may consider other relevant factors.
This Article has been included in First Sterling's Articles of Incorporation
because banks are charged with providing support to and being involved with the
communities they serve. The board believes its obligations in evaluating an
acquisition proposal extend beyond evaluating merely the consideration being
offered in relation to the then market or book value of First Sterling stock.
Neither the Georgia Business Corporation Code nor the Georgia Financial
Institutions Code specifically enumerates the factors the board of directors of
a corporation or a bank, respectively, should consider in the event the
corporation or the bank is presented with an acquisition proposal.
While the value of the consideration offered to shareholders is the main
factor when weighing the benefits of an acquisition proposal, the board believes
it appropriate also to consider all other relevant factors. For example, this
Article directs the board to evaluate the consideration being offered in
relation to the then current value of First Sterling determined in a freely
negotiated transaction and in relation to the board's then estimate of the
future value of First Sterling as an independent concern. A takeover bid often
places the target corporation virtually in the position of making a forced sale,
sometimes when the market price of its stock may be depressed. The board
believes that frequently the consideration offered in such a situation, even
though it may be in excess of the then market value (i.e., the value at which
shares are then currently trading), is less than that which could be obtained in
a freely negotiated transaction. In a freely negotiated transaction, management
would have the opportunity to seek a suitable partner at a time of its choosing
and to negotiate for the most favorable price and terms which reflect not only
the current value, but also the future value of First Sterling.
One effect of this Article may be to discourage a tender offer in advance.
Often a potential acquiror consults the board of a target corporation prior to
or after commencing a tender offer in an attempt to avoid a contest from
developing. In the opinion of the board, this provision will strengthen its
position in dealing with any potential acquiror which might attempt to acquire
First Sterling through a hostile tender offer. Another effect of this Article
may be to dissuade shareholders who might be displeased with the board's
response to an acquisition proposal from engaging First Sterling in costly
litigation. This provision, however, does not affect the right of a shareholder
displeased with the board's response to an acquisition proposal to institute
litigation against First Sterling and to allege that the board breached an
obligation to shareholders by not limiting its evaluation of an acquisition
proposal to the value of the consideration being offered in relation to the then
market or book value of First Sterling stock.
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Article 14 would not make an acquisition proposal regarded by the board as
being in the best interests of First Sterling more difficult to accomplish. It
would, however, permit the board to determine that an acquisition proposal was
not in the best interests of First Sterling (and thus to oppose it) on the basis
of the various factors deemed relevant. In some cases, such opposition by the
board might have the effect of maintaining the positions of incumbent
management.
AMENDMENT OF ANTITAKEOVER PROVISIONS
Any amendment of Articles 7, 8, 9, 13 and 14 of First Sterling's Articles of
Incorporation requires the affirmative vote of the holders of at least
two-thirds of the outstanding shares of First Sterling stock, unless two-thirds
of the entire board of directors approves the amendment. If two-thirds of the
board approves the amendment, the applicable provisions of the Georgia Business
Corporation Code would govern, and the amendment would be approved by a majority
of the shares entitled to be cast on the amendment.
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COMPARISON OF THE RIGHTS OF HOLDERS OF GEORGIA BANCSHARES
STOCK AND FIRST STERLING STOCK
GENERAL
Upon consummation of the merger, shareholders of Georgia Bancshares, will
become shareholders of First Sterling. Certain legal distinctions exist between
owning First Sterling stock and Georgia Bancshares stock. The shareholders of
First Sterling will be governed by and subject to the Articles of Incorporation
and Bylaws of First Sterling rather than the Articles of Incorporation and
Bylaws of Georgia Bancshares.
The following is only a general summary of certain differences in the rights
of holders of First Sterling stock and those of holders of Georgia Bancshares
stock. Shareholders should consult with their own legal counsel with respect to
specific differences and changes in their rights as shareholders which will
result from the proposed merger.
CAPITAL STRUCTURE
Georgia Bancshare's Articles of Incorporation authorizes the issuance of up
to 10,000,000 shares of common stock, par value $1.60 per share, and there are
currently 1,460,570 shares outstanding. First Sterling's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of no par value
common stock, and there are 2,635,144 shares outstanding. Because the exchange
of shares by virtue of the merger is to be effected at the rate of one share of
First Sterling stock for each share of Georgia Bancshares stock and the First
Sterling stock split prior to the merger, First Sterling will have approximately
4,840,075 shares of stock issued and outstanding after consummation of the
merger.
VOTING RIGHTS
Each holder of Georgia Bancshares stock and First Sterling stock is entitled
to one vote per share on all matters submitted to a vote of shareholders.
In the election of directors, each holder of Georgia Bancshares stock and of
First Sterling stock has the right to vote the number of shares owned by him or
her on the record date for as many persons as there are directors to be elected.
Cumulative voting is not available with respect to the election of directors of
Georgia Bancshares or First Sterling.
DIRECTORS
The Bylaws of Georgia Bancshares provide that the board of directors of
Georgia Bancshares shall have from 5 to 25 members, and the board of directors
of Georgia Bancshares currently has 7 members. The Bylaws of First Sterling also
provide that the board of directors of First Sterling shall have from 5 to 25
members, and the board of directors of First Sterling currently has 5 members.
The boards of directors of both Georgia Bancshares and First Sterling may fill
vacancies arising in their directorships.
Pursuant to the Articles of Incorporation, First Sterling's directors are
divided into three classes, each consisting of approximately one-third of the
total directors. Each year, one class of the directors comes up for election,
resulting in Director terms of three years. Georgia Bancshares has a staggered
board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Articles of Incorporation of both Georgia Bancshares and First Sterling
eliminate a Director's personal liability for breach of duty as a Director to
the fullest extent permitted by law.
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The Bylaws of both Georgia Bancshares and First Sterling provide for
indemnification to the fullest extent permitted by law. Under the FDIA, both
Georgia Bancshares and First Sterling would be prohibited from paying any
indemnification with respect to any liability or legal expense incurred by a
Director, officer, or employee as result of an action or proceeding by a federal
banking agency resulting in a civil money penalty or certain other remedies
against such person.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling First Sterling
pursuant to the forgoing provisions, First Sterling has been informed that in
the opinion of the SEC indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS
Any holder of record of Georgia Bancshares who objects to the merger, and
who fully complies with all of the provisions of Article 13 of the Georgia
Business Corporation Code (but not otherwise) shall be entitled to demand and
receive payment for all (but not less than all) of his or her shares of Georgia
Bancshares stock if the proposed merger is consummated.
A shareholder of Georgia Bancshares who objects to the merger and desires to
receive payment of the "fair value" of his or her Georgia Bancshares stock:
(a) Must file a written objection to the merger with Georgia Bancshares
either prior to the meeting or at the Georgia Bancshares Meeting but
before the vote is taken, and the written objection must contain a
statement that the shareholder intends to demand payment for his or her
shares if the merger is approved; AND
(b) Must either abstain from voting or vote against approval of the merger;
AND
(c) Must demand payment and deposit his or her certificate(s) in accordance
with the terms of the dissenters' notice sent to the dissenting
shareholder by Georgia Bancshares following approval of the merger.
A vote against the merger alone will not constitute the separate written
notice and demand for payment referred to in (a) and (c) above. Dissenting
shareholders must separately comply with all three conditions. Any notice
required to be given to Georgia Bancshares must be forwarded to Georgia
Bancshares, Inc., 3333 Lawrenceville Highway, Tucker, Georgia 30084-7132,
Attention: Corporate Secretary.
If the merger is approved, Georgia Bancshares will mail, no later than ten
(10) days after the approval, by certified mail to each shareholder who has
complied with conditions (a) and (b) above, written notice of such approval,
addressed to the shareholder at such address as the shareholder has furnished
Georgia Bancshares in writing, or, if none, at the shareholder's address as it
appears on the records of Georgia Bancshares. Georgia Bancshares will set a date
by which it must receive the payment demand, which date may not be fewer than
thirty (30) nor more than sixty (60) days after the date the dissenters' notice
is delivered. The shareholder must make the written election to dissent and
demand for payment described in condition (c) above by the payment demand date
as set by Georgia Bancshares.
If all conditions in (a), (b) and (c) above are satisfied in full, Georgia
Bancshares is required to make a written offer within ten (10) days of receiving
the payment demand, or within ten days after the consummation of the merger,
whichever is later, to each dissenting shareholder to purchase all of such
shareholder's shares of Georgia Bancshares stock at a specific price. If Georgia
Bancshares and any dissenting shareholder are unable to agree on the fair value
of the shares within sixty days, Georgia Bancshares will commence a proceeding
in Superior Court of the county where its main office is located, to determine
the rights of the dissenting directors and the fair value of his or her shares.
If
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Georgia Bancshares does not commence the proceeding within the sixty-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
In the event of a court proceeding, the court shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, but not including fees and expenses of attorneys and
experts for the respective parties. The court shall assess these costs against
Georgia Bancshares, except that the court may assess these costs against all or
some of the dissenters, in amounts the court finds equitable to the extent the
court finds the dissenters acted arbitrarily or not in good faith in demanding
payment under the dissenters' provisions. The court may also assess the fees and
expenses of attorneys and experts for the respective parties in amounts the
court finds equitable: (1) against Georgia Bancshares and in favor of any or all
dissenters if the court finds Georgia Bancshares did not substantially comply
with the dissenters' provisions; or (2) against Georgia Bancshares or a
dissenter in favor of any other party if the court finds that the party against
whom fees and expenses are assessed acted arbitrarily or not in good faith with
respect to the rights provided by the dissenters' provisions. If the court finds
that the services of attorneys for any dissenter were of substantial benefit to
other dissenters similarly situated and that the fees for those services should
not be assessed against Georgia Bancshares, the court may award these attorneys
reasonable fees to be paid out of the amounts awarded the dissenters who were
benefitted.
One of the conditions to the merger is that the aggregate number of shares
of Georgia Bancshares stock dissenting to the merger shall not exceed 146,000
shares and shall not create in the reasonable judgment of the board of directors
of First Sterling ultimate liability to dissenting shareholders that is likely
to exceed $1,460,000. If this condition is not satisfied, the parties to the
Merger Agreement will not be required to consummate the merger, in which event
the dissenters' rights described in this section would also terminate. However,
the parties may elect to consummate the merger even though more than 146,000
shares of Georgia Bancshares stock dissent to the merger or it is determined
that the liability to dissenting shareholders is likely to exceed $1,460,000.
Upon compliance with the statutory procedures, dissenting shareholders will
not have any rights as shareholders of Georgia Bancshares or of First Sterling,
including, among other things, the right to receive dividends and the right to
vote on matters submitted for shareholder consideration.
The foregoing does not purport to be a complete statement of the provisions
of Article 13 of the Georgia Business Corporation Code, and it is qualified in
its entirety by reference to said sections, which are reproduced in full as
Appendix C to this Joint Proxy Statement/Prospectus. Each Georgia Bancshares
shareholder is urged to seek competent legal advice regarding such dissenters'
rights.
LEGAL MATTERS
Certain federal income tax consequences of the merger and the legality of
the authorization and issuance under Georgia law of the First Sterling stock to
be issued in the merger will be passed upon by counsel to First Sterling, Miller
& Martin LLP, 100 Galleria Parkway, N.W., Twelfth Floor, Atlanta, Georgia
30339-3122.
Holland & Knight LLP, One Atlantic Center, Suite 2000, 1201 West Peachtree
Street, N.E., Atlanta, Georgia 30309-3400, has acted as counsel to Georgia
Bancshares in connection with certain legal matters relating to the merger.
EXPERTS
The consolidated financial statements of First Sterling as of December 31,
1997 and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the Registration Statement in reliance on the
report of Mauldin & Jenkins, LLC, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
52
<PAGE>
The consolidated financial statements of Georgia Bancshares as of December
31, 1997 and for each of the years in the three-year period ended December 31,
1997, have been included herein and in the Registration Statement in reliance on
the report of Porter Keadle Moore LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
OTHER MATTERS
We do not know of any other matters to be presented for action at the
shareholders' meetings. However, if any other matter requiring a vote of the
shareholders is properly presented at either meeting, it is intended that votes
will be cast on these matters in accordance with the best judgment of the
persons acting under the proxies.
WHERE YOU CAN GET MORE INFORMATION
First Sterling and Georgia Bancshares each files reports, proxy statements
and other information with the SEC. The reports, proxy statements and other
information filed by First Sterling and Georgia Bancshares with the SEC can be
inspected and copied at the offices of the SEC Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located
at Seven World Trade Center, New York, New York 10048, and Citicorp Center, 500
West Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material also can be obtained from the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and from the
web site that the SEC maintains at http://www.sec.gov. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. First Sterling's stock is quoted on the Nasdaq National Market
and Georgia Bancshares stock is traded on The Nasdaq SmallCap Market. The
reports, proxy statements and other information concerning First Sterling and
Georgia Bancshares can be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006. After the consummation of the merger,
Georgia Bancshares will no longer file reports, proxy statements or other
information with the SEC or The Nasdaq SmallCap Market. Instead, such
information will be provided, to the extent required, in filings made by First
Sterling.
First Sterling has filed a Registration Statement on Form S-4 to register
with the SEC the First Sterling stock to be issued to shareholders of Georgia
Bancshares in the merger. This Joint Proxy Statement/Prospectus is a part of the
Registration Statement and constitutes a prospectus of First Sterling in
addition to being a joint proxy statement of First Sterling and Georgia
Bancshares for the shareholders' meetings. As allowed by SEC rules, this Joint
Proxy Statement/Prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration Statement. Copies
of the Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the SEC, or obtained at prescribed
rates from the Public Reference Section of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or obtained from the SEC
web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information into this Joint
Proxy Statement/ Prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that First Sterling and Georgia Bancshares have previously filed with the SEC:
- Annual Report on Form 10-KSB for the year ended December 31, 1997 for
First Sterling
53
<PAGE>
- Annual Report on Form 10-KSB, as amended, for the year ended December 31,
1997 for Georgia Bancshares
- Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998 for First Sterling
- Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998 for Georgia Bancshares
- Current Report on Form 8-K filed on October 6, 1998 for First Sterling
- Current Report on Form 8-K filed on June 25, 1998 for First Sterling
All documents filed by First Sterling and Georgia Bancshares pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this Joint Proxy Statement/Prospectus and prior to the shareholders'
meetings shall be deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus from the date of filing of such documents.
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM FIRST STERLING OR
GEORGIA BANCSHARES WITHOUT CHARGE, EXCLUDING ALL EXHIBITS, UNLESS WE HAVE
SPECIFICALLY INCORPORATED BY REFERENCE AN EXHIBIT IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. FIRST STERLING OR GEORGIA BANCSHARES SHAREHOLDERS MAY
OBTAIN DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR BY TELEPHONE FOR FIRST
STERLING FROM MS. BARBARA J. BOND, FIRST STERLING BANKS, INC., P. O. BOX 2147,
MARIETTA, GEORGIA 30061, (770-499-2265) OR IF FOR GEORGIA BANCSHARES, FROM MR.
DAVID EDGAR, GEORGIA BANCSHARES, INC., 3333 LAWRENCEVILLE HIGHWAY, TUCKER,
GEORGIA 30084, (770-491-3333). IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO
SO BY , 1999 TO RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETINGS.
Copies of First Sterling's and Georgia Bankshares' Annual Reports on Form
10-KSB for the year ended December 31, 1997 and Quarterly Reports on Form 10-QSB
for the quarter ended September 30, 1998 accompany this Joint Proxy
Statement/Prospectus.
All information concerning First Sterling and its subsidiaries has been
furnished by First Sterling, and all information concerning Georgia Bancshares
has been furnished by Georgia Bancshares.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote on the merger. We
have not authorized anyone to provide you with information that is different
from what is contained in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus is dated . You should not assume that the
information contained in this Joint Proxy Statement/Prospectus is accurate as of
any date other than such date, and neither the mailing of this Joint Proxy
Statement/Prospectus to shareholders nor the issuance of First Sterling stock in
the merger shall create any implication to the contrary. This Joint Proxy
Statement/ Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to make any such
offer or solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy Statement/ Prospectus nor any distribution of securities made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of First Sterling or Georgia Bancshares since the date
hereof or that the information herein is correct as of any time subsequent to
its date.
54
<PAGE>
APPENDIX A TO JOINT
PROXY STATEMENT/PROSPECTUS
GEORGIA BANCSHARES, INC.
AND
FIRST STERLING BANKS, INC.
MERGER AGREEMENT
DECEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <C> <S> <C>
1. MERGER.................................................................................................... A-1
1.1 GABS Merger into FSLB.......................................................................... A-1
1.2 Effective Date of the Merger................................................................... A-1
1.3 Management of FSLB............................................................................. A-1
1.4 Management of Community, Westside and Eastside................................................. A-2
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK......................................................... A-2
2.1 Adjusted Value................................................................................. A-2
2.2 Conversion of Shares........................................................................... A-2
2.3 Options........................................................................................ A-2
2.4 FSLB Stock Dividend............................................................................ A-2
2.5 No Fractional Shares........................................................................... A-2
2.6 Surrender of Stock Certificate................................................................. A-2
2.7 No Interest.................................................................................... A-3
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC................................................................... A-3
3.1 Material....................................................................................... A-3
3.2 Access, Information and Documents.............................................................. A-3
3.3 Registration Statement; Shareholders' Meetings................................................. A-4
3.4 Confidential Information....................................................................... A-4
3.5 Full Cooperation............................................................................... A-4
3.6 Applications................................................................................... A-4
3.7 Public Announcements and Disclosures........................................................... A-4
3.8 Generally Accepted Accounting Principles....................................................... A-4
3.9 Agreement as to Efforts to Consummate.......................................................... A-5
3.10 Accounting and Tax Treatment................................................................... A-5
4. REPRESENTATIONS AND WARRANTIES OF FSLB.................................................................... A-5
4.1 FSLB Schedule.................................................................................. A-5
4.2 Corporate Organization......................................................................... A-5
4.3 Authorized Capital Stock; Subsidiaries......................................................... A-5
4.4 Qualification as a Foreign Corporation Not Required............................................ A-6
4.5 Authorization.................................................................................. A-6
4.6 Non-Contravention.............................................................................. A-6
4.7 Financial Statements........................................................................... A-6
4.8 Notes and Obligations.......................................................................... A-6
4.9 Liabilities.................................................................................... A-6
4.10 Investments.................................................................................... A-7
4.11 Taxes.......................................................................................... A-7
4.12 Litigation..................................................................................... A-7
4.13 Regulatory Filings............................................................................. A-7
4.14 General Legal Compliance....................................................................... A-7
4.15 Properties; Environmental...................................................................... A-7
4.16 Insurance...................................................................................... A-8
4.17 Broker......................................................................................... A-8
4.18 Trademarks..................................................................................... A-8
4.19 Sole Agreement to Merge and Sell............................................................... A-8
4.20 Insider Contracts.............................................................................. A-8
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <C> <S> <C>
4.21 Employee Benefit Plans......................................................................... A-9
4.22 Articles and Bylaws............................................................................ A-10
4.23 Books and Records.............................................................................. A-10
4.24 Absence of Changes............................................................................. A-10
5. REPRESENTATIONS AND WARRANTIES OF GABS.................................................................... A-11
5.1 GABS Schedule.................................................................................. A-12
5.2 Corporate Organization......................................................................... A-12
5.3 Authorized Capital Stock; Subsidiaries......................................................... A-12
5.4 Qualification as a Foreign Corporation Not Required............................................ A-12
5.5 Authorization.................................................................................. A-12
5.6 Non-Contravention.............................................................................. A-12
5.7 Financial Statements........................................................................... A-12
5.8 Notes and Obligations.......................................................................... A-13
5.9 Liabilities.................................................................................... A-13
5.10 Investments.................................................................................... A-13
5.11 Taxes.......................................................................................... A-13
5.12 Litigation..................................................................................... A-14
5.13 Regulatory Filings............................................................................. A-14
5.14 General Legal Compliance....................................................................... A-14
5.15 Properties; Environmental...................................................................... A-14
5.16 Insurance...................................................................................... A-15
5.17 Broker......................................................................................... A-15
5.18 Trademarks..................................................................................... A-15
5.19 Sole Agreement to Merge or Sell................................................................ A-15
5.20 Insider Contracts.............................................................................. A-15
5.21 Employee Benefit Plans......................................................................... A-15
5.22 Articles and Bylaws............................................................................ A-17
5.23 Books and Records.............................................................................. A-17
5.24 Absence of Changes............................................................................. A-17
6. COVENANTS OF FSLB...................................................................................... A-18
6.1 Conduct of Business............................................................................ A-18
6.2 Capital Stock, Articles and Bylaws............................................................. A-19
6.3 Approval of FSLB Shareholders.................................................................. A-19
6.4 Proxy Materials................................................................................ A-19
6.5 Notice of Breach............................................................................... A-20
6.6 Sole Agreement to Merge or Sell................................................................ A-20
6.7 Reports........................................................................................ A-20
6.8 Indemnity...................................................................................... A-20
7. COVENANTS OF GABS......................................................................................... A-21
7.1 Conduct of Business............................................................................ A-21
7.2 Capital Stock, Articles and Bylaws............................................................. A-21
7.3 Approval of GABS Shareholders.................................................................. A-21
7.4 Proxy Materials................................................................................ A-22
7.5 Notice of Breach............................................................................... A-22
7.6 Sole Agreement to Merge or Sell................................................................ A-22
7.7 Reports........................................................................................ A-22
7.8 Affiliates..................................................................................... A-22
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <C> <S> <C>
8. CONDITIONS TO OBLIGATIONS OF FSLB......................................................................... A-23
8.1 Representations and Covenants Compliance....................................................... A-23
8.2 No Change in Condition......................................................................... A-23
8.3 Closing Certificate and Other Documents........................................................ A-23
8.4 Legal Opinion.................................................................................. A-23
8.5 No Legal Action................................................................................ A-23
8.6 Fairness Opinion............................................................................... A-23
9. CONDITIONS TO OBLIGATIONS OF GABS...................................................................... A-23
9.1 Representations and Covenants Compliance....................................................... A-23
9.2 No Change In Condition......................................................................... A-23
9.3 Closing Certificate and Other Documents........................................................ A-23
9.4 Legal Opinion.................................................................................. A-24
9.5 No Legal Action................................................................................ A-24
9.6 FSLB Stock Price............................................................................... A-24
9.7 Fairness Opinion............................................................................... A-24
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES................................................................. A-24
10.1 Government Approval............................................................................ A-24
10.2 Shareholder Approval........................................................................... A-24
10.3 Registration Statement......................................................................... A-24
10.4 Dissenting Shares.............................................................................. A-24
10.5 Pooling Letters................................................................................ A-25
10.6 Tax Matters.................................................................................... A-25
11. ACQUISITION OF DISSENTERS' STOCK.......................................................................... A-25
11.1 Dissenting Shareholders........................................................................ A-25
11.2 Notice of Dissent.............................................................................. A-25
11.3 Purchaser of Dissenters' Stock................................................................. A-25
12. CLOSING................................................................................................... A-25
13. TERMINATION............................................................................................... A-26
13.1 Termination.................................................................................... A-26
13.2 Procedure and Effect of Termination; Expenses.................................................. A-26
14. MISCELLANEOUS............................................................................................. A-26
14.1 Amendment...................................................................................... A-26
14.2 Waiver......................................................................................... A-26
14.3 Entire Agreement............................................................................... A-26
14.4 Notices........................................................................................ A-27
14.5 Assignment..................................................................................... A-27
14.6 Severability................................................................................... A-27
14.7 Counterparts................................................................................... A-27
14.8 Headings....................................................................................... A-27
14.9 Governing Law.................................................................................. A-27
</TABLE>
iii
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and entered into effective
as of the day of December, 1998 by and between FIRST STERLING BANKS, INC.
("FSLB"), a corporation organized under the laws of the State of Georgia, and
GEORGIA BANCSHARES, INC. ("GABS"), a corporation organized under the laws of the
State of Georgia (GABS and FSLB are sometimes collectively referred to as the
"Parties" and individually referred to as "Party").
W I T N E S S E T H:
WHEREAS, the authorized capital stock of FSLB consists of 10,000,000 shares
of common stock, no par value ("FSLB Stock"), of which 2,629,962 shares are
issued and outstanding;
WHEREAS, The Westside Bank & Trust Company ("Westside") and The Eastside
Bank & Trust Company ("Eastside"), banking corporations organized under the laws
of the State of Georgia, are wholly-owned subsidiaries of FSLB;
WHEREAS, the authorized capital stock of GABS consists of 10,000,000 shares
of common stock, $1.60 par value ("GABS Stock"), of which 1,460,570 shares are
issued and outstanding;
WHEREAS, Community Bank of Georgia ("Community"), a banking corporation
organized under the laws of the State of Georgia is a wholly-owned subsidiary of
GABS;
WHEREAS, the Boards of Directors of the Parties deem it advisable and in the
best interests of each Party and its respective shareholders that Community
become a wholly-owned subsidiary of FSLB by GABS merging into FSLB (the
"Merger") and by the GABS shareholders exchanging and converting their stock
into FSLB Stock in the manner and basis hereinafter set out;
WHEREAS, after the Merger, the three banks, Community, Eastside and Westside
shall be separate and wholly-owned subsidiaries of FSLB;
WHEREAS, the Board of Directors of GABS deems it advisable and in the best
interests of GABS and its shareholders that GABS be merged into FSLB and, by
resolutions duly adopted, has approved and adopted this Agreement and directed
that it be submitted to the shareholders of GABS for approval;
WHEREAS, the Board of Directors of FSLB deems it advisable and in the best
interests of FSLB and its shareholders that GABS be merged into FSLB and, by
resolutions duly adopted, has approved and adopted this Agreement and directed
that it be submitted to the shareholders of FSLB for approval; and
WHEREAS, it is the intention of the Parties to this Agreement that the
Merger of GABS with and into FSLB (i) for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) for accounting
purposes shall be accounted for as a pooling-of-interests:
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and for the purpose of stating the method, terms
and conditions of the merger provided for herein, the mode of carrying the same
into effect, the manner and basis of converting and exchanging the shares of
GABS Stock into FSLB Stock, as hereinafter provided, and such other provisions
relating to the mergers as the Parties deem necessary or desirable, the Parties
hereto agree as follows:
1. MERGER
1.1 GABS MERGER INTO FSLB. Pursuant to the applicable provisions of the
Georgia Business Corporation Code ("Corporation Code"), other provisions of law
and on the terms and conditions set forth herein, GABS shall be merged with and
into FSLB. FSLB shall be the survivor of this Merger continuing under the FSLB
Articles and Bylaws of FSLB.
1.2 EFFECTIVE DATE OF THE MERGER. The Merger shall be effective as of the
effective date ("Effective Date") as set forth in the Articles of Merger to be
filed with the Georgia Secretary of State in accordance with the applicable
provisions of the Corporation Code.
A-1
<PAGE>
1.3 MANAGEMENT OF FSLB. On the Effective Date after the closing of the
Merger, the Board of Directors of FSLB shall be reconstituted initially as
follows: it shall consist of ten (10) directors--three (3) directors chosen by
Westside, three (3) directors chosen by Eastside, and three (3) directors chosen
by Community, and a tenth (10th) director, who will be Edward C. Milligan and
who shall continue as the Chairman of the Board of Directors and Chief Executive
Officer of FSLB. The FSLB Articles of Incorporation provide for three classes of
directors having staggered terms of offices of three years. The three directors
chosen by Community shall each be appointed to a different class.
1.4 MANAGEMENT OF COMMUNITY, WESTSIDE AND EASTSIDE. The Boards of Directors
of Community, Westside and Eastside initially following the Merger shall
continue unchanged.
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK
2.1 ADJUSTED VALUE.
2.1.1 FSLB ADJUSTED VALUE. The per share adjusted value for each
outstanding share of FSLB Stock ("FSLB Adjusted Value") shall be $6.2807.
2.1.2 GABS ADJUSTED VALUE. The per share adjusted value for each
outstanding share of GABS Stock ("GABS Adjusted Value") shall be $4.8846.
2.2 CONVERSION OF SHARES. The manner and basis of converting shares of
GABS Stock into shares of FSLB stock, excluding those shares of GABS Stock held
by shareholders who have perfected dissenters' rights of appraisal under the
applicable provisions of the Corporation Code (the "Dissenters' Provisions"),
shall be as follows: each share of GABS Stock shall, by virtue of the Merger and
without any action on the part of any shareholder, be converted into the right
to receive one share of FSLB Stock.
2.3 OPTIONS. Each option to purchase GABS stock ("GABS Option") outstanding
at the time that the Merger is consummated shall be converted into and become
rights with respect to FSLB Stock and FSLB shall assume each such option in
accordance with the terms of the stock option plan under which it was issued and
the stock option or other agreement by which it is evidenced. From and after the
consummation of the Merger, (i) each GABS Option assumed by FSLB may be
exercised solely for FSLB Stock, (ii) the number of shares of FSLB Stock subject
to each GABS Option shall be equal to the number of shares of GABS stock subject
to each such GABS Option immediately prior to the consummation date and (iii)
the per share exercise price of the FSLB Stock subject to the GABS Options shall
be the same as the per share exercise price of the GABS Stock. It is intended
that the foregoing assumption of GABS Options shall be undertaken in a manner
that will not constitute a "modification" as defined in Section 424 of the Code
as to any GABS option which is an incentive stock option.
2.4 FSLB STOCK DIVIDEND. Immediately prior to the time that the Merger is
consummated, FSLB shall pay a stock dividend to the FSLB shareholders (the "FSLB
Stock Dividend") so that each FSLB shareholder at such time shall receive for
each share of FSLB Stock a dividend of 0.2858 shares of FSLB Stock which is
determined by subtracting one from the quotient determined by dividing the per
share FSLB Adjusted Value by the per share GABS Adjusted Value.
2.5 NO FRACTIONAL SHARES. No certificate for a fraction of a share of FSLB
Stock shall be issued. Instead, the holders of shares of FSLB Stock who
otherwise become entitled to a fraction of a share of FSLB Stock as a result of
the FSLB Stock Dividend, shall receive the equivalent cash value of such
fractional share based on FSLB's per share Adjusted Value at the Valuation Date.
2.6 SURRENDER OF STOCK CERTIFICATE.
2.6.1 LETTER OF TRANSMITTAL. As soon as practicable after the Effective
Date, a letter of transmittal shall be mailed by FSLB, as Exchange Agent
(the "Exchange Agent"), to each shareholder of GABS as of the close of
business on the Effective Date. Upon receipt of the letter of transmittal,
each holder of a certificate or certificates theretofore representing shares
of GABS Stock shall surrender such certificates to the Exchange Agent,
together with a properly completed and signed letter of transmittal, and
shall receive in exchange therefor certificates representing shares of FSLB
Stock, subject to the restrictions and conditions of this Agreement.
Replacements
A-2
<PAGE>
for stock certificates which have been destroyed, stolen or lost may be
obtained according to the usual procedures of GABS, as applicable, in order
to permit the surrender of such replacement certificates.
2.6.2 RIGHTS OF FORMER SHAREHOLDERS. As of the Effective Date, each
certificate theretofore representing one or more outstanding shares of GABS
Stock shall be deemed for all corporate purposes to evidence only the right
to receive certificates representing shares of FSLB Stock as provided in
accordance with this Agreement.
2.6.3 FAILURE TO SURRENDER STOCK CERTIFICATES. Until a former GABS
shareholder surrenders his or her stock certificate or certificates to the
Exchange Agent: (i) the shareholder shall not be issued certificates
representing the shares of FSLB Stock which such GABS Stock certificate may
otherwise entitle him or her to receive; (ii) the shareholder shall not have
any voting rights in respect of the shares of FSLB Stock which such GABS
Stock certificate may otherwise entitle him or her to receive; (iii) the
shareholder shall not be paid dividends nor other distributions in respect
of the shares of FSLB Stock which such GABS Stock certificate may otherwise
entitle him or her to receive; and (iv) any dividends or distributions
payable on FSLB Stock shall be retained, without interest, for his or her
account until surrender of such GABS Stock certificate.
2.7 NO INTEREST. Except as otherwise provided by the Dissenters' Provisions,
any cash payment which is to be made pursuant to this Agreement to any holder of
a certificate formerly representing shares of GABS Stock shall bear no interest
whatsoever regardless of when such certificate is surrendered to the Exchange
Agent.
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC.
3.1 MATERIAL. "Material" shall mean, and a "material adverse" effect or
change shall have occurred with respect to each Party within the meaning of this
Agreement, upon the reasonable determination by the other Party that an event,
condition, action or state of facts is material or has a material adverse effect
or constitutes a material adverse change, in the context of the size, historical
performance and market location of the Party or any of its subsidiary banks as
of the date of this Agreement, but in any event shall include any of the
following:
3.1.1 UNDISCLOSED LIABILITIES. (a) The existence of any liability that
(1) was required to be disclosed pursuant to this Agreement and was not so
disclosed and (2) together with all other such undisclosed liabilities
exceeds, or may reasonably be expected to exceed, $50,000 in the aggregate;
or (b) the creation or incurrence of any liability of the Party or any of
its subsidiary Banks, (other than liabilities incurred in the ordinary
course of business permitted under Sections 4.9 and 5.9 of this Agreement),
that together with all other such liabilities exceeds, or may reasonably be
expected to exceed, $50,000 in the aggregate; or
3.1.2 SUPERVISORY ACTION. Any cease and desist order, memorandum of
understanding, supervisory agreement, consent order or similar order or
proceeding being filed or issued against the Party or any of its subsidiary
banks by the Federal Deposit Insurance Corporation ("FDIC"), the Georgia
Department of Banking and Finance ("Georgia Department") or the Board of
Governors of the Federal Reserve ("Federal Reserve"); or
3.1.3 OTHER. Any other event, action, condition or state of facts, which,
if such event, condition or state of facts were being considered during the
course of an audit of the books and records of the Party or any of its
subsidiary banks in accordance with generally accepted accounting
principles, and the standard of materiality for qualifying such audit were
$50,000, would result in such audit being qualified or would require any
disclosure to be made in the report accompanying such audit with respect to
the business, properties or financial condition of the Party.
3.2 ACCESS, INFORMATION AND DOCUMENTS.
3.2.1 ACCESS. The Parties hereto shall permit each other's authorized
representatives reasonable access during normal business hours from and
after the date hereof and prior to the Effective Date to all of their
respective properties, books, contracts, commitments and records and shall
promptly furnish each other with such information concerning their
respective affairs as each may reasonably request.
A-3
<PAGE>
3.2.2 ASSISTANCE. The personnel of each of the Parties hereto shall
assist the other in making its investigation, and each shall cause its
respective counsel, accountants, employees and other representatives to be
reasonably available for such purposes. During such investigation, the
Parties and their respective authorized representatives shall have the right
to make copies of such records, files, tax returns and other materials as
they may deem advisable. No investigation made theretofore or hereafter by
any Party hereto shall affect the representations and warranties made by the
other Party hereunder. Each Party agrees to give the other Party notice as
soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of
its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty,
covenant or agreement of the other Party or which has had or is reasonably
likely to have a material adverse effect on the other Party.
3.3 REGISTRATION STATEMENT; SHAREHOLDERS' MEETINGS. As soon as practicable
after execution of this Agreement, FSLB shall file a registration statement with
the Securities and Exchange Commission (the "SEC") covering the FSLB Stock to be
issued upon consummation of the Merger (the "Registration Statement"), and shall
use its reasonable efforts to cause the Registration Statement to become
effective under the Securities Act of 1933 (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 FSLB Stock upon consummation of
the Merger. GABS shall furnish all information concerning it and the holders of
its capital stock as FSLB may reasonably request in connection with such action.
Each Party shall call a shareholders' meeting (collectively the "Shareholders'
Meetings" and respectively "FSLB Shareholders' Meeting" and "GABS 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 each Party's respective shareholders' meeting,
(i) each Party shall prepare and file a joint proxy statement (the "Proxy
Statement") (which shall be included in the Registration Statement) with the SEC
and mail it to each Party's respective shareholders, (ii) each Party shall
furnish to the other Party all information concerning it that the other Party
may reasonably request in connection with such Proxy Statement, (iii) the Boards
of Directors of each Party shall recommend (subject to compliance with its
fiduciary duties as advised by counsel) to its shareholders the approval of this
Agreement, and (iv) the Board of Directors and officers of each Party shall use
their reasonable efforts to obtain such shareholders' approval (subject to
compliance with their fiduciary duties as advised by counsel).
3.4 CONFIDENTIAL INFORMATION. If the transactions contemplated herein are
not consummated, each Party and its representatives shall treat all information
obtained from the other, and not already in the public domain, as confidential,
and each Party (upon written request) shall return to the other Party all copies
made of material belonging to it.
3.5 FULL COOPERATION. The Parties shall cooperate fully with each other and
with their respective counsel, accountants and other agents in connection with
any acts or actions required to be taken as part of their respective obligations
under this Agreement, including cooperation in the filing of all applications
with respect to the transactions contemplated hereby.
3.6 APPLICATIONS. FSLB shall promptly prepare and file, and GABS shall
cooperate in the preparation and, where appropriate, filing of, applications
with all regulatory authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite consents necessary to
consummate the transactions contemplated by this Agreement.
3.7 PUBLIC ANNOUNCEMENTS AND DISCLOSURES. The Parties hereto agree that,
from the date hereof until the Effective Date, none of the Parties to this
Agreement shall make any public announcements or disclosures, other than public
announcements and disclosures required to be made by law, relating to this
Agreement or to the transactions contemplated hereby without the prior approval
of the other Party.
3.8 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Whenever any financial report,
determination, adjustment, warranty, representation or covenant relates to any
financial matter hereunder, it shall,
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unless stated to the contrary, be deemed to refer to such item as determined in
accordance with generally accepted accounting principles as set forth in
Sections 4.2 and 5.7.
3.9 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, reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed or a resolicitation of proxies as a
consequence of an acquisition agreement by FSLB or any of its subsidiaries shall
not violate this covenant, provided that FSLB shall use its reasonable efforts
to cause such Registration Statement to be declared effective so that the
Shareholders' Meetings may be held prior to the date set forth in Section
13.1(b) of this Agreement), including, without limitation, using its reasonable
efforts to lift or rescind any order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied the
conditions referred to in Sections 8, 9 and 10 of this Agreement. Each Party
shall use, and shall cause each of its subsidiaries to use, its reasonable
efforts to obtain all consents necessary for the consummation of the
transactions contemplated by this Agreement.
3.10 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and agrees
to use its reasonable efforts to cause the Merger, and to take no action which
would cause the Merger not, to qualify for pooling-of-interests accounting
treatment and treatment as a "reorganization" within the meaning of Section
368(a) of the Code for federal income tax purposes.
4. REPRESENTATIONS AND WARRANTIES OF FSLB
As an inducement to GABS to enter into this Agreement, FSLB hereby
represents and warrants to GABS as follows:
4.1 FSLB SCHEDULE. Prior to the date hereof, FSLB has delivered to GABS a
schedule (the "FSLB Schedule") containing certain information regarding FSLB as
indicated at various places in this Agreement. All information set forth in the
FSLB Schedule or in documents incorporated by reference in the FSLB Schedule is
true, correct and complete, does not omit to state any fact necessary in order
to make the statements therein not misleading, and shall be deemed for all
purposes of this Agreement to constitute part of the representations and
warranties contained in this Section. FSLB shall promptly provide GABS with
written notification of any event, occurrence or other information necessary to
maintain the FSLB Schedule and all other documents and writings furnished to
GABS pursuant to this Agreement as true, correct and complete in all material
respects at all times prior to and including the Effective Date.
4.2 CORPORATE ORGANIZATION. FSLB is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Georgia, and has
all requisite corporate power and authority and possesses all licenses, permits
and authorizations necessary for it to own its properties and conduct its
business as presently conducted.
4.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
4.3.1 The authorized capital stock of FSLB consists of 10,000,000 shares
of common stock, no par value (previously defined as FSLB Stock), of which
2,629,962 shares are issued and outstanding. All of the outstanding shares
of FSLB Stock are validly issued, fully paid and nonassessable, and none of
such shares was issued in violation of the preemptive rights of any person.
There are no other classes of authorized capital stock of FSLB. Except as
set forth on the FSLB Schedule, there are no outstanding options,
agreements, contracts, calls or commitments of any character that would
require the issuance by FSLB of any shares of its common stock or securities
convertible into such stock.
4.3.2 Except as set forth in the FSLB Schedule, FSLB has no subsidiaries
and does not own, for its own account, any stocks, options, calls, warrants
or rights to acquire stock or other equity securities in any partnership or
corporation.
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4.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED. FSLB does not own
any property or conduct any business outside of the State of Georgia which would
require it to be qualified as a foreign corporation in any jurisdiction.
4.5 AUTHORIZATION. This Agreement and its execution by the President and
Secretary of FSLB or other persons designated by the Board of Directors of FSLB
have been duly authorized, approved and ratified by the Board of Directors of
FSLB at meetings duly called and held at which quorums were present and acting
throughout, and, subject to approval by its shareholders as required by law,
this Agreement is valid and binding on FSLB.
4.6 NON-CONTRAVENTION. The execution and delivery of this Agreement by FSLB
and the carrying out of the transactions contemplated hereby will not (a)
violate any provisions of its Articles of Incorporation or Bylaws, (b) result in
any breach or violation of the terms or conditions of or cause or create a right
to any acceleration under any agreement to which it is a party or any judgment
over it, or (c) violate or result in a violation of any federal or state law,
statute, ordinance, rule or regulation applicable to it, subject to securing the
approvals required by Section 10 hereof.
4.7 FINANCIAL STATEMENTS. The audited statements of financial condition of
FSLB at December 31, 1997, 1996 and 1995, and the related statements of income,
shareholders' equity, and cash flows for the years then ended, and the notes
thereto, and the unaudited statement of condition at September 30, 1998 and
October 31, 1998, and the related unaudited statement of income for the periods
then ended and the notes thereto (the audited financial statements at December
31, 1997 and for the year then ended and the notes thereto being referred to as
the "Annual FSLB Financials," and the unaudited financial statements at
September 30, 1998 and October 31, 1998, and for the periods then ended and the
notes thereto being referred to as the "Interim FSLB Financials") fairly present
assets, liabilities, financial condition and results of operations of FSLB as of
the dates mentioned and for the periods then ended in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis (subject
to any exceptions as to consistency as specified in such reports and, in the
case of interim financial statements, to normal recurring year-end adjustments).
4.8 NOTES AND OBLIGATIONS.
4.8.1 Except as set forth in the FSLB Schedule or as provided for in the
loss reserve described in subsection 4.8.2 below, all notes receivable or
other obligations owned by FSLB or its subsidiaries or due to it or its
subsidiaries shown in the Annual and Interim FSLB Financials and any such
notes receivable and obligations on the date hereof and on the Effective
Date are and will be genuine, legal and valid obligations of the respective
makers thereof and are not and insofar as FSLB is aware will not be subject
to any defense, offset or counterclaim. Except as set forth in subsection
4.8.2 below, all such notes and obligations are evidenced by written
agreements, true and correct copies of which will be made available to the
other Party for examination prior to the Effective Date. All such notes and
obligations were entered into by FSLB or its subsidiaries in the ordinary
course of their businesses and in compliance with all applicable laws and
regulations, except as to any noncompliance which has not and will not have
a material adverse effect on the business, properties or earnings of FSLB or
its subsidiaries.
4.8.2 FSLB and its subsidiaries have established loss reserves on the
Annual and Interim FSLB Financials which are adequate to cover anticipated
losses which might result from such items as the insolvency or default of
borrowers or obligors on such loans or obligations, defects in the notes or
evidences of obligation (including losses of original notes or instruments),
offsets or counterclaims properly chargeable to such reserves, or the
availability of legal or equitable defenses which might preclude or limit
the ability of FSLB or its subsidiaries to enforce any note or obligation,
and the representations set forth in subsection 4.8.1 above are qualified in
their entirety by the aggregate of such loss reserves.
4.9 LIABILITIES. FSLB and its subsidiaries have no debt, liability or
obligation of any kind whether or not required to be shown pursuant to GAAP on
the balance sheet of FSLB, and whether accrued, absolute, known or unknown,
contingent or otherwise, including, but not limited to: (a) any liability or
obligation on account of any federal, state or local taxes or penalties,
interest or fines with respect to
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such taxes; (b) any liability arising from or by virtue of the distribution,
delivery or other transfer or disposition of goods, personal property or
services of any type, kind or variety; or (c) unfunded liabilities with respect
to any pension, profit sharing or employee stock ownership plan, whether
operated by FSLB or any other entity covering employees of FSLB or its
subsidiaries, except (i) those reflected on the Annual and Interim FSLB
Financials, (ii) liabilities incurred in the ordinary course of business since
December 31, 1997, and (iii) as set forth in the FSLB Schedule.
4.10 INVESTMENTS. Except for pledges to secure public and trust deposits,
none of the investments reflected in the Annual FSLB Financials and none of the
investments made since the date of the Annual FSLB Financials is subject to any
restriction, contractual, statutory or otherwise, which materially would impair
the ability of the holder of such investment freely to dispose of such
investment at any time. The FSLB books and records accurately reflect the
nature, terms and characteristics of such investments. No such investments are
derivative investments.
4.11 TAXES. FSLB and its subsidiaries have filed all federal, state, county
and other tax returns and reports required by applicable law and have paid in
full or have made adequate provision for the payment of all taxes shown on said
returns or claimed to be due by federal, state, county or other taxing
authorities. All such payments of taxes were timely made. FSLB does not know of
any circumstances or facts which exist or have heretofore existed which would
constitute grounds for the assessment of any further material tax liability for
any period covered by any of such filed returns. To the knowledge of FSLB, there
are no tax examinations or proceedings pending or threatened for any period and
FSLB does not know of any circumstances or facts which would cause any such
examinations or proceedings. There are no federal, state or local tax liens upon
any property or assets of FSLB and its subsidiaries, except for liens for state
and local property taxes which are not yet due. Except as disclosed on the FSLB
Schedule, the federal income tax returns of FSLB have not been examined by the
Internal Revenue Service for any period, and FSLB has not consented to the
extension of any statute or limitations with respect to any period.
4.12 LITIGATION. Except as set forth in the FSLB Schedule, there are no
causes of action pending or (to the knowledge of management) threatened against
FSLB or any of its subsidiaries or regulatory orders, memoranda of understanding
or similar documents involving FSLB or any of its subsidiaries. Except as set
forth in the FSLB Schedule, there are no causes of action pending against FSLB
or any of its subsidiaries with respect to the transactions contemplated by this
Agreement, and there are no actions, suits, claims, demands or proceedings
pending or threatened against FSLB or any of its subsidiaries which, if
adversely decided, could have a material adverse effect on the business,
prospects, financial condition or results of operations of FSLB or any of its
subsidiaries.
4.13 REGULATORY FILINGS. Since January 1, 1994, FSLB and its subsidiaries
have filed all reports they were required to file with the FDIC, the Georgia
Department, and the Federal Reserve. As of their respective dates, all such
reports complied in all material respects with all rules, regulations and
instructions promulgated by such agencies and did not 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.
4.14 GENERAL LEGAL COMPLIANCE. Except as set forth in the FSLB Schedule, to
the best knowledge of FSLB with respect to the conduct of its business, FSLB and
its subsidiaries are in compliance in all material respects with all applicable
federal, state or local laws, regulations, ordinances, decrees or orders of any
governmental entity, the noncompliance with which could have a material adverse
effect on their business, prospects, financial condition or results of
operations. FSLB is not aware of the existence of any facts which would support
the assessment of civil money penalties against FSLB or any of its subsidiaries,
their directors, officers or employees.
4.15 PROPERTIES; ENVIRONMENTAL.
4.15.1 FSLB and its subsidiaries own good title to or hold a valid
leasehold estate in all of their properties and assets reflected in the
Annual FSLB Financials and to all properties acquired after such date, free
and clear of all liens, encumbrances, security interests and mortgages,
except for the liens of state and local property taxes which are not due and
payable, easements or other
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claims, none of which materially interfere with the operation of the
business of FSLB or the marketability of their properties.
4.15.2 To the best knowledge of FSLB, FSLB and its subsidiaries are in
compliance with all laws, rules and regulations relating to environmental
protection. FSLB and its subsidiaries have not been notified nor are
otherwise aware that they are potentially liable, or are considered
potentially liable, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any
similar state law. There are no actions, suits, regulatory investigations or
other proceedings pending or, to the knowledge of FSLB, threatened against
FSLB or any of its subsidiaries relating to environmental protection, nor
does FSLB have any reason to believe any such proceedings may be brought
against it or any of its subsidiaries. To the best knowledge of FSLB, no
disposal, release, storage or discharge of hazardous or toxic substances,
pollutants or contaminants, including petroleum and gas products, as any of
such terms may be defined under federal, state or local law, has occurred
on, in, at or about any of the facilities or properties of FSLB or any of
its subsidiaries, or on any properties held as collateral for any loans held
by any of its subsidiaries.
4.16 INSURANCE.
4.16.1 FSLB and its subsidiaries are not in default with respect to any
provisions of any fire, fidelity bond, directors' and officers' liability,
other liability, title or other forms of insurance held by them where the
loss of such insurance and the occurrence of any event intended to be
thereby insured against could have a material adverse effect on the
business, prospects, financial condition or results of operations of FSLB
and any of its subsidiaries; nor has FSLB or any of its subsidiaries failed
to give any notice or present any claim thereunder in a due and timely
fashion.
4.16.2 The FSLB Schedule describes each of FSLB's and its subsidiaries'
insurance policies, including carrier, amount of coverage and annual
premium.
4.17 BROKER. FSLB is not in any way obligated for the payment of fees or
expenses to any investment banker, broker or finder in connection with the
origination, negotiation, execution or fairness of this Agreement or the
transactions contemplated hereby.
4.18 TRADEMARKS. FSLB and its subsidiaries own or have license agreements to
use all trademarks, service marks, copyrights, trade names or patents used by
them in the conduct of their business. FSLB and its subsidiaries are not
infringing upon, or otherwise violating the rights of any third party with
respect to, any trademark, service mark, copyright, trade name or patent, to the
best of its knowledge. No proceedings have been instituted, or (to the knowledge
of FSLB) threatened, nor has any claim been made, against FSLB or any of its
subsidiaries alleging any such infringement or violation.
4.19 SOLE AGREEMENT TO MERGE AND SELL. FSLB is not a party to any other
acquisition agreement, merger agreement, plan of reorganization, letter of
intent, agreement of sale, or other agreement which would result in the sale or
other disposition, directly or indirectly, of all or substantially all of its
stock or assets.
4.20 INSIDER CONTRACTS. Except as set forth in the FSLB Schedule, (a) FSLB
and its subsidiaries are not a party to or otherwise obligated under any
management agreement, employment contract, consulting agreement, personal
service agreement or other contract or agreement for the provision of similar
services, (b) FSLB and its subsidiaries are not parties to any agreement or
understanding with any officer or director of FSLB or its subsidiaries, their
affiliates or the immediate family members of any such officers and directors
(collectively, the "Insiders") which calls for the payment of money by FSLB or
its subsidiaries and (c) the consummation of the transactions contemplated
hereby will not (either alone or upon the occurrence of any act or event, or
with the lapse of time or both) result in any payment (severance or other)
becoming due from FSLB or any of its subsidiaries or the successor thereof to
any Insider.
4.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the Effective
Date:
4.21.1 The FSLB Schedule contains a true and complete list of all the
following types of agreements or plans established, maintained or
contributed to by FSLB and its subsidiaries and each other employer, which
together with FSLB are treated as a single employer within the
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meaning of Section 414 of the Code (hereinafter collectively referred to as
the "FSLB Group"), that are presently in effect or which have been in effect
at any time:
(i) "employee welfare benefit plans" and "employee pension benefit
plans, "as defined in Sections 3(1) and 3(2) of ERISA; and
(ii) any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, health, hospitalization, medical, life insurance,
vision, dental, prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care, scholarship, group
legal benefits, fringe benefit, or other employee benefit plan, program,
policy, or arrangement, whether written or unwritten, formal or informal,
which any member of the FSLB Group maintains or to which any member of
the FSLB Group has any outstanding, present, or future obligation to
contribute to or make payments under, whether voluntary, contingent, or
otherwise (the plans, programs, policies, or arrangements described in
clauses (i) or (ii) as established, adopted or maintained by any member
of the FSLB Group are herein collectively referred to as the "FSLB
Plans").
For each FSLB Plan, FSLB will deliver to the other Party true and complete
copies of all documents as they may have been amended to the date hereof which
establish the FSLB Plan, the most recent summary plan description, the annual
reports filed for the three most recent plan years, the most recent actuarial
report prepared, if any, and any current insurance contract relating to such
FSLB Plan. Except for Eastside and its subsidiary, no member of the FSLB Group
is or has ever been part of a group of corporations and/or other business
entities treated as a single employer within the meaning of Section 414 of the
Code other than the FSLB Group itself.
4.21.2 Each of the FSLB Plans maintained, or previously maintained, by any
member of the FSLB Group has at all times been operated in material
compliance with ERISA and the Code. Each FSLB Plan (i) which is intended to
satisfy the requirements of Code Section 401(a), and the trust for which is
intended to be exempt from taxation under Code Section 501(a), or (ii) which
is intended to be exempt from taxation under Code Section 501(c)(9)
(collectively, the "FSLB Qualified Plans") has received a favorable
determination letter to that effect from the Internal Revenue Service, and
such favorable determination letter remains in effect and, except as set
forth in the FSLB Schedule, no such FSLB Qualified Plan has been amended
since the issuance of the most recent favorable determination letter. The
FSLB Qualified Plans currently comply in form with the requirements under
the Code, other than changes required by statutes, regulations and rulings
for which amendments are not yet required.
4.21.3 No member of the FSLB Group has any past, present or future
obligation or liability to contribute to any "multiemployer plan," as
defined in ERISA Section 3(37), or any single-employer plan having two or
more contributing sponsors at least two of whom are not under common
control, as described in ERISA Section 4063.
4.21.4 Except as set forth in the FSLB Schedule, no member of the FSLB
Group currently maintains an "employee pension benefit plan" as defined in
ERISA Section 3(2). No assets of the FSLB Group are, and FSLB does not
reasonably expect them to become, subject to a lien imposed under ERISA
Section 4068 or Code Section 412 and no assets of the FSLB Group have been
provided as security to any FSLB Plan pursuant to Code Section 401(a)(29).
4.21.5 No termination or partial termination of any FSLB Qualified Plan
has occurred nor has a notice of intent to terminate any FSLB Qualified Plan
been issued by a member of the FSLB Group.
4.21.6 No member of the FSLB Group nor any other "disqualified person" or
"party in interest," as defined in Code Section 4975 and ERISA Section
3(14), respectively, has engaged in any "prohibited transaction," as defined
in Code Section 4975 or ERISA Section 406. All "fiduciaries," as defined in
ERISA Section 3(21), each member of the FSLB Group and their respective
officers and employees, with respect to the FSLB Plans, have complied in all
material respects with the requirements of ERISA Section 404.
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4.21.7 To the best knowledge of FSLB, each member of the FSLB Group has
complied in all material respects with the continuation coverage
requirements of Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
4.21.8 Other than routine claims for benefits, there are no actions,
audits, investigations, suits, or claims pending, or threatened against any
of the FSLB Plans or any fiduciary of any of the FSLB Plans or against the
assets of any of the FSLB Plans.
4.21.9 Except as provided in the FSLB Schedule, each member of the FSLB
Group has made full and timely payment of, or has accrued pending full and
timely payment, all amounts which are required under the terms of each FSLB
Plan to be paid by the FSLB Group.
4.21.10 No member of the FSLB Group has an obligation to any retired or
former employee, or any current employee upon retirement, under any FSLB
Plan, and any FSLB Plan can be terminated without resulting in any liability
to FSLB for any additional penalties, premiums, fees, or any other charges.
4.21.11 Except as provided in the FSLB Schedule, no member of the FSLB
Group has any outstanding, present or future obligation to make payments to
an insurer for premiums, reserves or other liability relating to an FSLB
Plan under any arrangement with an insurer.
4.21.12 No member of the FSLB Group is obligated, contingently or
otherwise, under any agreement to pay any amount which will be treated as an
"excess parachute payment" as defined in Code Section 280G(b), determined
without regard to Code Section 280G(b)(2)(A)(i).
4.21.13 No member of the FSLB Group is liable for any unpaid wages, bonuses
or commissions, or taxes, penalties, assessments or forfeitures arising from
any employment matter other than (i) liabilities accrued on the Annual and
Interim FSLB Financials and (ii) wages owed for services rendered since the
payroll date immediately preceding the Effective Date.
4.21.14 Until the Effective Date, no member of the FSLB Group shall amend
any FSLB Plan, except to the extent necessary to maintain compliance with
the Code or ERISA or, except to the extent provided to the contrary herein,
increase any benefits or rights under any FSLB Plan, or adopt any new plan,
program, policy, or arrangement which, if it existed as of the Effective
Date, would constitute a FSLB Plan.
4.21.15 The consummation of the transactions contemplated hereby will not
accelerate or increase any liability under any FSLB Plan because of an
acceleration or increase of any of the rights or benefits to which employees
may be entitled thereunder.
4.22 ARTICLES AND BYLAWS. FSLB has previously delivered to GABS true and
correct copies of the Articles of Incorporation and Bylaws of FSLB and its
subsidiaries.
4.23 BOOKS AND RECORDS. The books of account and other financial records of
FSLB and its subsidiaries are, in all material respects, complete and correct,
maintained in accordance with good business practice, and are fairly reflected
in the Annual and Interim FSLB Financials. The minute books of FSLB and its
subsidiaries accurately reflect all material corporate action of the
shareholders and the Board of Directors (including any Executive Committee
thereof) of FSLB and its subsidiaries.
4.24 ABSENCE OF CHANGES. Except as specifically provided for in this
Agreement or specifically set forth in the FSLB Schedule, since September 30,
1998:
4.24.1 There has been no change in the business, assets, liabilities,
results of operations or financial condition of FSLB or its subsidiaries, or
in any of its relationships with customers, employees, lessors or others,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or which management of FSLB
believes may have a material adverse effect on such business or properties;
4.24.2 There has been no damage, destruction or loss to the assets,
properties or business of FSLB or its subsidiaries, whether or not covered
by insurance, which has had or which management of FSLB believes may have a
material adverse effect thereon;
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4.24.3 The business of FSLB and its subsidiaries has been operated in the
ordinary course and not otherwise;
4.24.4 The properties and assets of FSLB and its subsidiaries used in
their businesses have been maintained in good order, repair and condition,
ordinary wear and tear excepted;
4.24.5 The books, accounts and records of FSLB and its subsidiaries have
been maintained in the usual, regular and ordinary manner;
4.24.6 There has been no declaration, setting aside or payment of any
dividend or other distribution on or in respect of the capital stock of
FSLB;
4.24.7 Except as set forth in the FSLB Schedule, there has been no
increase in the compensation or in the rate of compensation or commissions
payable or to become payable by FSLB or any of its subsidiaries to any
director or executive officer, or any employee earning $25,000 or more per
annum, or any increase in any payment of or commitment to pay any bonus,
profit sharing or other extraordinary compensation to any employee;
4.24.8 There has been no change in the Articles of Incorporation or Bylaws
of FSLB and its subsidiaries;
4.24.9 There has been no labor dispute, unfair labor practice charge or
employment discrimination charge, nor, to the knowledge of management of
FSLB, any organizational effort by any union, or institution or (to the
knowledge of management of FSLB) threatened institution, of any
organizational effort, complaint or other proceeding in connection
therewith, involving FSLB or any of its subsidiaries or affecting their
operations;
4.24.10 Except as set forth in the FSLB Schedule, there has been no
issuance, sale, repurchase, acquisition, or redemption by FSLB of any of its
authorized capital stock, bonds, notes, debt or other securities or any
modification or amendment of the rights of the holders of any outstanding
capital stock, bonds, notes, debt or other securities thereof;
4.24.11 There has been no mortgage, lien or other encumbrance or security
interest (other than liens for current taxes not yet due or purchase money
security interests arising in the ordinary course of business) created on or
in (including, without limitation, any deposit for security consisting of)
any asset or assets of FSLB or any of its subsidiaries or assumed by them
with respect to any asset or assets;
4.24.12 There has been no indebtedness or other liability or obligation
(whether absolute, accrued, contingent or otherwise) incurred by FSLB or its
subsidiaries whether or not it would be required to be reflected on a
balance sheet of FSLB prepared as of the date hereof in accordance with GAAP
applied on a consistent basis, except as incurred in the ordinary course of
business;
4.24.13 No obligation or liability of FSLB or its subsidiaries has been
discharged or satisfied, other than in the ordinary course of business;
4.24.14 Except as set forth in the FSLB Schedule, there has been no sale,
transfer or other disposition of any asset or assets of FSLB or any of its
subsidiaries, other than sales in the ordinary course of business; and
4.24.15 There has been no amendment, termination or waiver of any right of
FSLB or its subsidiaries under any contract or agreement or governmental
license, permit or permission which has had or may have a material adverse
effect on its business or properties.
5. REPRESENTATIONS AND WARRANTIES OF GABS
As an inducement to FSLB to enter into this Agreement, GABS hereby
represents and warrants to FSLB as follows:
5.1 GABS SCHEDULE. Prior to the date hereof, GABS has delivered to FSLB a
schedule (the "GABS Schedule") containing certain information regarding GABS as
indicated at various places in this Agreement. All information set forth in the
GABS Schedule or in documents incorporated by reference in the GABS Schedule is
true, correct and complete, does not omit to state any fact necessary in order
to make the statements therein not misleading, and shall be deemed for all
purposes
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of this Agreement to constitute part of the representations and warranties of
GABS. The information contained in the GABS Schedule shall be deemed to be part
of and qualify all representations and warranties contained in this Section.
GABS shall promptly provide FSLB with written notification of any event,
occurrence or other information necessary to maintain the GABS Schedule and all
other documents and writings furnished to FSLB pursuant to this Agreement as
true, correct and complete in all material respects at all times prior to and
including the Effective Date.
5.2 CORPORATE ORGANIZATION. GABS is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Georgia, and has
all requisite corporate power and authority and possesses all licenses, permits
and authorizations necessary for it to own its properties and conduct its
business as presently conducted.
5.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
5.3.1 The authorized capital stock of GABS consists of 10,000,000 shares
of common stock, $1.60 par value (previously defined as GABS Stock), of
which 1,460,570 shares are issued and outstanding. All of the outstanding
shares of GABS Stock are validly issued, fully paid and nonassessable, and
none of such shares was issued in violation of the preemptive rights of any
person. There are no other classes of authorized capital stock of GABS.
Except as set forth on the GABS Schedule, there are no outstanding options,
agreements, contracts, calls or commitments of any character that would
require the issuance by GABS of any shares of its common stock or securities
convertible into such stock.
5.3.2 Except as set forth in the GABS Schedule, GABS has no subsidiaries
and does not own, for its own account, any stocks, options, calls, warrants
or rights to acquire stock or other equity securities in any partnership or
corporation.
5.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED. GABS does not own
any property or conduct any business outside of the State of Georgia which would
require it to be qualified as a foreign corporation in any jurisdiction.
5.5 AUTHORIZATION. This Agreement and its execution by the President and
Secretary of GABS or other persons designated by the Board of Directors of GABS
have been duly authorized, approved and ratified by the Board of Directors of
GABS at meetings duly called and held at which quorums were present and acting
throughout, and, subject to approval by its shareholders as required by law,
this Agreement is valid and binding on GABS.
5.6 NON-CONTRAVENTION. The execution and delivery of this Agreement by GABS
and the carrying out of the transactions contemplated hereby will not (a)
violate any provisions of its Articles of Incorporation or Bylaws, (b) result in
any breach or violation of the terms or conditions of or cause or create a right
to any acceleration under any agreement to which it is a party or any judgment,
decree or order of any court or administrative agency having jurisdiction over
it, or (c) violate or result in a violation of any federal or state law,
statute, ordinance, rule or regulation applicable to it, subject to securing the
approvals required by Section 10 hereof.
5.7 FINANCIAL STATEMENTS. The audited statements of financial condition of
GABS at December 31, 1997, 1996 and 1995, and the related statements of income,
shareholders' equity, and cash flows for the years then ended, and the notes
thereto, and the unaudited statement of condition at September 30, 1998 and
October 31, 1998, and the related unaudited statement of income for the periods
then ended and the notes thereto (the audited financial statements at December
31, 1997 and for the year then ended and the notes thereto being referred to as
the "Annual GABS Financials," and the unaudited financial statements at
September 30, 1998 and October 31, 1998, and for the periods then ended and the
notes thereto being referred to as the "Interim GABS Financials") fairly present
assets, liabilities, financial condition and results of operations of GABS as of
the dates mentioned and for the periods then ended in conformity with GAAP
applied on a consistent basis (subject to any exceptions as to consistency as
specified in such reports and, in the case of interim financial statements, to
normal recurring year-end adjustments).
5.8 NOTES AND OBLIGATIONS.
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5.8.1 Except as set forth in the GABS Schedule or as provided for in the
loss reserve described in subsection 5.8.2 below, all notes receivable or
other obligations owned by GABS or Community or due to them shown in the
Annual and Interim GABS Financials and any such notes receivable and
obligations on the date hereof and on the Effective Date are and will be
genuine, legal and valid obligations of the respective makers thereof and
are not and insofar as GABS is aware will not be subject to any defense,
offset or counterclaim. Except as set forth in subsection 5.8.2 below, all
such notes and obligations are evidenced by written agreements, true and
correct copies of which will be made available to FSLB for examination prior
to the Effective Date. All such notes and obligations were entered into by
GABS or Community in the ordinary course of their businesses and in
compliance with all applicable laws and regulations, except as to any
noncompliance which has not and will not have a material adverse effect on
the business, properties or earnings of GABS or Community.
5.8.2 GABS and Community have established a loss reserve on the Annual
and Interim GABS Financials which is adequate to cover anticipated losses
which might result from such items as the insolvency or default of borrowers
or obligors on such loans or obligations, defects in the notes or evidences
of obligation (including losses of original notes or instruments), offsets
or counterclaims properly chargeable to such reserve, or the availability of
legal or equitable defenses which might preclude or limit the ability of
GABS or Community to enforce the note or obligation, and the representations
set forth in subsection 5.8.1 above are qualified in their entirety by the
aggregate of such loss reserve.
5.9 LIABILITIES. GABS and Community have no debt, liability or obligation of
any kind whether or not required to be shown pursuant to GAAP on the balance
sheet of GABS, and whether accrued, absolute, known or unknown, contingent or
otherwise, including, but not limited to: (a) any liability or obligation on
account of any federal, state or local taxes or penalties, interest or fines
with respect to such taxes; (b) any liability arising from or by virtue of the
distribution, delivery or other transfer or disposition of goods, personal
property or services of any type, kind or variety; or (c) unfunded liabilities
with respect to any pension, profit sharing or employee stock ownership plan,
whether operated by GABS or Community or any other entity covering employees of
GABS or Community, except (i) those reflected on the Annual and Interim GABS
Financials, (ii) liabilities incurred in the ordinary course of business since
December 31, 1997, and (iii) as set forth in the GABS Schedule.
5.10 INVESTMENTS. Except for pledges to secure public and trust deposits,
none of the investments reflected in the Annual GABS Financials and none of the
investments made since the date of the Annual GABS Financials is subject to any
restriction, contractual, statutory or otherwise, which materially would impair
the ability of the holder of such investment freely to dispose of such
investment at any time. The GABS books and records accurately reflect the
nature, terms and characteristics of such investments. No such investments are
derivative investments except as described on the GABS Schedule.
5.11 TAXES. GABS and Community have filed all federal, state, county and
other tax returns and reports required by applicable law and have paid in full
or have made adequate provision for the payment of all taxes shown on said
returns or claimed to be due by federal, state, county or other taxing
authorities. All such payments of taxes were timely made. GABS does not know of
any circumstances or facts which exist or have heretofore existed which would
constitute grounds for the assessment of any further material tax liability for
any period covered by any of such filed returns. To the knowledge of GABS, there
are no tax examinations or proceedings pending or threatened for any period and
GABS does not know of any circumstances or facts which would cause any such
examinations or proceedings. There are no federal, state or local tax liens upon
any property or assets of GABS or Community, except for liens for state and
local property taxes which are not yet due. Except as disclosed on the GABS
Schedule, the federal income tax returns of GABS have not been examined by the
Internal Revenue Service for any period, and GABS has not consented to the
extension of any statute of limitations with respect to any period.
5.12 LITIGATION. Except as set forth in the GABS Schedule, there are no
causes of action pending or (to the knowledge of management) threatened against
GABS or Community or regulatory orders,
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memoranda of understanding or similar documents involving GABS or Community.
Except as set forth in the GABS Schedule, there are no causes of action pending
against GABS or Community with respect to the transactions contemplated by this
Agreement, and there are no actions, suits, claims, demands or proceedings
pending or threatened against GABS or Community which, if adversely decided,
could have a material adverse effect on the business, prospects, financial
condition or results of operations of GABS or Community.
5.13 REGULATORY FILINGS. Since January 1, 1994, GABS and Community have filed
all reports they were required to file with the Federal Reserve, the FDIC and
Georgia Department. As of their respective dates, all such reports complied in
all material respects with all rules, regulations and instructions promulgated
by such agencies and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
5.14 GENERAL LEGAL COMPLIANCE. Except as set forth in the GABS Schedule, to
the best knowledge of GABS with respect to the conduct of its business, GABS and
Community are in compliance in all material respects with all applicable
federal, state or local laws, regulations, ordinances, decrees or orders of any
governmental entity, the noncompliance with which could have a material adverse
effect on their business, prospects, financial condition or results of
operations. GABS is not aware of the existence of any facts which would support
the assessment of civil money penalties against GABS or Community, their
directors, officers or employees.
5.15 PROPERTIES; ENVIRONMENTAL.
5.15.1 GABS and Community own good title to or hold a valid leasehold
estate in all of their properties and assets reflected in the Annual GABS
Financials and to all properties acquired after such date, free and clear of
all liens, encumbrances, security interests and mortgages, except for the
liens of state and local property taxes which are not due and payable,
easements or other claims, none of which materially interfere with the
operation of the business of GABS or Community or the marketability of their
properties.
5.15.2 To the best knowledge of GABS, GABS and Community are in compliance
with all laws, rules and regulations relating to environmental protection.
GABS and Community have not been notified nor are otherwise aware that they
are potentially liable, or are considered potentially liable, under CERCLA,
or any similar state law. There are no actions, suits, regulatory
investigations or other proceedings pending or, to the knowledge of GABS,
threatened against GABS or Community relating to environmental protection,
nor does GABS have any reason to believe any such proceedings may be brought
against it or Community. To the best knowledge of GABS, no disposal,
release, storage or discharge of hazardous or toxic substances, pollutants
or contaminants, including petroleum and gas products, as any of such terms
may be defined under federal, state or local law, has occurred on, in, at or
about any of the facilities or properties of GABS or Community, or on any
properties held as collateral for any loans held by Community.
5.16 INSURANCE.
5.16.1 GABS and Community are not in default with respect to any
provisions of any fire, fidelity bond, directors' and officers' liability,
other liability, title or other forms of insurance held by them where the
loss of such insurance and the occurrence of any event intended to be
thereby insured against could have a material adverse effect on the
business, prospects, financial condition or results of operations of GABS or
Community; nor has GABS or Community failed to give any notice or present
any claim thereunder in a due and timely fashion.
5.16.2 The GABS Schedule describes each of GABS's and Community's
insurance policies, including carrier, amount of coverage and annual
premium.
5.17 BROKER. GABS is not in any way obligated for the payment of fees or
expenses to any investment banker, broker or finder in connection with the
origination, negotiation, execution or fairness of this Agreement or the
transactions contemplated hereby.
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5.18 TRADEMARKS. GABS or Community own or have license agreements to use all
trademark, service marks, copyrights, trade names or patents used by them in the
conduct of their businesses. GABS and Community are not infringing upon, or
otherwise violating the rights of any third party with respect to, any
trademark, service mark, copyright, trade name or patent, to the best of GABS's
knowledge. No proceedings have been instituted, or (to the knowledge of GABS)
threatened, nor has any claim been made, against GABS or Community alleging any
such infringement or violation.
5.19 SOLE AGREEMENT TO MERGE OR SELL. GABS is not a party to any other
acquisition agreement, merger agreement, plan of reorganization, letter of
intent, agreement of sale, or other agreement which would result in the sale or
other disposition, directly or indirectly, of all or substantially all of its
stock or assets.
5.20 INSIDER CONTRACTS. Except as set forth in the GABS Schedule, (a) GABS
and Community are not parties to or otherwise obligated under any management
agreement, employment contract, consulting agreement, personal service agreement
or other contract or agreement for the provision of similar services, (b) GABS
or Community are not parties to any agreement or understanding with any officer
or director of GABS, its affiliates or the immediate family members of any such
officers and directors (collectively, the "GABS Insiders") which calls for the
payment of money by GABS or Community and (c) the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any act or event, or with the lapse of time or both) result in any payment
(severance or other) becoming due from GABS or Community or the successor
thereof to any GABS Insider.
5.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the Effective
Date:
5.21.1 The GABS Schedule contains a true and complete list of all the
following types of agreements or plans established, maintained or contributed to
by GABS and Community and each other employer, which together with GABS are
treated as a single employer within the meaning of Section 414 of the Code
(hereinafter collectively referred to as the "GABS Group"), that are presently
in effect or which have been in effect at any time:
(i) "employee welfare benefit plans" and "employee pension
benefit plans," as defined in Sections 3(l) and 3(2) of ERISA; and
(ii) any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, health, hospitalization, medical, life insurance,
vision, dental, prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care, scholarship, group
legal benefits, fringe benefit, or other employee benefit plan, program,
policy, or arrangement, whether written or unwritten, formal or informal,
which any member of the GABS Group maintains or to which any member of
the GABS Group has any outstanding, present, or future obligation to
contribute to or make payments under, whether voluntary, contingent, or
otherwise (the plans, programs, policies, or arrangements described in
clauses (i) or (ii) as established, adopted or maintained by any member
of the GABS Group are herein collectively referred to as the "GABS
Plans").
For each GABS Plan, GABS will deliver to FSLB true and complete copies of all
documents as they may have been amended to the date hereof which establish the
GABS Plan, the most recent summary plan description, the annual reports filed
for the three most recent plan years, the most recent actuarial report prepared,
if any, and any current insurance contract relating to such GABS Plan. No member
of the GABS Group is or has ever been part of a group of corporations and/or
other business entities treated as a single employer within the meaning of
Section 414 of the Code other than the GABS Group itself.
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5.21.2 Each of the GABS Plans maintained, or previously maintained, by
any member of the GABS Group has at all times been operated in material
compliance with ERISA and the Code. Each GABS Plan (i) which is intended to
satisfy the requirements of Code Section 401 (a), and the trust for which is
intended to be exempt from taxation under Code Section 501(a), or (ii) which is
intended to be exempt from taxation under Code Section 501(c)(9) (collectively,
the "GABS Qualified Plans") has received a favorable determination letter to
that effect from the Internal Revenue Service, and such favorable determination
letter remains in effect and, except as set forth in the GABS Schedule, no such
GABS Qualified Plan has been amended since the issuance of the most recent
favorable determination letter. The GABS Qualified Plans currently comply in
form with the requirements under the Code, other than changes required by
statutes, regulations and rulings for which amendments are not yet required.
5.21.3 No member of the GABS Group has any past, present or future
obligation or liability to contribute to any "multiemployer plan," as defined in
ERISA Section 3(37), or any single-employer plan having two or more contributing
sponsors at least two of whom are not under common control, as described in
ERISA Section 4063.
5.21.4 Except as set forth in the GABS Schedule, no member of the GABS
Group currently maintains an "employee pension benefit plan" as defined in ERISA
Section 3(2). No assets of the GABS Group are, and GABS does not reasonably
expect them to become, subject to a lien imposed under ERISA Section 4068 or
Code Section 412 and no assets of the GABS Group have been provided as security
to any GABS Plan pursuant to Code Section 401(a)(29).
5.21.5 No termination or partial termination of any GABS Qualified
Plan has occurred nor has a notice of intent to terminate any GABS Qualified
Plan been issued by a member of the GABS Group.
5.21.6 No member of the GABS Group nor any other "disqualified person"
or "party in interest," as defined in Code Section 4975 and ERISA Section 3(14),
respectively, has engaged in any "prohibited transaction," as defined in Code
Section 4975 or ERISA Section 406. All "fiduciaries," as defined in ERISA
Section 3(21), each member of the GABS Group and their respective officers and
employees, with respect to the GABS Plans, have complied in all material
respects with the requirements of ERISA Section 404.
5.21.7 To the best knowledge of GABS, each member of the GABS Group
has complied in all material respects with the continuation coverage
requirements of Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
5.21.8 Other than routine claims for benefits, there are no actions,
audits, investigations, suits, or claims pending, or threatened against any of
the GABS Plans or any fiduciary of any of the GABS Plans or against the assets
of any of the GABS Plans.
5.21.9 Except as provided in the GABS Schedule, each member of the
GABS Group has made full and timely payment of, or has accrued pending full and
timely payment, all amounts which are required under the terms of each GABS Plan
to be paid by the GABS Group.
5.21.10 No member of the GABS Group has an obligation to any retired
or former employee, or any current employee upon retirement, under any GABS
Plan, and any GABS Plan can be terminated without resulting in any liability to
GABS for any additional penalties, premiums, fees, or any other charges.
5.21.11 Except as provided in the GABS Schedule, no member of the GABS
Group has any outstanding, present or future obligation to make payments to an
insurer for premiums, reserves or other liability relating to a GABS Plan under
any arrangement with an insurer.
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5.21.12 No member of the GABS Group is obligated, contingently or
otherwise, under any agreement to pay any amount which will be treated as an
"excess parachute payment" as defined in Code Section 280G(b), determined
without regard to Code Section 280G(b)(2)(A)(i).
5.21.13 No member of the GABS Group is liable for any unpaid wages,
bonuses or commissions, or taxes, penalties, assessments or forfeitures arising
from any employment matter other than (i) liabilities accrued on the Annual and
Interim GABS Financials and (ii) wages owed for services rendered since the
payroll date immediately preceding the Effective Date.
5.21.14 Until the Effective Date, no member of the GABS Group shall
amend any GABS Plan, except to the extent necessary to maintain compliance with
the Code or ERISA or, except to the extent provided to the contrary herein,
increase any benefits or rights under any GABS Plan, or adopt any new plan,
program, policy, or arrangement which, if it existed as of the Effective Date,
would constitute a GABS Plan.
5.21.15 The consummation of the transactions contemplated hereby will
not accelerate or increase any liability under any GABS Plan because of an
acceleration or increase of any of the rights or benefits to which employees may
be entitled thereunder.
5.22 ARTICLES AND BYLAWS. GABS has previously delivered to FSLB true and
correct copies of the Articles of Incorporation and Bylaws of GABS and
Community.
5.23 BOOKS AND RECORDS. The books of account and other financial records of
GABS and Community are, in all material respects, complete and correct,
maintained in accordance with good business practice, and are fairly reflected
in the Annual and Interim GABS Financials. The minute books of GABS and
Community accurately reflect all material corporate action of the shareholders
and the Board of Directors (including any Executive Committee thereof) of GABS
and Community.
5.24 ABSENCE OF CHANGES. Except as specifically provided for in this
Agreement or specifically set forth in the GABS Schedule, since September 30,
1998:
5.24.1 There has been no change in the business, assets, liabilities,
results of operations or financial condition of GABS and Community, or in any of
their relationships with customers, employees, lessors or others, other than
changes in the ordinary course of business, none of which individually or in the
aggregate has had or which management of GABS and Community believe may have a
material adverse effect on such business or properties;
5.24.2 There has been no damage, destruction or loss to the assets,
properties or business of GABS and Community, whether or not covered by
insurance, which has had or which management of GABS and Community believe may
have a material adverse effect thereon;
5.24.3 The businesses of GABS and Community have been operated in the
ordinary course and not otherwise;
5.24.4 The properties and assets of GABS and Community used in their
businesses have been maintained in good order, repair and condition, ordinary
wear and tear excepted;
5.24.5 The books, accounts and records of GABS and Community have been
maintained in the usual, regular and ordinary manner;
5.24.6 There has been no declaration, setting aside or payment of any
dividend or other distribution on or in respect of the capital stock of GABS;
5.24.7 Except as set forth in the GABS Schedule, there has been no
increase in the compensation or in the rate of compensation or commissions
payable or to become payable by GABS and Community to any director or executive
officer, or any employee earning $25,000 or more per
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annum, or any increase in any payment of or commitment to pay any bonus, profit
sharing or other extraordinary compensation to any employee;
5.24.8 There has been no change in the Articles of Incorporation or
Bylaws of GABS and Community;
5.24.9 There has been no labor dispute, unfair labor practice charge
or employment discrimination charge, nor, to the knowledge of management of
GABS, any organizational effort by any union, or institution or (to the
knowledge of management of GABS) threatened institution, of any organizational
effort, complaint or other proceeding in connection therewith, involving GABS or
Community or affecting their operations;
5.24.10 There has been no issuance, sale, repurchase, acquisition, or
redemption by GABS of any of its authorized capital stock, bonds, notes, debt or
other securities or any modification or amendment of the rights of the holders
of any outstanding capital stock, bonds, notes, debt or other securities
thereof;
5.24.11 There has been no mortgage, lien or other encumbrance or
security interest (other than liens for current taxes not yet due or purchase
money security interests arising in the ordinary course of business) created on
or in (including without limitation any deposit for security consisting of) any
asset or assets of GABS or Community or assumed by them with respect to any
asset or assets;
5.24.12 There has been no indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise) incurred by GABS
or Community whether or not it would be required to be reflected on a balance
sheet of GABS or Community prepared as of the date hereof in accordance with
GAAP applied on a consistent basis, except as incurred in the ordinary course of
business;
5.24.13 No obligation or liability of GABS or Community has been
discharged or satisfied, other than in the ordinary course of business;
5.24.14 Except as set forth in the GABS Schedule, there has been no
sale, transfer or other disposition of any asset or assets of GABS or Community,
other than sales in the ordinary course of business; and
5.24.15 There has been no amendment, termination or waiver of any
right of GABS or Community under any contract or agreement or governmental
license, permit or permission which has had or may have a material adverse
effect on its business or properties.
6. COVENANTS OF FSLB
Except with the prior written approval of GABS, FSLB agrees that from the
date of this Agreement until the Effective Date or until this Agreement is
terminated by the Parties as herein provided:
6.1 CONDUCT OF BUSINESS. Each of FSLB and its subsidiaries:
(a) Will conduct its business only in the ordinary course as conducted
at the date of this Agreement, and in compliance in all material respects
with all applicable laws and regulations and all contracts to which it is a
party;
(b) Will use all reasonable efforts to maintain satisfactory
relationships with its customers, suppliers, regulators and employees;
(c) Will permit a representative of GABS to attend and participate (i)
in all meetings of the Board of Directors of FSLB and its subsidiaries and
(ii) in all meetings of their loan and executive committees (but only to the
extent of expressing their opinion on any matter before the Board and
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not otherwise to influence the Board's decision and not to vote) with such
representative to be excused during deliberations relating to the
transactions contemplated by this Agreement;
(d) Will not dispose of any property or incur any indebtedness except
in the ordinary course of business; will not make any capital contribution
to any affiliate or non-affiliate; will not mortgage, pledge or otherwise
encumber any of its properties except in the ordinary course of business;
will not make, or commit to make any capital expenditure except in the
ordinary course of business; will not commit to any transaction requiring
regulatory approval (other than the transactions contemplated by this
Agreement); will not fail to maintain all of its properties in good repair,
order and condition;
(e) Will not increase salaries, employee benefits, directors' fees or
bonuses, except to the extent consistent with past practices, and will not
enter into any compensation agreements with anyone, except as set forth in
the FSLB Schedule;
(f) Will make no changes to any of the FSLB Plans;
(g) Will not enter into any agreement, including without limitation any
agreement for the purchase, sale or lease of any property or for the
furnishing of services, with any FSLB Insider;
(h) Will not make any commitments or enter into any contracts which,
individually or in the aggregate, call for the payment of $50,000 or more by
FSLB or its subsidiaries, (i) except for agreements, commitments or
contracts for the purchase, sale or lease of goods or services in the
ordinary course of business and not in excess of FSLB's or its subsidiaries'
then current requirements, (ii) except for the acceptance of deposits and
the making and selling of loans in the ordinary course of business as a
lending institution, and except as set forth in the FSLB Schedule; and
(i) Will not fail to maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent in all material
aspects with prior years.
6.2 CAPITAL STOCK, ARTICLES AND BYLAWS. Except with the prior written
approval of GABS, FSLB will not (a) issue any shares of capital stock or any
rights or options with respect thereto, except as set forth in the FSLB
Schedule; (b) declare, set aside or pay any dividends or make any other
distributions with respect to its capital stock, except in accordance with past
practices or as set forth in the FSLB Schedule; (c) directly or indirectly
redeem, purchase or otherwise acquire any of its capital stock, except as set
forth in the FSLB Schedule; (d) effect a stock split or reclassification of its
stock or create any new class of capital stock or issue any capital debt; or (e)
amend its Articles of Incorporation or Bylaws.
6.3 APPROVAL OF FSLB SHAREHOLDERS. FSLB shall cause a meeting of its
shareholders (the "FSLB Shareholders' Meeting") to be held on such date as shall
be agreed upon with GABS for the purpose of considering the approval of the
Merger and adoption of this Agreement. FSLB shall deliver to GABS promptly at
the conclusion of the FSLB Shareholders' Meeting, a certificate stating (a) the
number of shares present in person or by proxy at the meeting, (b) the number of
shares which were voted for the Merger, (c) the number of shares which were
voted against the Merger, and (d) the number of shares dissenting to the Merger.
Such certificate shall include the names and mailing addresses of the
shareholders who voted against the Merger and of the holders of shares
dissenting to the Merger.
6.4 PROXY MATERIALS. To the best knowledge of FSLB, neither the proxy
materials nor any other materials (or amendments thereof or supplements thereto)
to be furnished by FSLB to its shareholders in connection with the transactions
contemplated by this Agreement will, at the times such documents are distributed
to FSLB shareholders through the Effective Date, contain, with respect to FSLB
or any of its subsidiaries, any untrue statement of a material fact or omit to
state any information required to
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be stated therein or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made with respect to FSLB and its shareholders, not misleading.
6.5 NOTICE OF BREACH. FSLB shall promptly give written notice to GABS upon
becoming aware of the impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants made by it in this Agreement and shall use its respective best efforts
to prevent or promptly remedy the same.
6.6 SOLE AGREEMENT TO MERGE OR SELL. During the term of this Agreement,
FSLB will not directly or indirectly (through, if applicable, its respective
directors, officers, employees, representatives or otherwise) make, solicit,
initiate or encourage proposals or offers from any party other than GABS
relating to any recapitalization, merger, consolidation, acquisition or purchase
of all or substantially all of the assets of, or any equity interest in, FSLB if
the effect of such proposed transaction would be to impair or delay the ability
of FSLB to consummate the transactions contemplated by this Agreement. FSLB
shall immediately cease and cause to be terminated all such contacts or
negotiations with third parties, if any. FSLB will not, directly or indirectly
(as aforesaid), participate in any negotiations regarding, furnish to any other
person any information with respect to, assist or participate in any effort or
attempt by any other person to do or seek any of the foregoing. FSLB shall
promptly notify GABS of any unsolicited proposal or offer FSLB receives with
respect to the foregoing. Notwithstanding anything in this Section 6.6 to the
contrary, the directors of FSLB shall not be obligated to take or not to take
any action that they shall be advised in writing by counsel that their fiduciary
duties, in their capacities as directors of FSLB, under applicable law, require
them to take or not to take.
6.7 REPORTS. FSLB shall file, and shall promptly provide GABS with a copy
of, all of the reports required to be filed by it or any of its subsidiaries
with regulatory agencies for periods ending on and after December 31, 1997, and
shall, to the extent permitted by law, promptly provide to GABS copies of all
correspondence submitted to or received by it or any of its subsidiaries from
any regulatory agency.
6.8 INDEMNITY.
(a) With respect to any claim made or action commenced within six (6)
years after the Effective Date of the Merger, FSLB shall indemnify and hold
harmless to the extent permitted by the provisions of the Articles of
Incorporation and Bylaws of GABS, each as in effect as of the date hereof, each
director, officer, and employee of GABS against any costs or expenses (including
attorneys' fees), judgments, fines, losses, threatened or completed action,
suit, proceeding or investigation (whether civil, criminal, administrative or
investigative) arising out of or pertaining to any action or omission by such
director, officer or employee on or prior to the consummation of the Merger in
his capacity as such, and such indemnification shall be to the fullest extent
permitted by applicable Georgia law.
(b) FSLB shall use its reasonable efforts to maintain GABS' existing
directors' and officers' liability insurance policy (or a policy, including
existing policy, providing at least comparable coverage) covering persons who
are currently covered by such insurance for a period of six years after the
Effective Date on terms no less favorable than those in effect on the date
hereof.
(c) If FSLB or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any person or entity, then and in each case, proper
provision shall be made so that the surviving or acquiring entity shall assume
the obligations set forth in this Section 6.8.
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7. COVENANTS OF GABS
Except with the prior written approval of FSLB, GABS agrees that from the
date of this Agreement until the Effective Date or until this Agreement is
terminated by the Parties as herein provided:
7.1 CONDUCT OF BUSINESS. Each of GABS and Community:
(a) Will conduct its business only in the ordinary course as conducted
at the date of this Agreement, and in compliance in all material respects
with all applicable laws and regulations and all contracts to which it is a
party;
(b) Will use all reasonable efforts to maintain satisfactory
relationships with its customers, suppliers, regulators and employees;
(c) Will permit a representative of FSLB to attend and participate (i)
in all meetings of the Board of Directors of GABS and Community and (ii) in
all meetings of their loan and executive committees (but only to the extent
of expressing their opinion on any matter before the Board and not otherwise
to influence the Board's decision and not to vote) with such representative
to be excused during deliberations relating to the transactions contemplated
by this Agreement;
(d) Will not dispose of any property or incur any indebtedness except
in the ordinary course of business; will not make any capital contribution
to any affiliate or non-affiliate; will not mortgage, pledge or otherwise
encumber any of its properties except in the ordinary course of business;
will not make or commit to make any capital expenditure except in the
ordinary course of business; will not commit to any transaction requiring
regulatory approval (other than the transactions contemplated by this
Agreement); will not fail to maintain all of its properties in good repair,
order and condition;
(e) Will not increase salaries, employee benefits, directors' fees or
bonuses, except to the extent consistent with past practices, and will not
enter into any compensation agreements with anyone, except as set forth in
the GABS Schedule;
(f) Will make no changes to any of the GABS Plans;
(g) Will not enter into any agreement, including, without limitation,
any agreement for the purchase, sale or lease of any property or for the
furnishing of services, with any GABS Insider;
(h) Will not make any commitments or enter into any contracts which,
individually or in the aggregate, call for the payment of $50,000 or more by
GABS or Community, (i) except for agreements, commitments or contracts for
the purchase, sale or lease of goods or services in the ordinary course of
business and not in excess of GABS's or Community's then current
requirements, (ii) except for the acceptance of deposits and the making and
selling of loans in the ordinary course of business as a lending
institution, and except as set forth in the GABS Schedule; and
(i) Will not fail to maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent in all material
respects with prior years.
7.2 CAPITAL STOCK, ARTICLES AND BYLAWS. Except with the prior written
approval of FSLB, GABS will not (a) issue any shares of capital stock or any
rights or options with respect thereto, except as set forth in the GABS
Schedule; (b) declare, set aside or pay any dividends or make any other
distributions with respect to its capital stock, except that GABS may continue
paying its regular, normal dividends in accordance with its past practices; (c)
directly or indirectly redeem, purchase or otherwise acquire any of its capital
stock, except as set forth in the GABS Schedule; (d) effect a stock split or
reclassification of its stock or create any new class of capital stock or issue
any capital debt; or (e) amend its Articles of Incorporation or Bylaws.
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7.3 APPROVAL OF GABS SHAREHOLDERS. GABS shall cause a meeting of its
shareholders (the "GABS Shareholders' Meeting") to be held on such date as shall
be agreed upon with FSLB for the purpose of considering the approval of the
Merger and adoption of this Agreement. GABS shall deliver to FSLB promptly at
the conclusion of the GABS Shareholders' Meeting, a certificate stating (a) the
number of shares present in person or by proxy at the meeting, (b) the number of
shares which were voted for the Merger, (c) the number of shares which were
voted against the Merger, and (d) the number of shares dissenting to the Merger.
Such certificate shall include the names and mailing addresses of the
shareholders who voted against the Merger and of the holders of shares
dissenting to the Merger.
7.4 PROXY MATERIALS. To the best knowledge of GABS, neither the proxy
materials nor any other materials (or amendments thereof or supplements thereto)
to be furnished by GABS to its shareholders in connection with the transactions
contemplated by this Agreement will, at the times such documents are distributed
to GABS shareholders through the Effective Date, contain with respect to GABS or
Community any untrue statement of a material fact or omit to state any
information required to be stated therein or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made with respect to GABS and Community, not
misleading.
7.5 NOTICE OF BREACH. GABS shall promptly give written notice to FSLB upon
becoming aware of the impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants made by them in this Agreement and shall use their respective best
efforts to prevent or promptly remedy the same.
7.6 SOLE AGREEMENT TO MERGE OR SELL. During the term of this Agreement,
GABS will not directly or indirectly (through, if applicable, its respective
directors, officers, employees, representatives or otherwise) make, solicit,
initiate or encourage proposals or offers from any party other than FSLB
relating to any recapitalization, merger, consolidation, acquisition or purchase
of all or substantially all of the assets of, or any equity interest in, GABS if
the effect of such proposed transaction would be to impair or delay the ability
of GABS to consummate the transactions contemplated by this Agreement. GABS
shall immediately cease and cause to be terminated all such contacts or
negotiations with third parties, if any. GABS will not, directly or indirectly
(as aforesaid) participate in any negotiations regarding, furnish to any other
person any information with respect to, assist or participate in any effort or
attempt by any other person to do or seek any of the foregoing, except where the
failure to furnish such information or to participate in such negotiations or
discussions would constitute a breach of the fiduciary duties of the Board of
Directors of GABS (as determined in good faith after consultation with counsel
to GABS). GABS shall promptly notify FSLB of any unsolicited proposal or offer
GABS receives with respect to the foregoing.
7.7 REPORTS. GABS shall file, and shall promptly provide FSLB with a copy
of, all of the reports required to be filed by it or Community with regulatory
agencies for periods ending on and after December 31, 1997, and each shall, to
the extent permitted by law, promptly provide to FSLB copies of all
correspondence submitted to or received by it from any regulatory agency.
7.8 AFFILIATES. At least thirty (30) days prior to the Effective Date of
the Merger, GABS shall deliver to FSLB a letter identifying all persons who are,
at the time this Agreement is submitted for approval to the shareholders of
GABS, "affiliates" of GABS for purposes of Rule 145 under the Securities Act of
1933. GABS shall use all reasonable efforts to cause each person who is
identified as an "Affiliate" in the letter referred to above to deliver to FSLB
not later than thirty (30) days prior to the Effective Date of the Merger, a
written agreement providing that such person will not sell, pledge, transfer, or
otherwise dispose of the GABS Stock held by such person except as contemplated
by such written agreement or by this Agreement and will not sell, pledge,
transfer, or otherwise dispose of the FSLB Stock to be received by such person
upon consummation of the Merger except in compliance
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with applicable provisions of the Securities Act of 1933, and the rules and
regulations thereunder and until such time as the financial results covering at
least thirty (30) days of combined operations of FSLB and GABS have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. If the Merger will qualify for
pooling-of-interests accounting treatment, the FSLB Stock issued to such
Affiliates of GABS in exchange for the GABS Stock shall not be transferable
until such time as the financial results covering at least thirty (30) days of
combined operations of FSLB and GABS have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies
regardless of whether each such person has provided the written agreement
referred to in this Section 7.8. FSLB shall not be required to maintain the
effectiveness of the Registration Statement under the Securities Act of 1933 for
the purposes of resale of GABS Stock by such persons.
8. CONDITIONS TO OBLIGATIONS OF FSLB
The obligations of FSLB hereunder are, at the option of FSLB, subject to the
following conditions:
8.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations and
warranties of GABS contained in Section 5, shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Date
with the same force and effect as if made on and as of the Effective Date,
except for changes contemplated by this Agreement. GABS shall have performed and
complied with its covenants made in Section 7.
8.2 NO CHANGE IN CONDITION. There shall have occurred no material adverse
change in the financial condition of GABS from that presented in the Interim
GABS Financials.
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. FSLB shall have received a
certificate signed by the President and Chief Financial Officer of GABS, dated
the Effective Date, to the effect that (a) the representations and warranties
made in Section 5, are true and correct as of the date of such certificate, (b)
the covenants made in Section 7, have been fully performed as of the date of
such certificate, and (c) the conditions set forth in this Section 8 have been
complied with and satisfied as of the Effective Date. FSLB shall have received
all such other documents and materials from GABS as it deems necessary or
appropriate.
8.4 LEGAL OPINION. FSLB shall have received a favorable legal opinion from
counsel to GABS in form and substance reasonably satisfactory to FSLB's counsel.
8.5 NO LEGAL ACTION. No action, suit, proceeding or claim shall have been
instituted, made or threatened relating to the Merger.
8.6 FAIRNESS OPINION. FSLB shall have received from a firm selected by it,
a letter dated not more than five (5) business days prior to the date of the
FSLB Proxy Statement to the effect that, in the opinion of such firm, the
consideration being paid by FSLB for the GABS Stock is fair to the FSLB
shareholders from a financial point of view.
9. CONDITIONS TO OBLIGATIONS OF GABS
The obligations of GABS hereunder are, at the option of GABS, subject to the
following conditions:
9.1 REPRESENTATIONS AND COVENANTS COMPLIANCE. The representations and
warranties of FSLB contained in Section 4, shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Date
with the same force and effect as if made on and as of the Effective Date,
except for changes contemplated by this Agreement. FSLB shall have performed and
complied with all of its covenants made in Section 6.
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9.2 NO CHANGE IN CONDITION. There shall have occurred no material adverse
change in the financial condition of FSLB from that presented in the Interim
FSLB Financials.
9.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. GABS shall have received
certificates signed by the respective President and Chief Financial Officer of
FSLB, dated the Effective Date, to the effect that (a) the representations and
warranties made in Section 4, are true and correct as of the date of such
certificate, (b) the covenants made in Section 6, have been fully performed as
of the date of such certificate, and (c) the conditions set forth in this
Section 9 have been complied with and satisfied as of the Effective Date. GABS
shall have received all such other documents and materials from FSLB as it deems
necessary or appropriate.
9.4 LEGAL OPINION. GABS shall have received a favorable legal opinion from
Counsel to FSLB and a favorable tax opinion from counsel to FSLB, all in form
and substance reasonably satisfactory to GABS's counsel.
9.5 NO LEGAL ACTION. No action, suit, proceeding or claim shall have been
instituted, made or threatened relating to the Merger.
9.6 FSLB STOCK PRICE. The average last sales price of the FSLB stock as
reported by NASDAQ for the twenty (20) trading days immediately preceding the
consummation of the Merger and the last sales price as reported by NASDAQ for
the last trading day immediately preceding the consummation of the Merger shall
not be less than $12.50 per share, subject to appropriate adjustment, unless
FSLB, in its sole discretion, adjusts the Exchange Ratio so that the product of
the adjusted Exchange Ratio times the lower of such average sales price or such
sales price on the trading day immediately preceding the consummation of the
Merger equals the product of the original Exchange Ratio times $12.50 per share.
If FSLB does not elect to adjust the Exchange Ratio in such manner, GABS may, at
its option, not proceed with the consummation of the Merger.
Notwithstanding the foregoing, the last sales price of the FSLB shares
to be issued in connection with the Merger as reported by NASDAQ, for the last
trading day immediately preceding consummation of the Merger shall not be less
than $12.00 per share. If the sales price of FSLB shares is less than $12.00 per
share on that date, GABS may, at its option, not proceed with the consummation
of the Merger.
9.7 FAIRNESS OPINION. GABS shall have received from a firm selected by it,
a letter, dated not more than five (5) business days prior to the date of the
GABS Proxy Statement, reconfirming the fairness opinion received by GABS at or
prior to the execution of this Agreement, to the effect that, in the opinion of
such firm, the consideration to be received by GABS shareholders in connection
with the Merger is fair, from a financial point of view, to such shareholders.
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES
The respective obligations of the Parties hereto are subject to the
following conditions:
10.1 GOVERNMENT APPROVAL. The Federal Reserve and the Georgia Department
shall have approved the Merger and all other required regulatory approvals of
the Merger shall have been received and any applicable waiting periods shall
have expired. There shall be no action pending concerning the Merger brought by
the United States Attorney General under the antitrust laws.
10.2 SHAREHOLDER APPROVAL. The holders of the legally required number of
the outstanding shares of GABS Stock and FSLB Stock at meetings duly called and
held with proper notice thereof, shall have respectively approved the Merger and
the issuance of the FSLB Stock pursuant to this Agreement.
10.3 REGISTRATION STATEMENT. At the time of mailing the Proxy Statement of
GABS and FSLB to its shareholders in connection with the shareholder meetings at
which the Merger will be considered and thereafter through the Effective Date,
the Registration Statement shall be effective under the 1933
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Act, no stop orders suspending the effectiveness of the Registration Statement
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities laws or the 1933
Act or the Securities Exchange Act of 1934 relating to the issuance or trading
of the shares of FSLB Stock issuable pursuant to the Merger shall have been
received.
10.4 DISSENTING SHARES. The aggregate number of shares of GABS Stock,
dissenting to the Merger shall not exceed 146,000 shares and shall not create,
in the reasonable judgment of the Board of Directors of FSLB, ultimate liability
of GABS to dissenting shareholders that is likely to exceed $1,460,000, unless
the Parties shall agree to a larger amount.
10.5 POOLING LETTERS. Each of the Parties shall have received a letter,
dated as of the Effective Date, in form and substance reasonably acceptable to
such Party, from Mauldin & Jenkins to the effect that the Merger will qualify
for pooling-of-interests accounting treatment.
10.6 TAX MATTERS. GABS and FSLB shall have received a written opinion of
counsel for FSLB in form reasonably satisfactory to GABS and FSLB (the "Tax
Opinion"), to the effect that for federal income tax purposes (i) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, (ii) the exchange in the Merger of GABS Stock for FSLB Stock will not give
rise to gain or loss to the stockholders of GABS with respect to such exchange
(except to the extent of any cash received), and (iii) neither GABS nor FSLB
will recognize gain or loss as a consequence of the Merger except for income and
deferred gain recognized pursuant to Treasury regulations issued under Section
1502 of the Code. In rendering such Tax Opinion, counsel for FSLB shall be
entitled to rely upon representations of officers of GABS and FSLB reasonably
satisfactory in form and substance to such counsel.
11. ACQUISITION OF DISSENTERS' STOCK
11.1 DISSENTING SHAREHOLDERS. Any shareholder of GABS who fully complies
with the applicable Dissenters' Provisions shall be entitled to dissent from the
Merger (a "Dissenting Shareholder") and seek appraisal remedies, provided that
such shareholder has not voted, either in person or by proxy, in favor of such
Merger.
11.2 NOTICE OF DISSENT. GABS shall give prompt notice to FSLB of any demand
received by it from a Dissenting Shareholder, and both Parties shall have the
right to participate in any negotiations and proceedings with respect to such
dissent. Each Party agrees that it will not, except with the prior consent of
the other, purport to make any determination of fair value, make any payment
with respect to, or settle or offer to settle any matter arising out of such
dissent.
11.3 PURCHASER OF DISSENTERS' STOCK. Each Dissenting Shareholder who
becomes entitled to receive the fair value of his or her shares shall receive
such value from GABS but only after the value shall have been agreed upon or
finally determined pursuant to the applicable Dissenters' Provisions.
Immediately upon the purchase by GABS of any shares of GABS Stock from the
Dissenting Shareholder pursuant to the Dissenters' Provisions, FSLB shall
purchase such shares from GABS for the same price as shall have been paid by
GABS to the Dissenting Shareholder. The shares of GABS Stock so purchased by
FSLB shall be cancelled.
12. CLOSING
The closing (the "Closing") of the Merger shall take place on the fifth
(5th) business day after the latest to occur of (a) approval of the Merger and
the issuance of FSLB Stock by the holders of the outstanding shares of GABS
Stock and FSLB Stock, respectively, (b) approval by the applicable regulatory
authorities and (c) expiration of any required waiting periods associated with
such regulatory approvals, or on such other date mutually agreeable to the
Parties hereto. The Closing shall take place
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at 10:00 a.m., at the offices of Miller & Martin LLP, 100 Galleria Parkway,
N.W., Suite 1200, Atlanta, Georgia 30339, or at such other time and place
mutually agreeable to the Parties hereto. At the Closing, the Parties hereto
shall execute and deliver such instruments and certificates as are required by
this Agreement and as are necessary or appropriate to close the transactions
contemplated herein.
13. TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Date:
(a) By mutual written consent of the Parties hereto; or
(b) By either Party hereto if, without fault of such terminating party,
the Closing shall not have occurred on or before April 30, 1999, unless the
Parties hereto shall have agreed in writing to extend this Agreement to a
later date; or
(c) By either Party hereto if any application contemplated by this
Agreement is deemed withdrawn or affirmatively denied by the applicable
regulatory agency; or
(d) By a Party if the other Party breaches its representations,
warranties or covenants hereunder in any material respect and such breach
remains uncured for a period of ten days after notice of such breach is
given to such Party, or if any condition to the obligations of such Party is
not met.
13.2 PROCEDURE AND EFFECT OF TERMINATION; EXPENSES. In the event of
termination and abandonment of this Agreement by the Parties hereto pursuant to
Section 13. 1, written notice thereof shall promptly be given to the others, and
this Agreement shall terminate and the transaction contemplated hereby shall be
abandoned without further action by the Parties hereto. In the event of such
termination and abandonment, each Party shall share equally in the cost,
expenses and fees which have been reasonably incurred by both Parties in
attempting to accomplish the transactions contemplated herein, except that each
Party shall be responsible for the expenses associated with its fairness opinion
and any attorneys and consultants retained by such Party. No Party hereto (or
any of their respective directors or officers) shall have any liability or
further obligation to the other Party to this Agreement, except for the
obligations set forth in Section 3.4 and except that nothing herein will relieve
any Party from liability for any willful breach of this Agreement.
14. MISCELLANEOUS
14.1 AMENDMENT. At any time before or after approval and adoption hereof by
the shareholders of GABS and FSLB, this Agreement may be amended by agreement
between the Parties hereto; PROVIDED, HOWEVER, that after the approval and
adoption of this Agreement by the GABS and FSLB shareholders, no amendment
changing Sections 2.1 and 2.2 shall be valid without having been approved by the
shareholders of the Parties in the manner required for approval of this
Agreement.
14.2 WAIVER. A waiver by either Party hereto of any breach of a term or
condition of this Agreement shall not operate as a waiver of any other breach of
such term or condition or of other terms or conditions, nor shall failure to
enforce any term or condition operate as a waiver of such term or condition nor
be deemed to be a waiver or release of any other right, in law or at equity, or
claim which a Party may have against the other Party for anything arising out
of, connected with or based upon this Agreement A waiver shall be effective only
if evidenced by a writing signed by the Party who is entitled to the benefit of
the term or condition of this Agreement which is to be waived. A waiver of a
term or condition on one occasion shall not be deemed to be a waiver of the same
or of any other term or condition on a future occasion.
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14.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements with respect hereto, and no representations or agreement not included
herein shall survive the execution hereof.
14.4 NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing, and shall be mailed postage prepaid or hand
delivered, addressed as follows:
<TABLE>
<S> <C>
If to GABS:
Mr. Ted A. Murphy, President and CEO
Georgia Bancshares, Inc.
333 Lawrenceville Highway
Tucker, Georgia 30084-7132
with a copy to:
Stanley H. Pollock, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 1200
1201 West Peachtree Street
Atlanta, Georgia 30309-3400
If to FSLB:
Mr. Edward C. Milligan, President and CEO
First Sterling Banks, Inc.
1200 Barrett Parkway
Kennesaw, Georgia 30144
with a copy to:
T. Kennerly Carroll, Jr., Esq.
Miller & Martin LLP
100 Galleria Parkway, N.W.
Suite 1200
Atlanta, Georgia 30339-3122
</TABLE>
14.5 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.
14.6 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.
14.7 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
14.8 HEADINGS. The title of this Agreement and the headings herein set out
are for convenience of reference only and shall not be deemed a part of this
Agreement.
14.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
A-27
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused by this Merger Agreement
to be executed by their duly authorized officers and their corporate seals to be
affixed hereto, as of the month, day and year first above written.
<TABLE>
<S> <C> <C>
GEORGIA BANCSHARES, INC.
[SEAL]
By: /s/ Ted A. Murphy
-----------------------------------------
Ted A. Murphy, President
ATTEST:
/s/ Tena Jones
- ----------------------------
Secretary
FIRST STERLING BANKS, INC.
[SEAL]
By: /s/ Edward C. Milligan
-----------------------------------------
Edward C. Milligan, President
ATTEST:
/s/ Barbara J. Bond
- ----------------------------
Secretary
</TABLE>
A-28
<PAGE>
APPENDIX B TO JOINT
PROXY STATEMENT/PROSPECTUS
Morgan Keegan
Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
901/524-4100 Telex 69-74324
WATS 800/366-7426
Members New York Stock Exchange, Inc.
December 22, 1998
Board of Directors
Georgia Bancshares, Inc.
3333 Lawrenceville Highway
Tucker, GA 30084
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Georgia Bancshares, Inc. (the "Company") of the
consideration to be received in connection with its proposed merger with First
Sterling Banks, Inc. ("FSLB") (the "Transaction") pursuant to and in accordance
with the terms of the Merger Agreement (the "Agreement") entered into by and
between FSLB and the Company. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Agreement.
You have advised us that, pursuant to the Agreement, FSLB and the Company
will merge (the "Merger") with and into FSLB and that the Company's banking
subsidiary will become a wholly owned bank subsidiary of FSLB. Each share of the
Company's Common Stock (excluding shares held by Company shareholders who have
perfected their dissenter' rights of appraisal) issued and outstanding at the
Effective Time shall be converted into one share of FSLB Common Stock, subject
to a share dividend to FSLB shareholders as set forth in the Agreement.
Morgan Keegan & Company, Inc. ("Morgan Keegan"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various purposes. We have been retained by the Board of
Directors of the Company for the purpose of and will receive a fee for rendering
this opinion. We have not advised any party in connection with the Transaction
other than the Company and we make no recommendation to the shareholders of the
Company.
In connection with our opinion, we have (1) reviewed the Agreement; (2) held
discussions with various members of management and representatives of the
Company and FSLB concerning each company's historical and current operations,
financial condition and prospects; (3) reviewed historical consolidated
financial and operating data that was publicly available or furnished to us by
the Company and FSLB; (4) reviewed internal financial analyses, financial and
operating forecasts, reports and other information prepared by officers and
representatives of the Company; (5) reviewed certain publicly available
information with respect to certain other companies that we believe to be
comparable to the Company and FSLB and the trading markets for such other
companies' securities; (6) reviewed certain publicly available information
concerning the terms of certain other transactions that we deemed relevant to
our inquiry; (7) considered the relative contributions of the Company and FSLB
to the combined company; and (8) conducted such other financial studies,
analyses and investigations as we deemed appropriate for the purpose of this
opinion.
B-1
<PAGE>
Georgia Bancshares, Inc.
December 22, 1998
Page 2
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of the Company and FSLB contained in the
Agreement. We have not been engaged to, and have not independently attempted to,
verify any of such information. We have also relied upon the managements of the
Company and FSLB as to the reasonableness and achievabililty of the financial
and operating projections and the assumptions and bases therefor provided to us
and, with your consent, we have assumed that such projections reflect the best
currently available estimates and judgments of such respective managements of
the Company and FSLB and that such projections and forecasts will be realized in
the amounts and time periods currently estimated by the managements of the
Company and FSLB. We have not been engaged to assess the achievability of such
projections or the assumptions on which they were based and express no view as
to such projections or assumptions. In addition, we have not conducted a
physical inspection or appraisal of any of the assets, properties or facilities
of either the Company or FSLB nor have we been furnished with any such
evaluation or appraisal. We have also assumed that the conditions to the
Transaction would be consummated on a timely basis in the manner contemplated in
the Agreement. Our opinion is based upon analyses of the foregoing factors in
light of our assessment of general economic, financial and market conditions as
they exist and can be evaluated by us as of the date hereof. We express no
opinion as to the price or trading range at which shares of FSLB Common Stock
will trade following the date hereof, or the price or trading range at which
FSLB Common Stock will trade upon completion of the Transaction.
Morgan Keegan has not previously provided investment banking and fixed
income services to the Company. In the ordinary course of our business, we serve
as a market maker for the FSLB Common Stock and trade shares for our own account
and the accounts of our customers. Accordingly, we may at any time hold long or
short positions in FSLB Common Stock.
It is understood that this opinion is not to be quoted or referred to, in
whole or in part (including excerpts or summaries), in any filing, report,
document, release or other communication used in connection with the Transaction
(unless required to be quoted or referred to by applicable regulatory
requirements), nor shall this opinion be used for any other purposes, without
our prior written consent, which consent shall not be unreasonably withheld.
Furthermore, our opinion is directed to the Board of Directors of the Company
and does not constitute a recommendation to any shareholder of the Company as to
how such shareholder should vote at the shareholders' meeting to be held in
connection with the Transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the Company's
shareholders.
Yours very truly,
/s/ Patrick Weber
MORGAN KEEGAN & COMPANY, INC.
B-2
<PAGE>
APPENDIX C TO JOINT
PROXY STATEMENT/PROSPECTUS
DISSENTERS' PROVISIONS
GEORGIA BUSINESS CORPORATION CODE
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(4) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under
all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholder of the corporation is required for
the merger by Code Section 14-2-1103 or the articles of incorporation and
the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed
to the shareholders within one year after the date of sale;
C-1
<PAGE>
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this article may not challenge the corporate action creating his or
her entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder or shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or share
exchange to accept for their shares anything except shares of the surviving
corporation or another publicly held corporation which at the effective date
of the merger or share exchange are either listed on a national securities
exchange or held of record by more than 2,000 shareholders, except for scrip
or cash payment sin lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his or her name only if he or she dissents with respect to
all shares beneficially owned y any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. The rights of a partial dissenter under this
Code Section are determined as if the shares as to which he or she dissents and
his or her other shares were registered in the names of different shareholders.
C-2
<PAGE>
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this articles and be accompanied by a copy of this article.
(b) If corporate action creating dissenters rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his or her intent to demand payment for his or her shares if the
proposed action is effectuated; and
(2) Must not vote his or her shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code Section is not entitled to payment for his or her shares under
this article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
notice required in subsection (a) of this Code Section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his or her certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his or her shares
under subsection (a) of this Code Section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C-3
<PAGE>
(c) A record shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this article.
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall offer to pay each dissenter who complied with Code
Section 14-2-1323 the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer, payment for his or
her shares shall be made within 60 days after the making of the offer or the
taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate of the fair value of his or her shares and
interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated; or
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<PAGE>
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
Section unless he or she notifies the corporation of his or her demand in
writing under subsection (a) of this Code Section within 30 days after the
corporation made or offered payment for his or her shares, as provided in Code
Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325;
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide information
to the shareholder within ten days after receipt of a written demand for the
information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his or her own estimate
of the fair value of his or her shares and the amount of interest due and
demand payment of his or her estimate of the fair value of his or her shares
and interest due.
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder Either by registered or certified mail and publication,
or in any other matter permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code Section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of the Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his or her shares,
plus interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of
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<PAGE>
appraisers appointed by the court, but not including fees and expenses of
attorneys and experts for the respective parties. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amount the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these attorneys reasonable fees to be paid out of the amounts awarded
the dissenters who were benefitted.
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporation action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 11 of the Registrant's Articles of Incorporation limits the
liability of directors of the Registrant. A description of this provision is
included under the heading "Comparison of the Rights of Holders of Georgia
Bancshares Stock and First Sterling Stock--Limitation of Liability and
Indemnification of Directors, Officers and Employees" in the Joint Proxy
Statement/Prospectus set forth in Part I of this Registration Statement, and
such description is incorporated by reference herein.
Article 9 of the Registrant's Bylaws provides for indemnification of
directors and officers of the Registrant. A description of this provision is
also included under the heading set forth above in the Joint Proxy
Statement/Prospectus set forth in Part I of this Registration Statement, and
such description is incorporated by reference herein.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Merger Agreement dated December 30, 1998, between the Registrant and Georgia Bancshares, Inc., included
as Appendix A to the Joint Proxy Statement/Prospectus set forth in Part I of the Registration Statement
4.1 Page 1 of Registrant's Articles of Incorporation (defining its common stock) which was filed as Exhibit
3.1 to Registrant's Registration Statement on Form S-1 (File No. 33-78046) (incorporated by reference)
5.1 Opinion of Miller & Martin LLP as to the legality of the securities being registered
8.1 Opinion of Miller & Martin LLP as to certain federal income tax consequences of the Merger
10.1 Registrant's 1994 Substitute Incentive Stock Option Plan for The Westside Bank & Trust Company's
Incentive Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-97300) (incorporated by
reference)
10.2 Form of Registrant's 1994 Incentive Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No.
33-97300) (incorporated by reference)
10.3 Registrant's 1995 Directors Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-81053)
(incorporated by reference)
10.4 Form of Registrant's 1995 Directors Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No.
33-81053) (incorporated by reference)
10.5 Registrant's 1996 Substitute Incentive Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No.
333-15069) (incorporated by reference)
10.6 Form of Registrant's 1996 Substitute Incentive Stock Option Agreement filed as Exhibit 4.2 to Form S-8
(File No. 333-15069) (incorporated by reference)
10.7 Registrant's 1997 Directors Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-56476)
(incorporated by reference)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.8 Form of Registrant's 1997 Directors Stock Option Agreement filed as Exhibit 4.1 to Form S-8 (File No.
333-56476) (incorporated by reference)
10.9 Registrant's 1997 Incentive Stock Option Plan filed as Exhibit 10.11 to Registrant's Form 10-KSB for its
year ended December 31, 1997 (incorporated by reference)
10.10 Form of Registrant's 1997 Incentive Stock Option Agreement filed as Exhibit 10.12 to Registrant's Form
10-KSB for its year ended December 31, 1997 (incorporated by reference)
10.11 Employment Agreement dated August 16, 1995, between Registrant, The Westside Bank & Trust Company and
Edward C. Milligan filed as Exhibit 10.5 to Form S-4 (File No. 333-3116) (incorporated by reference)
13.1 Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1997 (incorporated by
reference)
13.2 Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998 (incorporated by
reference)
13.3 Annual Report on Form 10-KSB for the year ended December 31, 1997 for Georgia Bancshares, Inc. as
amended by Amendment No. 1 (incorporated by reference)
13.4 Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998 for Georgia Bancshares, Inc.
(incorporated by reference)
15.1 Mauldin & Jenkins, LLC letter on unaudited interim financial information filed as Exhibit 24.2
15.2 Porter Keadle Moore LLP letter on unaudited interim financial information filed as Exhibit 24.3
24.1 Consents of Miller & Martin LLP are contained in its opinions filed as Exhibits 5.1 and 8.1 hereto
24.2 Consent of Mauldin & Jenkins, LLC concerning the financial statements of First Sterling Banks, Inc.
24.3 Consent of Porter Keadle Moore LLP concerning the financial statements of Georgia Bancshares, Inc.
24.4 Consent of Morgan Keegan & Company, Inc.
25.1 A Power of Attorney relating to this Registration Statement is set forth on the signature pages to this
Registration Statement
99.1 Form of Opinion of Morgan Keegan & Company, Inc. dated December 22, 1998 (included as Appendix B to the
Joint Proxy Statement/Prospectus)
99.2 Form of Proxy Card for the Special Meeting of Shareholders of Registrant
99.3 Form of Proxy Card for the Special Meeting of Shareholders of Georgia Bancshares, Inc.
</TABLE>
- ------------------------
(b) Financial Statement Schedules
None required.
II-2
<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 fact 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;
(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 are 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) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes 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.
(d) 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 bylaws of the registrant, 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other
II-3
<PAGE>
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
(f) 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 14th day of January, 1999.
<TABLE>
<S> <C> <C>
OVERLAND EXPRESS, INC.
By: /s/ EDWARD C. MILLIGAN
-----------------------------------------
Edward C. Milligan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints Edward C. Milligan his true and lawful attorney-in-fact and agent, 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 to this
Registration Statement (including pre- and post-effective amendments), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact, 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
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorney-in-fact, 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
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD C. MILLIGAN
- ------------------------------ President and Director(1) January 14, 1999
Edward C. Milligan
- ------------------------------ Director
Harry L. Hudson, Jr.
- ------------------------------ Director
John S. Thibadeau, Jr.
/s/ P. HARRIS HINES
- ------------------------------ Director January 14, 1999
Honorable P. Harris Hines
/s/ BENJAMIN H. WOFFORD
- ------------------------------ Director January 14, 1999
Benjamin H. Wofford, M.D.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ BARBARA J. BOND
- ------------------------------ Secretary/Treasurer(2) January 14, 1999
Barbara J. Bond
</TABLE>
- ------------------------
(1)Principal executive officer
(2)Principal financial and accounting officer
II-6
<PAGE>
EXHIBIT 5.1
OPINION OF MILLER & MARTIN LLP AS TO
THE LEGALITY OF THE SECURITIES BEING REGISTERED
<PAGE>
[Letterhead of Miller & Martin LLP]
January 14, 1999
First Sterling Banks, Inc.
1200 Barrett Parkway
Kennesaw, Georgia 30144
RE: FIRST STERLING BANKS, INC. ISSUANCE OF SHARES IN CONNECTION WITH
MERGER WITH GEORGIA BANCSHARES, INC.
Ladies and Gentlemen:
We are acting as counsel to First Sterling Banks, Inc. (the "Company"),
a Georgia corporation, and in such capacity we are familiar with certain
corporate action taken by the Company in connection with a Merger Agreement (the
"Merger Agreement") dated December 30, 1998, between the Company And Georgia
Bancshares ("GABS") which provides for the merger of GABS into the Company with
the Company as the surviving entity (the "Merger").
The terms of the Merger Agreement provide that each outstanding share
of GABS stock ("GABS Stock") owned by a shareholder will be converted into the
right to receive one share of Company stock ("Company Stock").
We have examined the Merger Agreement and such other documents as we
have reasonably deemed necessary to furnish this opinion. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as original documents, and the conformity to the
original documents of all documents submitted to us as certified or photostatic
copies. As to questions of fact material and relevant to our opinion, where such
facts were not independently verified by us, we have relied, to the extent we
deemed such reliance proper, upon certificates and representations of officers
and representatives of the Company and appropriate federal, state and local
officials.
Based upon the foregoing and upon our examination of such documents and
matters of law as we have deemed relevant, we are of the opinion that the shares
of Company Stock to be issued pursuant to the Merger are duly authorized and, if
and when issued as contemplated in the Merger (assuming the Company's
shareholders duly approve the Merger Agreement and the issuance of the Company
Stock in connection therewith), will be validly issued, fully paid and
nonassessable.
<PAGE>
First Sterling Banks, Inc.
January 14, 1999
Page 2
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the inclusion of this opinion as Exhibit 5.1 hereto.
Very truly yours,
/s/ Miller & Martin LLP
MILLER & MARTIN LLP
<PAGE>
EXHIBIT 8.1
OPINION OF MILLER & MARTIN LLP AS TO CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
<PAGE>
[Letterhead of Miller & Martin LLP]
January 14, 1999
VIA U.S. MAIL
First Sterling Banks, Inc.
Mr. Edward C. Milligan, President and Chief Executive Officer
1200 Barrett Parkway
Kennesaw, Georgia 30144
Georgia Bancshares, Inc.
Mr. Ted A. Murphy, President and Chief Executive Officer
3333 Lawrenceville Highway
Tucker, Georgia 30084-7132
RE: MERGER OF GEORGIA BANCSHARES, INC. ("GABS") WITH AND INTO FIRST
STERLING BANKS, INC. ("FSLB"), WHEREBY GABS'S SHARES WILL BE
CONVERTED INTO SHARES OF STOCK OF FSLB
Gentlemen:
We are acting as counsel to FSLB, a Georgia corporation, with respect
to the merger of GABS, a Georgia corporation, with and into FSLB (the "Merger"),
pursuant to that certain Merger Agreement dated December 30, 1998, by and
between FSLB and GABS (the "Merger Agreement"), as described in the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
(the "Registration Statement"). All capitalized terms, unless otherwise
specified, have the meaning assigned to them in the Merger Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Merger Agreement, the Registration Statement and such other documents as we
have reasonably deemed necessary or appropriate to furnish the opinions rendered
herein (collectively, the "Documents"). In our examination, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
due execution and delivery of all documents where due execution and delivery are
prerequisites to the effectiveness thereof, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of all originals of such copies. In rendering the opinion set forth
below, we have relied upon (without any independent investigation or review
thereof) certain written representations and covenants of FSLB and
<PAGE>
First Sterling Banks, Inc.
Georgia Bancshares, Inc.
January 14, 1999
Page 2
GABS as set forth in the Tax Certificates which have been delivered prior hereto
(the "Tax Certificates"). We have also assumed that any representation or
statement referred to above made "to the knowledge of" or "to the belief of" or
otherwise similarly qualified is correct without such qualification, and all
statements and representations, whether or not qualified are true and will
remain true through the Effective Date.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations now in effect thereunder, pertinent judicial authority, current
administrative interpretive rulings and practice of the Internal Revenue Service
and such other authorities as we have considered relevant, all of which are
subject to change. Any such changes might be retroactive with respect to
transactions entered into prior to the date of such changes and could
significantly modify the opinion set forth above, and we undertake no
responsibility to advise you of any subsequent developments in the application,
operation or interpretation of the U.S. federal income tax laws.
FACTS AND ASSUMPTIONS
Based upon our review of the Documents, we understand the following
facts:
FSLB is a two-bank holding company headquartered in Cobb County,
Georgia, which owns all of the outstanding stock of The Westside Bank & Trust
Company and The Eastside Bank & Trust Company. As of September 30, 1998, FSLB
had consolidated total assets of approximately $195.6 million.
The authorized capital stock of FSLB consists of 10,000,000 shares of
common stock ("FSLB Stock"), 2,628,239 shares of which are issued and
outstanding, exclusive of shares held as treasury stock.
GABS was organized under the laws of the State of Georgia in 1995 for
the purposes of becoming a bank holding company and owns all of the issued and
outstanding capital stock of Community Trust Bank. The authorized capital stock
of GABS consists of 10,000,000 shares of common stock ("GABS Stock"), 1,460,570
shares of which are issued and outstanding.
GABS will be merged pursuant to a statutory merger into FSLB pursuant
to the Merger Agreement. At the effective date of the Merger, each outstanding
share of GABS Stock will be converted, subject to rights of dissent, into the
right to receive one (1) shares of FSLB Stock, and consequently no shareholder
of GABS will receive cash in lieu of a fractional share interest.
<PAGE>
First Sterling Banks, Inc.
Georgia Bancshares, Inc.
January 14, 1999
Page 3
Holders of GABS Stock dissenting to the Merger will receive cash. It is
a condition to the Merger, however, that the aggregate number of shares of GABS
Stock dissenting to the Merger shall not exceed 146,000 shares.
DISCUSSIONS AND OPINIONS
Based upon the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth herein,
we are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Merger Agreement (and without any waiver, breach of amendment
of any of the provisions thereof):
(1) The Merger will, under current law, qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(A) of the Code and that
GABS and FSLB each will be parties to the reorganization within the
meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by the shareholders of GABS upon
the receipt of FSLB Stock solely in exchange for his or her GABS
Stock.
(3) The aggregate tax basis of the FSLB Stock to be received by the GABS
shareholders who exchange all of their GABS Stock solely for FSLB
Stock in the Merger will be the same as the aggregate tax basis of
their GABS Stock surrendered in the exchange.
(4) The holding period of the shares of FSLB Stock received by the
shareholders of GABS will include the period during which the GABS
Stock surrendered in exchange therefor was held, provided that the
shares of GABS Stock were held as capital assets within the meaning
of Section 1221 of the Code as of the time of the consummation of
the Merger.
(5) GABS shareholders who exercise dissenters' rights, and as a result
of which receive only cash, will be treated as having received such
cash as a distribution in redemption of their GABS Stock, subject to
the provisions and limitations of Section 302 of the Code.
Accordingly, each such shareholder will generally recognize capital
gain or loss equal to the difference between the amount of cash
received by such shareholder and such shareholder's aggregate tax
basis in his or her GABS Stock.
(6) No gain or loss will be recognized by GABS on the transfer of its
assets to FSLB and the assumption by FSLB of its liabilities
pursuant to the Merger.
<PAGE>
First Sterling Banks, Inc.
Georgia Bancshares, Inc.
January 14, 1999
Page 4
(7) Except as provided under the Treasury regulations promulgated under
Section 1502 of the Code, no gain or loss will be recognized by FSLB
or GABS upon FSLB's receipt of GABS's assets and FSLB's assumption
of GABS's liabilities pursuant to the Merger.
(8) The aggregate tax basis of the GABS assets in the hands of FSLB will
be the same as the aggregate tax basis of such assets in the hands
of GABS immediately prior to the Merger.
(9) The holding period of the GABS assets received by FSLB in the Merger
will include the holding period during which such assets were held
by GABS.
The opinion set forth above concerning certain of the U.S. federal tax
consequences of the Merger is limited to the specific U.S. federal income tax
consequences presented above. No opinion is expressed as to any transaction
other than the Merger, including any transaction undertaken in connection with
the Merger. In addition, this opinion does not address any estate, gift, state,
local or foreign tax consequences that may result from the Merger. In
particular, we express no opinion regarding: (i) the amount, existence, or
availability after the Merger, of any of the U.S. federal income tax attributes
of GABS or FSLB; (ii) any transaction in which GABS stock is acquired or FSLB
stock is disposed of other than pursuant to the Merger; (iii) the potential
application of the "disqualifying disposition" rules of Section 421 of the Code
to dispositions of GABS stock; (iv) the effects of the Merger and FSLB's
assumption of outstanding options to acquire GABS stock on the holders of such
options under any GABS employee stock option or stock purchase plan,
respectively; (v) the effects of the Merger on any GABS stock acquired by the
holder subject to the provision of Section 83(a) of the Code; (vi) the effects
of the Merger on any payment which is or may be subject to the provisions of
Section 280G of the Code; (vii) the application of the collapsible corporation
provisions of Section 341 of the Code to GABS or FSLB as a result of the Merger;
(viii) the application of the alternative minimum tax provisions contained in
the Code; (ix) the effects of the Merger on any GABS stock acquired or held as
part of a "straddle," "conversion transaction," "hedging transaction," or other
risk reduction transaction; and (x) any special tax consequences applicable to
insurance companies, securities dealers, financial institutions, tax-exempt
organizations or foreign persons.
No ruling has been or will be requested from the Service concerning the
U.S. federal income tax consequences of the Merger. In reviewing this opinion,
you should be aware that the opinion set forth above represents our conclusions
regarding the application of existing U.S. federal income tax law to the instant
transaction. If the facts vary from those relied upon (including if any
representations, covenant, warranty or assumption upon which we have relied is
inaccurate, incomplete, breached or ineffective), our opinion contained herein
could be inapplicable. You should be aware that an opinion of counsel represents
only counsel's best legal judgment, and has no binding effect or official status
of any kind, and
<PAGE>
First Sterling Banks, Inc.
Georgia Bancshares, Inc.
January 14, 1999
Page 5
that no assurance can be given that contrary positions may not be taken by the
Internal Revenue Service or that a court considering the issues would not hold
otherwise.
This opinion is being rendered solely to the parties to whom it is
addressed and may not be relied upon by any other party without the express
written permission of our Firm. We hereby consent to the reference to our Firm
and to the filing of this opinion as an exhibit to any registration statement or
offering statement made with respect to the Merger and expressly consent to the
reliance on this opinion by the shareholders of GABS.
Very truly yours,
/s/ Miller & Martin LLP
MILLER & MARTIN LLP
<PAGE>
EXHIBIT 24.2
CONSENT OF MAULDIN & JENKINS, LLC
CONCERNING THE FINANCIAL STATEMENTS OF
FIRST STERLING BANKS, INC.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
AND ACKNOWLEDGMENT
We hereby consent to the use of our report dated February 6, 1998 relating to
the financial statements of First Sterling Banks, Inc. and subsidiaries,
Kennesaw, Georgia, included in the Registration Statement on Form S-4 filed by
First Sterling Banks, Inc. and to the reference of our Firm under the caption
"Experts" in the Joint Proxy Statement/Prospectus. We acknowledge awareness of
the use in the Registration Statement of a report on unaudited interim financial
information.
/s/ Mauldin & Jenkins, LLC
MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 14, 1999
<PAGE>
EXHIBIT 24.3
CONSENT OF PORTER KEADLER MOORE LLP
CONCERNING THE FINANCIAL STATEMENTS OF
GEORGIA BANCSHARES, INC.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 4, 1998, accompanying the consolidated
financial statements of Georgia Bancshares, Inc. and Subsidiary contained in the
Registration Statement on Form S-4. We consent to the use of the aforementioned
report in the Registrations Statement on Form S-4, and to the use of our name as
it appears under the caption "Experts".
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
January 14, 1999
<PAGE>
EXHIBIT 24.4
CONSENT OF MORGAN KEEGAN & COMPANY, INC.
<PAGE>
[LETTERHEAD]
January 12, 1999
Board of Directors
Georgia Bancshares, Inc.
333 Lawrenceville Highway
Tucker, GA 30084
Gentlemen:
Pursuant to the penultimate paragraph of our December 22, 1999 letter, we
hereby consent to the use of our opinion in the Registration Statement on
Form S-4 of First Sterling Banks, Inc. of our letter to the Board of
Directors of Georgia Bancshares, Inc. and to the references to such letter
and to our firm in the Joint Proxy Statement/Prospectus.
Yours very truly,
/s/ Park G. Vestal, Jr.
-------------------------------
Morgan Keegan & Company, Inc.
<PAGE>
EXHIBIT 99.2
FORM OF PROXY CARD FOR THE SPECIAL MEETING OF
SHAREHOLDERS OF REGISTRANT
<PAGE>
FIRST STERLING BANKS, INC.
1200 BARRETT PARKWAY
KENNESAW, GEORGIA 30144
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS - ______________, 1999
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FIRST STERLING BANKS,
INC.)
The undersigned shareholder of First Sterling Banks, Inc. ("First
Sterling") hereby appoints Edward C. Milligan, P. Harris Hines and Harry L.
Hudson, Jr. and each of them, with full power of substitution, proxies to vote
the shares of stock which the undersigned could vote if personally present at
the Special Meeting of the Shareholders of First Sterling to be held in
__________, Georgia, on ______________, 1999, at ____a.m., local time, or at any
adjournment thereof:
(1) PROPOSAL TO MERGE GEORGIA BANCSHARES, INC. INTO FIRST STERLING
BANKS, INC.
FOR / / AGAINST / / ABSTAIN / / with respect to the approval of that
certain Merger Agreement between Georgia Bancshares, Inc. ("Georgia Bancshares")
and First Sterling, pursuant to which Georgia Bancshares will be merged into
First Sterling and the issuance of up to 1,460,570 shares of First Sterling
stock to Georgia Bancshares shareholders in exchange for their Georgia
Bancshares stock as described in more detail in the Joint Proxy
Statement/Prospectus dated _____________, 1999.
(2) PROPOSAL TO PERMIT FURTHER SOLICITATION OF PROXIES
FOR / / AGAINST / / ABSTAIN / / with respect to adjournment of the Special
Meeting to a later date if necessary to permit further solicitation of proxies
in order to obtain a quorum or to obtain sufficient votes to approve the Merger
Agreement and the transactions described in the Merger Agreement; and
(3) In their discretion, upon such other matters as may properly come
before the Special Meeting of Shareholders or any adjournment or adjournments
thereof.
The Proxy will be voted as directed. If no direction is given, the Proxy
will be voted FOR Proposal (1).
------------------------------
(Print Name)
Dated: , 1999. ------------------------------
-------------------------- (Signature(s) of Shareholder)
Please date and sign exactly as name appears hereon. If shares are held jointly,
each shareholder should sign. Agents, executors, administrators, guardians,
trustees, etc., should use full title, and, if more than one, all should sign.
If the shareholder is a corporation, please sign full corporate name by an
authorized officer.
<PAGE>
EXHIBIT 99.3
FORM OF PROXY CARD FOR THE SPECIAL MEETING OF
SHAREHOLDERS OF GEORGIA BANCSHARES, INC.
<PAGE>
GEORGIA BANCSHARES, INC.
3333 LAWRENCEVILLE HIGHWAY
TUCKER, GEORGIA 30084-7132
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS - ______________, 1999
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF GEORGIA
BANCSHARES, INC.)
The undersigned shareholder of Georgia Bancshares, Inc. ("Georgia
Bancshares") hereby appoints Ted A. Murphy and Eugene L. Argo and each of them,
with full power of substitution, proxies to vote the shares of stock which the
undersigned could vote if personally present at the Special Meeting of the
Shareholders of Georgia Bancshares to be held in __________, Georgia, on
______________, 1999, at ____a.m., local time, or at any adjournment thereof:
(1) PROPOSAL TO MERGE GEORGIA BANCSHARES, INC. INTO FIRST STERLING BANKS,
INC.
FOR / / AGAINST / / ABSTAIN / / with respect to the approval of that
certain Merger Agreement between Georgia Bancshares and First Sterling Banks,
Inc. ("First Sterling"), pursuant to which Georgia Bancshares will be merged
into First Sterling and each share of common stock of Georgia Bancshares
outstanding at the time of the Merger shall be converted into the right to
receive one share of stock of First Sterling as described in more detail in the
Joint Proxy Statement/Prospectus dated _____________, 1999.
(2) PROPOSAL TO PERMIT FURTHER SOLICITATION OF PROXIES
FOR / / AGAINST / / ABSTAIN / / with respect to adjournment of the
Special Meeting to a later date if necessary to permit further solicitation of
proxies in order to obtain a quorum or to obtain sufficient votes to approve the
Merger Agreement and the transactions described in the Merger Agreement; and
(3) In their discretion, upon such other matters as may properly come
before the Special Meeting of Shareholders or any adjournment or adjournments
thereof.
The Proxy will be voted as directed. If no direction is given, the Proxy
will be voted FOR Proposal (1).
-----------------------------
(Print Name)
Dated: , 1999. -----------------------------
----------------------- (Signature(s) of Shareholder)
Please date and sign exactly as name appears hereon. If shares are held jointly,
each shareholder should sign. Agents, executors, administrators, guardians,
trustees, etc., should use full title, and, if more than one, all should sign.
If the shareholder is a corporation, please sign full corporate name by an
authorized officer.
