<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 6712 58-2104977
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
EDWARD C. MILLIGAN
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------
COPY TO:
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<S> <C>
T. KENNERLY CARROLL, JR., ESQ. JOHN L. DOUGLAS, ESQ.
TED S. BIDERMAN, ESQ. RALPH F. MACDONALD III, ESQ.
MILLER & MARTIN LLP ALSTON & BIRD LLP
1275 PEACHTREE STREET, N.E. SEVENTH ONE ATLANTIC CENTER
FLOOR 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3576 ATLANTA, GEORGIA 30309-3424
(404) 962-6100 (404) 881-7000
</TABLE>
------------------------
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 PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES REGISTERED PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock(1).................... 8,917,290(1) N/A $46,470,753 (2) $12,268
</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(f)(2) under the Securities Act of 1933, based on
the book value of the stock of Main Street Banks Incorporated on
December 31, 1999.
------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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PROSPECTUS AND PROXY STATEMENT OF PROXY STATEMENT OF
FIRST STERLING BANKS, INC. MAIN STREET BANKS INCORPORATED
FOR 8,917,290 SHARES OF COMMON STOCK FOR THE SPECIAL MEETING OF SHAREHOLDERS
AND THE ANNUAL MEETING OF SHAREHOLDERS
TRADING SYMBOL: NASDAQNM:FSLB
</TABLE>
MEETING OF SHAREHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of First Sterling and Main Street Banks have
unanimously agreed to a merger of equals that will result in Main Street Banks
merging with and into First Sterling. This strategic transaction provides First
Sterling and Main Street Banks with growth and strategic opportunities that
would not have been available to us on a stand-alone basis. The merger of the
two bank holding companies will result in a larger bank holding company with
banks in Cobb, DeKalb, Gwinnett, Barrow, Clarke, Newton, Rockdale and Walton
counties.
If the merger is completed, Main Street Banks shareholders will receive 1.01
shares of stock of First Sterling for each share of Main Street Banks that they
own just before the merger. Each share of First Sterling stock outstanding
immediately prior to the merger shall remain outstanding from and after the
merger. Following the merger, investors that owned First Sterling stock
immediately prior to the merger initially will own approximately 35% of the
combined company, and investors that owned Main Street Banks stock immediately
prior to the merger initially will own approximately 65% of the combined
company.
The shareholders of First Sterling shall vote on the following:
- Approval of the merger agreement, which is attached as APPENDIX A to this
joint proxy statement/prospectus and the issuance of up to 8,917,290
shares of its common stock to Main Street Banks shareholders in exchange
for their stock in Main Street Banks;
- Adoption of the restated articles of incorporation of First Sterling which
is attached as Exhibit A to APPENDIX A to this joint proxy
statement/prospectus. The restated articles of incorporation amend the
present articles to increase the number of shares that First Sterling is
authorized to issue from 10,000,000 to 50,000,000 shares of common stock
and provides that a director must be elected by a majority of the
outstanding shares;
- Election of three Class III directors to serve for three year terms
expiring at the 2003 annual shareholders meeting; and
- Approval of the First Sterling 1999 Directors Stock Option Plan which is
attached hereto as APPENDIX B.
The shareholders of Main Street Banks shall vote on the following:
- Approval of the merger agreement which is attached as APPENDIX A to this
joint proxy statement/prospectus.
Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the proposal(s) submitted at your meeting. If you
are a First Sterling stockholder and fail to return your proxy card or vote in
person at the First Sterling special meeting, the effect will be a vote against
the merger. If you are a Main Street Banks shareholder and fail to return your
proxy card or do not vote in person at the Main Street Banks special meeting,
the effect will be a vote against the merger.
The dates, times and places of the meetings are as follows:
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<S> <C>
First Sterling Main Street Banks
shareholders: shareholders:
, 2000 , 2000
, LOCAL TIME 10:00 A.M., LOCAL TIME
WESTSIDE BANK NEWTON COUNTY LIBRARY
676 CHASTAIN ROAD 7116 FLOYD STREET
KENNESAW, GEORGIA 30144 COVINGTON, GA 30014
</TABLE>
Pursuant to article 13 of the Georgia Business Corporation Code,
shareholders of Main Street Banks are entitled to dissent from the transactions
contemplated by the merger agreement. A copy of article 13 is annexed as
APPENDIX C to this joint proxy statement/prospectus.
First Sterling's board of directors has unanimously approved the merger
agreement. First Sterling's board of directors believes that the merger is fair
to, and in the best interest of, First Sterling and its shareholders and
strongly encourages you to vote "FOR" the proposal. Brown, Burke Capital
Partners, Inc., an investment banking firm, has issued its opinion to First
Sterling's board of directors that the consideration to be paid by First
Sterling pursuant to the merger agreement is fair, from a financial point of
view, to First Sterling and its shareholders.
Main Street Banks' board of directors has unanimously approved the merger
agreement. Main Street Banks' board of directors believes that the merger is
fair to, and in the best interest of, Main Street Banks and its shareholders and
strongly encourages you to vote "FOR" the proposal. The Carson Medlin Company,
an investment banking firm, has issued its opinion to Main Street Banks' board
of directors that the consideration to be paid by First Sterling pursuant to the
merger agreement is fair, from a financial point of view, to Main Street Banks
and its shareholders.
- -----------------------------------------------
Edward C. Milligan
Chairman of the Board and
Chief Executive Officer
First Sterling Banks, Inc.
- -----------------------------------------------
Robert R. Fowler, III
Chairman of the Board and
Chief Executive Officer
Main Street Banks Incorporated
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
YOU SHOULD CONSIDER BEFORE APPROVING THE MERGER.
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.
THE SHARES OF FIRST STERLING COMMON STOCK 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.
The date of this joint proxy statement/prospectus is ____________, 2000 and it
is being mailed or otherwise delivered to First Sterling shareholders and Main
Street Banks shareholders on or about ____________, 2000.
<PAGE>
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of First
Sterling Banks, Inc. will be held at Westside Bank, 676 Chastain Road, Kennesaw,
Georgia, 30144, at o'clock .m., local time, on , 2000, for
the following purposes:
1. APPROVE MERGER AGREEMENT. To approve the merger agreement by and between
First Sterling Banks, Inc. and Main Street Banks Incorporated, which is
attached as APPENDIX A to the joint proxy statement/prospectus.
2. APPROVE ISSUANCE OF COMMON STOCK. To approve the issuance of up to
8,917,290 shares of First Sterling Banks, Inc.'s common stock to Main
Street Banks Incorporated's shareholders in exchange for their stock in
Main Street Banks Incorporated.
3. APPROVE RESTATED ARTICLES OF INCORPORATION. To approve the Restated
Articles of Incorporation of First Sterling Banks, Inc. which is attached
as EXHIBIT A to APPENDIX A to the Joint Proxy Statement/Prospectus and
which amends the present articles of incorporation to increase the number
of shares that First Sterling Banks, Inc. is authorized to issue from
10,000,000 to 50,000,000 shares of common stock and provides that a
director must be elected by a majority of the outstanding shares.
4. ELECT CLASS III DIRECTORS. To elect three (3) Class III directors to
serve for three-year terms expiring at the 2003 Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
5. 1999 DIRECTORS STOCK OPTION PLAN. To approve the 1999 Directors Stock
Option Plan, which is attached as APPENDIX B to the Joint Proxy
Statement/Prospectus.
6. OTHER BUSINESS. To transact such other business as may properly come
before the annual meeting or any adjournments thereof.
Only shareholders of record at the close of business on , 2000,
will be entitled to receive notice of and vote at the annual meeting or any
adjournments thereof.
The annual meeting may be adjourned from time to time without notice other
than announcement at the annual meeting, and any business for which notice of
the annual meeting is hereby given may be transacted at a reconvened meeting
following such adjournment.
By Order of the Board of Directors,
Edward C. Milligan
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Enclosures
, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE VOTE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
<PAGE>
MAIN STREET BANKS INCORPORATED
1121 FLOYD STREET
COVINGTON, GEORGIA 30014
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of Main
Street Banks Incorporated will be held at Newton County Library, 7116 Floyd
Street, Covington, Georgia 30014, at ten o'clock a.m., local time, on
, 2000, for the following purposes:
1. To consider and vote upon the Merger Agreement by and between First
Sterling Banks, Inc. and Main Street Banks Incorporated. In the merger,
each share of Main Street Banks common stock outstanding on the effective
date of the merger will be converted into 1.01 shares of First Sterling
common stock. You can find a copy of the merger agreement and related
plan of merger in Appendix A to the joint proxy statement/prospectus.
2. To transact such other business, if any, that may properly come before
the special meeting or any adjournment or postponement of the special
meeting.
Only shareholders of record at the close of business on , 2000,
are entitled to receive notice of and vote at the Special Meeting or any
adjournment or postponement of the special meeting.
Appraisal rights are available under Georgia law to Main Streets Banks
shareholders with respect to the merger. Please see the section entitled "The
Merger--Statutory provisions for dissenting shareholders" on page 40 of the
accompanying joint proxy statement/prospectus for a discussion of the
availability of appraisal rights and the procedures required to be followed to
assert dissenters' rights in connection with the merger.
We look forward to seeing you at the special meeting. Your vote is
important. Please mark, sign and return your proxy card, whether or not you plan
to attend the special meeting.
Main Street Bank's board of directors unanimously recommends that
shareholders vote "FOR" approval of the merger.
By Order of the Board of Directors,
Robert R. Fowler, III
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Enclosures
, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE VOTE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Questions and answers about the merger...................... 1
A warning about forward-looking statements.................. 3
Summary..................................................... 4
Information about First Sterling and Main Street
Banks.................................................. 4
The merger (page 19).................................... 4
Reasons for the merger (page 21)........................ 5
First Sterling shareholders' meeting (page 16).......... 5
First Sterling's record date and voting (page 16)....... 5
First Sterling's board unanimously recommends
shareholder approval (page 22)......................... 5
Main Street Banks' special shareholders' meeting (page
16).................................................... 6
Main Street Banks' record date and voting (page 16)..... 6
Main Street Banks' board unanimously recommends
shareholder approval (page 24)......................... 6
First Sterling's dividend policy following the merger
(page 53).............................................. 6
Interests of our managements and boards of directors in
the merger (pages 48).................................. 6
Comparative rights of shareholders (page 105)........... 6
Federal income tax considerations (page 39)............. 6
Accounting treatment (page 40).......................... 7
Fairness opinion of First Sterling's financial advisor
(page 24).............................................. 7
Fairness opinion of Main Street Banks' financial advisor
(page 28).............................................. 7
Conditions to the merger (page 36)...................... 7
Termination of the merger agreement (page 38)........... 7
New First Sterling shares to be listed on Nasdaq (page
37).................................................... 8
Regulatory approvals (page 37).......................... 8
Dissenting shareholders' rights of appraisal (page
40).................................................... 8
Robert Fowler's nonbinding letter (page 51)............. 8
Selected consolidated financial information................. 9
First Sterling selected historical consolidated
financial information.................................. 9
Main Street Banks selected historical consolidated
financial information.................................. 10
First Sterling and Main Street Banks pro forma selected
historical consolidated financial information.......... 11
Comparative stock prices and dividends...................... 12
First Sterling stock information........................ 12
Main Street Banks stock information..................... 12
Historical and pro forma comparative per share data......... 13
Risk factors................................................ 15
Possible loss of key personnel will negatively impact
First Sterling......................................... 15
The trading volume in First Sterling stock has been
low.................................................... 15
Changes in interest rates could have an adverse effect
on First Sterling's income............................. 15
First Sterling could experience difficulties in
integrating its mergers................................ 15
Shareholders' meetings...................................... 15
Date, time and place.................................... 15
Matters to be considered at the First Sterling
shareholders' meeting.................................. 16
Matters to be considered at the Main Street Banks
shareholders' meeting.................................. 16
Record dates; shares outstanding; quorums............... 16
</TABLE>
i
<PAGE>
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<CAPTION>
PAGE
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<S> <C>
Votes required; voting agreements....................... 17
Voting of proxies....................................... 17
Effect of abstentions and broker non-votes.............. 18
Revocability of proxies................................. 18
Solicitation of proxies................................. 19
The merger.................................................. 19
Overview................................................ 19
Background of the merger................................ 19
Reasons for the merger.................................. 21
First Sterling's reasons for the merger............. 21
Recommendation of the First Sterling board of
directors........................................... 22
Main Street Banks' reasons for the merger........... 22
Recommendation of the Main Street Banks board of
directors........................................... 23
Opinion of financial advisor to First Sterling.......... 23
Opinion of financial advisor to Main Street Banks....... 27
Exchange of Main Street Banks stock certificates........ 32
Fractional shares....................................... 33
Effective time of the merger............................ 33
Terms of the merger..................................... 33
Representations and warranties.......................... 33
Conduct of business pending the merger.................. 34
Conditions to the merger................................ 35
Required regulatory approvals........................... 35
Nasdaq listing.......................................... 36
Waiver, amendment, and termination...................... 36
Management and operations after the merger.............. 37
Material federal income tax consequences of the
merger................................................. 37
Accounting treatment.................................... 39
Expenses and fees....................................... 39
Statutory provisions for dissenting shareholders........ 39
Restrictions on resales by affiliates................... 41
Unaudited pro forma condensed combined financial
information............................................... 42
Interests of certain persons in the merger.................. 47
Employment agreements of First Sterling executive
officers after the merger.............................. 47
Shares owned by management and the board................ 50
Robert Fowler's nonbinding letter....................... 50
Supervision and regulation.................................. 51
General................................................. 51
Payment of dividends.................................... 52
Financial relationship between First Sterling and Main
Street Banks and their subsidiaries.................... 53
Capital adequacy........................................ 54
Prompt corrective action................................ 55
Community Reinvestment Act.............................. 57
Legislative and regulatory changes...................... 57
Fiscal and monetary policy.............................. 57
Information about First Sterling............................ 58
Board of directors...................................... 58
</TABLE>
ii
<PAGE>
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<CAPTION>
PAGE
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<S> <C>
Board committees and attendance......................... 61
Audit committee......................................... 61
Compensation committee.................................. 61
Reports required by Section 16(a) of the Securities
Exchange Act of 1934................................... 62
Certain transactions.................................... 62
Officers................................................ 62
Executive compensation.................................. 63
Stock options........................................... 64
Director compensation................................... 65
First Sterling security ownership....................... 65
Information about Main Street Banks......................... 67
Background.............................................. 67
Lines of business....................................... 67
Market areas............................................ 69
Competition............................................. 70
Employee relations...................................... 70
Facilities.............................................. 71
Certain transactions.................................... 72
Legal proceedings....................................... 73
Main Street Banks security ownership........................ 74
Main Street Banks' management's discussion and analysis of
financial condition and results of operations............. 75
Special Cautionary Notice Regarding Forward-Looking
Statements............................................. 75
For the years ended December 31, 1999, 1998 and 1997.... 76
Overview............................................ 76
Results of operations............................... 76
Financial condition................................. 80
Quarterly results................................... 92
Directors of Main Street Banks.............................. 93
Committees.............................................. 93
Director compensation................................... 93
Main Street Banks' executive compensation................... 95
Restricted stock award plan............................. 96
Long-term incentive plan................................ 96
Savings plan............................................ 96
Cash incentive bonus plan............................... 96
Compensation committee interlocks and insider
participation.......................................... 96
Proposal to amend First Sterling's articles of
incorporation............................................. 97
Proposal to elect three Class III directors of First
Sterling.................................................. 97
Proposal to adopt the 1999 Directors Stock Option Plan...... 98
Description of First Sterling stock......................... 100
Common stock............................................ 100
Anti-takeover provisions................................ 101
Classification of the board of directors............ 101
Change in number of directors....................... 101
</TABLE>
iii
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<CAPTION>
PAGE
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<S> <C>
Removal of directors................................ 101
Advantages and disadvantages of articles 7, 8 and
9................................................... 101
Supermajority voting on certain transactions........ 102
Evaluation of an acquisition proposal............... 102
Amendment of anti-takeover provisions............... 103
Control Acquisition................................. 104
Comparison of the rights of holders of Main Street Banks
stock and First Sterling stock............................ 104
General................................................. 104
Authorized Capital Stock................................ 104
Amendment of Articles of Incorporation.................. 104
Notice of Meetings of Shareholders...................... 105
Special Meetings........................................ 105
Record Date............................................. 106
Removal of Directors.................................... 106
Shareholder Inspection Rights; Shareholder Lists........ 106
Voting Rights........................................... 107
Directors............................................... 107
Limitation of liability and indemnification of
directors, officers and employees...................... 107
Dissenters' Appraisal Rights............................ 108
Anti-Takeover Provisions; Restrictions on Certain
Business Combinations.................................. 108
Amendment of Bylaws..................................... 109
Dividends and other distributions....................... 109
Legal matters............................................... 109
Experts..................................................... 110
Miscellaneous information regarding First Sterling's annual
meeting................................................... 110
Relationship with independent accountants............... 110
Solicitation of Proxies................................. 110
2001 annual meeting of First Sterling- shareholder
proposals.............................................. 110
Other matters........................................... 110
Where you can get more information.......................... 111
Incorporation of certain documents by reference............. 111
Main Street Banks Incorporated and Subsidiary Audited
Financial Statements
Report of Independent Auditors.......................... F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997....................... F-3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1999, 1998 and
1997................................................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................. F-5
Notes to Financial Statements........................... F-6
APPENDIX A: MERGER AGREEMENT................................ A-1
APPENDIX B: FIRST STERLING 1999 DIRECTORS STOCK OPTION
PLAN...................................................... B-1
APPENDIX C: GEORGIA DISSENTERS' RIGHTS STATUTE.............. C-1
APPENDIX D: OPINION OF BROWN, BURKE CAPITAL PARTNERS,
INC....................................................... D-1
APPENDIX E: OPINION OF THE CARSON MEDLIN COMPANY............ E-1
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE FIRST STERLING AND MAIN STREET BANKS PROPOSING TO MERGE?
A. Our companies are proposing to merge because we believe the resulting
combination will provide our shareholders with substantial benefits and will
enable us to better serve our customers. Our products and markets generally
are complementary. The combined company should be in a better position to
exploit opportunities within its market. After the merger, the subsidiary
banks will have bank branches in the following Georgia counties: Cobb,
Gwinnett, Rockdale, Newton, Barrow, DeKalb, Walton and Clarke. To review the
reasons for the merger in more detail, see "The merger--Reasons for the
merger" at page 21.
Q: WHAT DO I NEED TO DO NOW?
A. First, carefully read this document, then indicate on your proxy card how you
want to vote, and 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
"Shareholders' meetings--Revocability of proxies" at page 18.
THE BOARDS OF DIRECTORS OF FIRST STERLING AND MAIN STREET BANKS HAVE EACH
UNANIMOUSLY VOTED TO RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THE
PROPOSALS ON WHICH YOU WILL BE VOTING.
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. Your broker cannot vote your shares
without your instructions.
Q: PLEASE EXPLAIN THE EXCHANGE RATIOS IN THE TRANSACTION.
A: Main Street Banks shareholders will receive 1.01 shares of First Sterling
common stock in exchange for each share of Main Street common stock. We will
not issue fractional shares. Main Street Banks shareholders who would
otherwise be entitled to receive a fractional share instead will receive
cash based on the market value of the fractional share of First Sterling
common stock at the time of the merger.
Q: WILL FIRST STERLING PAY DIVIDENDS TO SHAREHOLDERS?
A: After the merger, First Sterling intends to continue to pay dividends to
shareholders at Main Street Banks' current quarterly rate of $0.08 per
share. However, the directors of First Sterling will use their discretion to
decide whether to declare dividends and the amount of any dividends.
Q: WHAT ARE THE TAX CONSEQUENCES TO MAIN STREET BANKS SHAREHOLDERS?
A: Generally, the exchange of shares by Main Street Banks shareholders will be
tax-free to Main Street Banks' shareholders for federal income tax purposes,
except for taxes on cash received for fractional shares. Please see "The
merger--Material federal income tax consequences of the merger" at page 39
for a description of certain federal income tax consequences of the
transactions.
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
1
<PAGE>
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. The failure to
return your proxy card or vote in person at the meeting will have the same
effect as a vote against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send all Main Street Banks
shareholders written instructions for exchanging their share certificates.
The First Sterling shareholders will not exchange their certificates and
should also not send in their certificates.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward 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.
Q: WHO SHOULD I CALL WITH QUESTIONS ABOUT THE MERGER?
A: First Sterling shareholders should call Barbara Bond at (770) 422-2888. Main
Street Banks shareholders should call Angela King at (770) 786-3441.
2
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
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 Main Street Banks or
the combined company. When we use words such as "believes," "expects,"
"estimates," "projects," "anticipates," "should," 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, Main
Street Banks 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:
- combining the businesses of First Sterling and Main Street Banks may cost
more or take longer than we expect;
- integrating the businesses and technologies of First Sterling and Main
Street Banks and retaining key personnel may be more difficult than we
expect;
- our revenues after the merger may be lower than we expect, or our
operating costs may be higher than we expect;
- expected cost savings from the merger may not be fully realized or may not
be realized when expected;
- we may lose more business or customers after the merger than we expect or
there may be increases in competitive pressures;
- changes in the interest rate environment may reduce interest margins;
increases in interest rates generally may reduce loan demand and the
values of our assets and assets securing loans; general economic
conditions, either nationally or where the combined company will be doing
business, or conditions in securities markets, may be less favorable than
we currently anticipate;
- legislation or regulatory changes may adversely affect our business; or
- technological changes may increase competitive pressures and increase our
costs.
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT DOES NOT
CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. EACH ITEM IN THIS SUMMARY
REFERS TO A PAGE WHERE THAT SUBJECT IS DISCUSSED IN MORE DETAIL. 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" AT PAGE
112, AND "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" AT PAGE 112,
ADDITIONAL INFORMATION ABOUT FIRST STERLING IS CONTAINED IN ITS FORM 10-KSB FOR
DECEMBER 31, 1999 WHICH IS ENCLOSED WITH THIS JOINT PROXY STATEMENT/PROSPECTUS.
IN ADDITION, THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT BECAUSE IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
INFORMATION ABOUT FIRST STERLING AND MAIN STREET BANKS
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
(770) 422-2888
First Sterling is a Georgia bank holding company headquartered in Kennesaw,
Georgia, and owns all of the outstanding capital stock of three subsidiary
banks: Westside, Eastside and Community. As of December 31, 1999, First Sterling
had total consolidated assets of $348,251,000.
The Westside Bank & Trust Company conducts operations through three full
service branches in Kennesaw and Marietta in Cobb County, Georgia. The Eastside
Bank & Trust Company conducts operations through two full service branches
located in Snellville and Lawrenceville, Gwinnett County, Georgia. Community
Bank of Georgia conducts operations through its main office in Tucker, DeKalb
County, Georgia and two branch offices located in Lilburn and Dacula, Gwinnett
County, Georgia. All three banks engage in commercial and retail banking.
MAIN STREET BANKS INCORPORATED
1134 CLARK STREET
COVINGTON, GEORGIA 30014
(770) 786-3441
Main Street Banks is a Georgia bank holding company headquartered in
Covington, Georgia, and owns all of the outstanding capital stock of Main Street
Bank. As of December 31, 1999, Main Street Banks had total consolidated assets
of $503,514,800.
Main Street Bank operates 13 full service banking locations and 16 automated
teller machines located in Barrow, Clarke, Gwinnett, Newton, Rockdale and Walton
counties in Georgia. Main Street is engaged in a full range of traditional
banking, mortgage banking, and investment and insurance services to individual
and corporate customers through its thirteen locations.
THE MERGER (PAGE 19)
Main Street Banks will merge with and into First Sterling. First Sterling
will be the surviving company after the merger. The merger will combine our
businesses under a single holding company named First Sterling Banks, Inc. As a
result of the merger, First Sterling will own Main Street Bank, in addition to
Westside, Eastside and Community.
After the merger, First Sterling's board of directors shall have eight
members--four from First Sterling and four from Main Street Banks. The directors
from First Sterling shall be Eugene L. Argo, P. Harris Hines, Harry L. Hudson,
Jr. and Edward C. Milligan. The directors from Main Street Banks shall be Sam B.
Hay III, C. Candler Hunt, Robert R. Fowler III and Frank B. Turner. Mr. Fowler
shall be the chairman of the board and Justice Hines shall be vice chairman.
Mr. Milligan shall be the president and chief executive officer. Mr. Hay shall
be executive vice president and chief operating officer. Mr. Joseph K.
Strickland, Jr., the current president of Main Street Bank, shall become
executive vice president, banking.
The merger consideration will be 1.01 shares of First Sterling common stock
for each share of Main Street Banks common stock.
When the merger is complete, each share of Main Street Banks common stock
will be converted into 1.01 shares of First Sterling common stock. The exchange
ratio is fixed. However, the
4
<PAGE>
market price of the First Sterling common stock that Main Street Banks
shareholders will receive as a result of the merger may be significantly higher
or lower than its current value or its value at the date of the shareholders'
meetings.
Cash payments will be made instead of issuing fractional shares. For
example, if you hold 150 shares of Main Street Banks common stock, you will
receive 151 shares of First Sterling common stock (150 X 1.01 = 151.5), plus a
cash payment equal to the value of 0.50 of a share of First Sterling common
stock at the time of the merger.
Subsequent to the merger, First Sterling's existing shareholders will own
approximately 35% of the total shares outstanding and Main Street Banks'
shareholders will own approximately 65%.
REASONS FOR THE MERGER (PAGE 21)
We believe that the combination of the two companies will enable us to
achieve economies of scale, greater growth and diversification of markets,
strengthen management and enhance the competitive position of the four banks. We
also believe that increasing our shareholder base may increase the liquidity and
marketability of First Sterling stock.
FIRST STERLING SHAREHOLDERS' MEETING (PAGE 16)
First Sterling will hold its shareholders' meeting on , 2000 at
local time at 676 Chastain Road, Kennesaw, Georgia 30144. The
shareholders of First Sterling will be entitled to vote on the merger and the
issuance of up to 8,917,290 shares of its stock to Main Street Banks'
shareholders in exchange for their stock in Main Street Banks. They will also
vote on whether to approve the restated articles of incorporation of First
Sterling which amends the present articles to increase the number of shares that
First Sterling is authorized to issue from 10,000,000 to 50,000,000 shares of
common stock and to provide that a director must be elected by a majority vote
of the outstanding shares of First Sterling stock.
The First Sterling meeting shall be its annual meeting at which the First
Sterling shareholders shall vote, in addition to voting on the merger and the
restated articles of incorporation, on the following:
- The election of three Class III directors to serve for three year terms
expiring at the 2003 First Sterling annual shareholders' meeting. The
First Sterling board has nominated the following incumbent directors for
these positions: Edward C. Milligan; P. Harris Hines and Harry L. Hudson,
Jr.; and
- The approval of First Sterling's 1999 Directors Stock Option Plan which is
attached as APPENDIX B.
FIRST STERLING'S RECORD DATE AND VOTING (PAGE 16)
If you owned shares of First Sterling stock at the close of business on
, 2000, the record date, you are entitled to vote on the merger
agreement and any other matters considered at the meeting. On the record date,
there were 4,882,349 shares of First Sterling stock outstanding. You will have
one vote at the meeting for each share of First Sterling stock you owned on the
record date. The affirmative vote by shareholders owning at least a majority of
the outstanding First Sterling stock is required to approve the merger, the
issuance of the First Sterling stock, the restated articles of incorporation and
the directors stock option plan. The directors shall be elected by a plurality
of the shares represented at the meeting. As of March 1, 2000, First Sterling's
directors, executive officers and their affiliates beneficially owned
approximately 14.72% of the outstanding shares of First Sterling common stock
entitled to vote at First Sterling's special meeting. These individuals intend
to vote in favor of the proposals considered at the special meeting.
FIRST STERLING'S BOARD UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL (PAGE 22)
The First Sterling board of directors believes that the merger is in the
best interest of First Sterling and its shareholders and unanimously recommends
that the shareholders vote "FOR" approval of the merger agreement and the
issuance of up to 8,917,290 shares of its stock and the restated articles of
incorporation. The board also unanimously recommends that the shareholders
5
<PAGE>
vote "FOR" the three director nominees and the directors stock option plan.
MAIN STREET BANKS' SPECIAL SHAREHOLDERS' MEETING (PAGE 16)
Main Street Banks will hold its special shareholders' meeting on
, 2000 at 10:00 A.M. local time at Newton County Library, 7116 Floyd
Street, Covington, Georgia 30014. The Main Street Banks shareholders will be
entitled to vote on the merger.
MAIN STREET BANKS' RECORD DATE AND VOTING (PAGE 16)
If you owned shares of Main Street Banks stock at the close of business on
, 2000, the record date, you are entitled to vote on the merger
agreement and any other matters considered at the meeting. On the record date,
there were 8,829,000 shares of Main Street Banks stock outstanding. You will
have one vote at the meeting for each share of Main Street Banks stock you owned
on the record date. The affirmative vote by shareholders owning at least a
majority of the outstanding Main Street Banks stock is required to approve the
merger agreement. As of March 13, 2000, Main Street Banks' directors, executive
officers and their affiliates beneficially owned approximately 62% of the
outstanding shares of Main Street Banks' common stock entitled to vote at Main
Street Banks' special meeting. These individuals intend to vote in favor of the
proposals considered at the special meeting.
MAIN STREET BANKS' BOARD UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL (PAGE 24)
The Main Street Banks board of directors believes that the merger is in the
best interest of Main Street Banks and its shareholders and unanimously
recommends that the shareholders vote "FOR" approval of the merger agreement.
FIRST STERLING'S DIVIDEND POLICY FOLLOWING THE MERGER (PAGE 15)
First Sterling currently pays quarterly dividends of $0.04 per share of
common stock. Main Street Banks currently pays quarterly dividends of $0.08 per
share of common stock. First Sterling expects that it will continue to pay at
least the per share amount in quarterly dividends which Main Street Banks is
currently paying, but it may change that policy based on business conditions,
First Sterling's financial condition and earnings or other factors.
INTERESTS OF OUR MANAGEMENTS AND BOARDS OF DIRECTORS IN THE MERGER (PAGES 48)
When considering the recommendation of the First Sterling and Main Street
Banks boards of directors, you should be aware that some directors and officers
have interests in the merger that differ from the interests of other
shareholders.
Upon consummation of the merger, First Sterling would enter into employment
agreements with Robert R. Fowler III, Sam B. Hay III and Joseph K. Strickland,
Jr. and Edward C. Milligan's employment agreement would be amended. Also upon
consummation of the merger, Eugene L. Argo, P. Harris Hines, Harry L. Hudson,
Jr. and Edward C. Milligan (all current First Sterling directors) and Sam B. Hay
III, C. Candler Hunt, Robert R. Fowler III and Frank B. Turner (all current Main
Street Banks directors) shall be the directors of First Sterling.
Each board was aware of these and other interests and considered them before
approving and adopting the merger agreement.
COMPARATIVE RIGHTS OF SHAREHOLDERS (PAGE 105)
Both First Sterling and Main Street Banks 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 Main Street Banks will
become shareholders of First Sterling and the articles of incorporation and
bylaws of First Sterling will govern their rights. First Sterling's articles of
incorporation and bylaws differ somewhat from Main Street Banks.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 39)
Main Street Banks' shareholders will not recognize gain or loss for federal
income tax purposes on the receipt of shares of First Sterling common stock that
they receive in the merger in exchange for shares of Main Street Banks stock
surrendered. First Sterling's attorneys have issued
6
<PAGE>
a legal opinion to this effect. Main Street Banks' shareholders will be taxed,
however, on any cash that they receive instead of any fractional shares of First
Sterling stock, and if Main Street Banks'shareholders properly exercise their
rights to dissent to the merger, they will generally be taxed on the cash that
they receive. First Sterling shareholders will have no tax consequences as a
result of the merger. Tax matters are complicated and the tax consequences of
the merger may vary among shareholders. We urge you to contact your own tax
advisor to fully understand how the merger will affect you.
ACCOUNTING TREATMENT (PAGE 40)
We expect to account for the merger as a "pooling-of-interests." This means
that, after the merger, we will treat Main Street Banks and First Sterling as if
they had always been combined. Our obligations to complete the merger depend
upon receiving a letter from our independent accountants that the merger
qualifies as a pooling-of-interests.
FAIRNESS OPINION OF FIRST STERLING'S FINANCIAL ADVISOR (PAGE 24)
Brown, Burke Capital Partners, Inc., has given an opinion to First
Sterling's board of directors that, as of the date of this joint proxy
statement/prospectus, the exchange ratio is fair from a financial point of view
to First Sterling's shareholders.
This opinion is attached as APPENDIX D to this document. First Sterling
shareholders should read this opinion completely to understand the assumptions
made, matters considered and limitations of the review undertaken by Brown,
Burke in providing this opinion.
FAIRNESS OPINION OF MAIN STREET BANKS' FINANCIAL ADVISOR (PAGE 28)
The Carson Medlin Company has given an opinion to Main Street Banks board of
directors that, as of the date of this joint proxy statement/ prospectus, the
exchange ratio in the merger is fair from a financial point of view to Main
Street Banks' shareholders.
This opinion is attached as APPENDIX E to this document. Main Street Banks'
shareholders should read this opinion completely to understand the assumptions
made, matters considered and limitations of the review undertaken by Carson
Medlin in providing this opinion.
CONDITIONS TO THE MERGER (PAGE 36)
We will complete the merger only if several conditions are satisfied,
including the following:
- A majority of each of Main Street Banks' and First Sterling's outstanding
shares vote in favor of the merger agreement;
- A majority of First Sterling's outstanding shares vote in favor of the
issuance of the First Sterling stock pursuant to the merger agreement the
restated articles of incorporation;
- We receive all necessary regulatory approvals;
- First Sterling's counsel delivers an opinion concerning certain federal
income tax consequences of the merger; and
- First Sterling and Main Street Banks each receive a letter from their
independent accountants, Mauldin & Jenkins, LLC and Ernst & Young LLP,
respectively, that the merger will qualify for pooling-of-interests
accounting treatment.
TERMINATION OF THE MERGER AGREEMENT (PAGE 38)
Our boards of directors can jointly agree to terminate the merger agreement
at any time. In addition, either company can terminate the merger agreement if:
- We do not complete the merger by June 30, 2000 (unless we mutually extend
this date);
- The shareholders of either Main Street Banks or First Sterling do not vote
in favor of the merger agreement;
- The other company materially breaches its representations, warranties or
covenants it made or obligations it has under the merger agreement and the
breach remains
7
<PAGE>
uncured for 30 days after notice of the breach is given;
- The conditions to completing the merger are not satisfied; or
- The Board of Governors of the Federal Reserve System or the Georgia
Department of Banking and Finance denies approval of the merger.
NEW FIRST STERLING SHARES TO BE LISTED ON NASDAQ (PAGE 37)
Prior to the effective time of the merger, First Sterling will list the
shares of its common stock to be issued in the merger on the Nasdaq National
Market.
REGULATORY APPROVALS (PAGE 37)
We cannot complete the merger unless it is approved by the Board of
Governors of the Federal Reserve System and the Georgia Department of Banking
and Finance. First Sterling has filed applications with the Federal Reserve and
the Georgia Department of Banking for approval of the merger. We cannot be
certain when or if we will obtain the regulatory approvals. However, we do not
know of any reason why we should not obtain them in a timely manner.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL (PAGE 40)
Main Street Banks shareholders may dissent from the merger and upon
following the requirements of Georgia law receive cash in the amount of the fair
value of their Main Street Banks shares instead of the shares of First Sterling
stock. First Sterling shareholders do not have a right of dissent or appraisal.
ANY MAIN STREET BANKS' 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.
ROBERT FOWLER'S NONBINDING LETTER (PAGE 51)
Mr. Robert R. Fowler III after the merger will have voting control over
approximately 28% of First Sterling stock. He has stated in a nonbinding letter
that his present intention is to vote these shares for a period of six years
after the merger to maintain the equal representation on the First Sterling
board of directors from First Sterling and Main Street Banks. He stated that it
is his intention to vote specifically for the reelection of Eugene L. Argo when
his term expires in 2002 and for the reelection of Messrs. Milligan, Hines and
Hudson when their terms expire in 2003. Mr. Fowler's letter is simply an
expression of his intention and not legally binding against him.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
We are providing the following information to help you analyze the financial
aspects of the merger. We derived this information from audited consolidated
financial statements for 1995 through 1999. The information has been adjusted to
reflect all stock splits and dividends declared through the date of this joint
proxy statement/prospectus and First Sterling's financial data has been restated
to reflect the 1999 merger with Georgia Bancshares that was accounted for as a
pooling-of-interests. This information is only a summary and you should read it
in conjunction with both of our historical financial statements and related
notes included in this document for Main Street Banks and in First Sterling's
10-KSB which is enclosed. See "Where you can get more information" at page 112
and "Main Street Banks Incorporated and Subsidiary Audited Financial Statements"
at page F-1.
FIRST STERLING'S SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income............................ 15,088 12,156 10,687 8,331 7,622
Provision for loan losses...................... 795 561 680 227 383
Net interest income after provision for loan
losses....................................... 14,293 11,595 10,007 8,104 7,239
Net income..................................... 3,850 3,316 2,789 2,044 2,571
SELECTED BALANCE SHEET DATA:
Total assets................................... 348,251 283,699 248,397 195,056 168,561
Loans, net..................................... 246,508 188,163 149,999 113,353 96,952
Deposits....................................... 303,633 253,280 223,737 172,583 147,932
Total Shareholders' equity..................... 26,863 25,554 22,771 20,838 19,321
PER SHARE DATA:
Net income, per share
Basic........................................ 0.79 0.68 0.58 0.42 0.52
Diluted...................................... 0.74 0.64 0.55 0.41 0.52
Cash dividends declared per share.............. 0.16 0.15 0.13 0.10 0.05
Book value per share........................... 5.50 5.27 4.71 4.28 3.91
SELECTED RATIOS:
Net income to average shareholders' equity..... 14.68% 13.49% 13.20% 10.87% 14.31%
Net income to average total assets............. 1.19% 1.25% 1.20% 1.03% 1.59%
Average shareholders' equity to average total
assets....................................... 8.13% 9.27% 9.09% 11.13% 11.13%
Tier 1 risk-based capital...................... 9.99% 11.28% 12.55% 14.81% 16.04%
Total risk-based capital....................... 11.06% 12.33% 13.69% 15.90% 17.21%
Leverage....................................... 7.66% 9.21% 7.33% 10.55% 9.83%
</TABLE>
9
<PAGE>
MAIN STREET BANKS SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income............................ 24,438 22,522 20,604 17,369 14,968
Provision for loan losses...................... 935 865 1,405 935 1,160
Net interest income after provision for loan
losses....................................... 23,503 21,657 19,199 16,434 13,808
Net income..................................... 7,234 6,515 5,490 4,291 3,201
SELECTED BALANCE SHEET DATA:
Total assets................................... 503,515 431,250 400,201 364,469 346,665
Loans, net..................................... 375,164 318,767 293,000 254,323 233,499
Deposits....................................... 402,596 365,896 355,947 327,257 312,027
Total shareholders' equity..................... 46,471 42,946 38,109 34,521 31,543
PER SHARE DATA:
Net income, per share
Basic........................................ 0.82 0.75 0.63 0.50 0.38
Diluted...................................... 0.82 0.75 0.63 0.50 0.38
Cash dividends declared per share.............. 0.32 0.27 0.27 0.17 0.13
Book value per share........................... 5.26 4.87 4.39 3.99 3.70
SELECTED RATIOS:
Net income to average shareholders' equity..... 16.20% 16.13% 15.15% 13.00% 10.47%
Net income to average total assets............. 1.55% 1.56% 1.38% 1.20% 0.95%
Average shareholders' equity to average total
assets....................................... 9.58% 9.67% 9.12% 9.20% 9.04%
Tier 1 risk-based capital...................... 12.17% 12.74% 12.40% 13.24% 12.93%
Total risk-based capital....................... 13.42% 14.00% 13.66% 14.50% 14.19%
Leverage....................................... 9.27% 9.67% 9.00% 8.92% 8.50%
</TABLE>
The following table shows information about our companies reflecting the
merger of our two companies (which is referred to as "pro forma" information).
10
<PAGE>
FIRST STERLING AND MAIN STREET BANKS PRO FORMA SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION
The following pro forma data assumes the merger will be accounted for under
the pooling-of-interests method of accounting and we assumed that our companies
had been merged throughout the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net interest income............................ 39,526 34,678 31,291 25,700 22,589
Provision for loan losses...................... 1,730 1,426 2,085 1,162 1,543
Net interest income after provisions for loan
losses....................................... 37,796 33,252 29,206 24,538 21,046
Net income..................................... 11,084 9,833 8,279 6,335 5,772
SELECTED BALANCE SHEET DATA:
Total assets................................... 851,766 714,949 648,598 559,525 515,246
Loans, net..................................... 621,672 506,930 442,999 367,676 330,451
Deposits....................................... 706,229 619,176 579,684 499,840 459,959
Total shareholders' equity..................... 73,334 68,500 60,880 55,359 50,864
PER SHARE DATA:
Net income, per share
Basic........................................ 0.80 0.72 0.61 0.47 0.43
Diluted...................................... 0.79 0.70 0.60 0.46 0.43
Cash dividends declared per share.............. 0.16 0.15 0.13 0.10 0.05
Book value per share........................... 5.31 4.98 4.47 4.09 3.77
SELECTED RATIOS:
Net income to average shareholders' equity..... 15.60% 15.14% 14.48% 12.00% 11.89%
Net income to average total assets............. 1.41% 1.44% 1.31% 1.18% 1.16%
Average shareholders' equity to average total
assets....................................... 9.00% 9.48% 9.07% 8.37% 9.75%
Tier 1 risk-based capital...................... 11.23% 12.16% 12.46% 13.81% 14.01%
Total risk-based capital....................... 12.40% 14.10% 13.67% 15.01% 15.24%
Leverage....................................... 8.58% 9.49% 8.28% 9.49% 8.98%
</TABLE>
11
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
FIRST STERLING STOCK INFORMATION
As of March 1, 2000, there were approximately 1,392 holders of record of
First Sterling stock. Shares of stock of First Sterling have been traded on the
Nasdaq National Market under the symbol "FSLB" since the first quarter of 1997.
The following table sets forth, for each quarter, the high and low sales prices
per share as reported on the Nasdaq National Market. The table also shows the
regular cash dividends paid for First Sterling stock. All information is
adjusted to reflect the 2-for-1 stock split effective March 30, 1998, and the
.2858 stock split effective April 22, 1999.
<TABLE>
<CAPTION>
FIRST STERLING
STOCK
-------------------
FISCAL YEAR HIGH LOW DIVIDEND
----------- -------- -------- --------
<S> <C> <C> <C>
1998
First Quarter........................................ 13.17 9.23 0.04
Second Quarter....................................... 13.03 11.38 0.04
Third Quarter........................................ 12.06 10.50 0.04
Fourth Quarter....................................... 11.28 9.92 0.04
1999
First Quarter........................................ 11.81 10.69 0.04
Second Quarter....................................... 12.50 10.44 0.04
Third Quarter........................................ 12.25 9.25 0.04
Fourth Quarter....................................... 14.50 9.25 0.04
2000
First Quarter........................................ 0.04
</TABLE>
After the merger, First Sterling intends to pay dividends at Main Street
Banks' current rate of $0.08 per share per quarter. However, the payment of any
future dividends shall be subject to First Sterling's earnings, capital
adequacy, liquidity and other factors that the First Sterling board of directors
deems appropriate.
On , 2000, the last day on which First Sterling common stock was
traded prior to the mailing of this joint proxy statement/prospectus, the last
reported sales price of First Sterling common stock as reported on the Nasdaq
National Market was $ per share. On November 30, 1999, the date immediately
prior to the pubic announcement of the merger with Main Street Banks, the sales
price of First Sterling common stock as reported on the Nasdaq National Market
was $9.75 per share.
MAIN STREET BANKS STOCK INFORMATION
Main Street Banks stock is not publicly traded in any organized market and
is infrequently traded. The sales prices known to management of Main Street
Banks do not necessarily reflect the price that would be paid for the common
stock in an active market. The price of the Main Street Banks common stock in
the last known transaction prior to the mailing of this joint proxy
statement/prospectus on , 2000, was $14.00 per share. The price of
Main Street Banks common stock in the last known transaction prior to
December 1, 1999, the date the merger was publicly announced, was $14.00 per
share and occurred in November 1999. Based on the limited number of transactions
of which Main Street Banks' management is aware, sales of Main Street Banks'
common stock were in a price range of $5.00 per share during 1997, between
$10.00 and $12.00 during 1998 and between $12.50 and $14.00 during 1999. As of
May 12, 2000, there were 199 holders of record of Main Street Banks stock.
12
<PAGE>
The following table sets forth for each quarter the regular cash dividends
paid on Main Street Banks stock. All information is adjusted to reflect the
four-for-one stock split that was effective on September 1, 1998.
<TABLE>
<CAPTION>
CASH DIVIDENDS
FISCAL YEAR PAID PER SHARE
- ----------- --------------
<S> <C>
1998
First Quarter............................................... $.0625
Second Quarter.............................................. .0625
Third Quarter............................................... .0625
Fourth Quarter.............................................. .0625
1999
First Quarter............................................... $.0800
Second Quarter.............................................. .0800
Third Quarter............................................... .0800
Fourth Quarter.............................................. .0800
2000
First Quarter............................................... .0800
</TABLE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited comparative per share data
relating to shareholders' equity (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 a historical basis for First
Sterling and Main Street Banks, (ii) on a pro forma combined basis per share of
First Sterling stock to reflect completion of the merger, and (iii) on an
equivalent pro forma basis per share of Main Street Banks stock to reflect
completion of the merger, assuming the merger was effective for the periods
presented. 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 assumes an exchange ratio of 1.01 shares of First
Sterling stock for each share of Main Street Banks stock. The information listed
as "equivalent pro forma" was computed by multiplying the pro forma combined
amounts by an assumed exchange ratio of 1.01. It is intended to reflect the
estimate that Main Street Banks shareholders will be receiving 1.01 shares of
First Sterling common stock for each share of Main Street Banks common stock
exchanged in the merger. This information should be read in conjunction with
both of our historical financial statements and related notes. You should not
rely on the pro forma information as being indicative of the historical results
that would have resulted if First Sterling and Main Street Banks had been
combined or the future results First Sterling will experience after the merger.
13
<PAGE>
See "Where you can get more information" at page 112 and "Main Street Banks
Incorporated and Subsidiary Audited Financial Statements" at page F-1.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic net income per share:
First Sterling, historical.............................. 0.79 0.68 0.58
First Sterling, pro forma combined...................... 0.80 0.72 0.61
Main Street Banks, historical........................... 0.82 0.75 0.63
Main Street Banks, equivalent pro forma................. 0.81 0.73 0.62
Diluted net income per share:
First Sterling, historical.............................. 0.74 0.64 0.55
First Sterling, pro forma combined...................... 0.79 0.70 0.60
Main Street Banks, historical........................... 0.82 0.75 0.63
Main Street Banks, equivalent pro forma................. 0.80 0.71 0.61
Cash dividends declared per share:
First Sterling, historical.............................. 0.16 0.15 0.13
First Sterling, pro forma combined...................... 0.16 0.15 0.13
Main Street Banks, historical........................... 0.32 0.27 0.27
Main Street Banks, equivalent pro forma................. 0.16 0.15 0.13
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------------------
<S> <C> <C> <C>
Book value per share (end of period):
First Sterling, historical.............................. 5.50
Main Street Banks, historical........................... 5.26
First Sterling, pro forma combined...................... 5.31
</TABLE>
14
<PAGE>
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 MAIN STREET BANKS
SHAREHOLDERS' MEETINGS.
POSSIBLE LOSS OF KEY PERSONNEL WILL NEGATIVELY IMPACT FIRST STERLING
Both First Sterling and Main Street Banks currently depend heavily on the
services of their respective senior officers including Edward C. Milligan at
First Sterling and Robert R. Fowler III and Sam B. Hay III at Main Street Banks,
as well as a number of other key management personnel in its subsidiary banks.
The loss of their services or of other key personnel could affect the combined
company in a material and adverse way. The combined company'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 the combined company may not be successful in attracting or
retaining the personnel it requires.
THE TRADING VOLUME IN FIRST STERLING STOCK HAS BEEN LOW
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.
Because of this, it may be more difficult for you to sell a large number of
shares for the same price at which a smaller number of shares may sell.
CHANGES IN INTEREST RATES COULD HAVE AN ADVERSE EFFECT ON FIRST STERLING'S
INCOME
The combined company's profitability depends to a large extent upon its net
interest income. Net interest income 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. Our net
interest income will be adversely affected if market interest rates change such
that the interest the combined company has to pay on deposits and borrowings
increases faster than the interest we earn on loans and investments. See
"Supervision and Regulation--Fiscal and monetary policy" at page 58.
FIRST STERLING COULD EXPERIENCE DIFFICULTIES IN INTEGRATING ITS MERGERS
First Sterling has grown significantly over the last two years and may seek
to continue to grow by acquiring other financial institutions and branches.
However, the market for acquisitions is highly competitive. First Sterling may
not be as successful in the future as it has been in the past in identifying
acquisition candidates, integrating acquired institutions or preventing deposit
erosion at acquired institutions or branches.
First Sterling may encounter unforeseen expenses, as well as difficulties
and complications in integrating expanded operations and new employees without
disruption to overall operations. In addition, such rapid growth may adversely
affect First Sterling's operating results because of many factors, including
start-up costs, diversion of management time and resources, asset quality and
required operating adjustments. First Sterling may not successfully integrate or
achieve the anticipated benefits of its growth or expanded operations.
SHAREHOLDERS' MEETINGS
DATE, TIME AND PLACE
FIRST STERLING--The First Sterling shareholders' meeting will be held at
Westside Bank located at 676 Chastain Road, Kennesaw, Georgia 30144, at
local time, on , 2000.
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<PAGE>
MAIN STREET BANKS--The Main Street Banks shareholders' meeting will be held
at Newton County Library located at 7116 Floyd Street, Covington, Georgia 30014,
at 10:00 A.M. local time, on , 2000.
MATTERS TO BE CONSIDERED AT THE FIRST STERLING SHAREHOLDERS' MEETING
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 8,917,290 shares of First Sterling stock to Main Street Banks
shareholders in the merger;
- Approval of the restated articles of incorporation of First Sterling which
amend the First Sterling articles to increase the number of shares that
First Sterling is authorized to issue from 10,000,000 to 50,000,000 shares
of common stock and to provide that a director must be elected by a
majority of the votes entitled to be cast in the election for directors;
- Election of three Class III directors to serve for three year terms
expiring at the 2003 annual shareholders' meeting; and
- Approval of the First Sterling 1999 Directors Stock Option Plan which is
attached as APPENDIX B.
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. THE BOARD OF DIRECTORS OF
FIRST STERLING HAS ALSO UNANIMOUSLY APPROVED THE RESTATED ARTICLES OF
INCORPORATION AND THE 1999 DIRECTORS STOCK OPTION PLAN, AND RECOMMENDS A VOTE
FOR APPROVAL OF THE RESTATED ARTICLES OF INCORPORATION AND THE 1999 DIRECTORS
STOCK OPTION PLAN.
FIRST STERLING'S BOARD OF DIRECTORS HAVE UNANIMOUSLY NOMINATED AND RECOMMEND
THE ELECTION OF P. HARRIS HINES, HARRY L. HUDSON, JR., AND EDWARD C. MILLIGAN AS
THE CLASS III DIRECTORS TO SERVE FOR THREE YEAR TERMS EXPIRING AT THE 2003
ANNUAL SHAREHOLDERS' MEETING.
MATTERS TO BE CONSIDERED AT THE MAIN STREET BANKS SHAREHOLDERS' MEETING
At the Main Street Banks meeting, holders of Main Street Banks 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 MAIN STREET BANKS 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 , 2000, will be entitled to notice of, and to
vote at, the First Sterling meeting. On , 2000, First Sterling had
outstanding 4,882,349 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.
MAIN STREET BANKS--Only shareholders of record of Main Street Banks stock at
the close of business on , 2000, will be entitled to notice of, and
to vote at, the Main Street Banks meeting. On , 2000, Main Street
Banks had outstanding 8,829,000 shares of Main Street Banks stock. There is no
other class of Main Street Banks stock outstanding. Each share of Main
16
<PAGE>
Street Banks stock entitles the holder to one vote. The presence at the Main
Street Banks 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, the issuance of First
Sterling stock, approval of the restated articles of incorporation and approval
of the directors stock option plan will require the affirmative vote of a
majority of the outstanding shares of First Sterling.
The election of the three Class III directors shall require the affirmative
vote of the plurality of the shares present, in person or by proxy at the
meeting.
As of the First Sterling record date, directors of First Sterling had voting
power over approximately 758,539 shares of First Sterling stock, or
approximately 14.72% of the shares of First Sterling stock outstanding on the
First Sterling record date. The First Sterling directors intend to vote in favor
of the proposals considered at the annual meeting.
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 March 1, 2000.
MAIN STREET BANKS--The approval of the merger agreement will require the
affirmative vote of a majority of the outstanding shares of Main Street Banks.
As of the Main Street Banks record date, directors of Main Street Banks had
voting power over approximately 5,441,786 shares of Main Street Banks stock, or
approximately 62% of the shares of Main Street Banks stock outstanding on the
Main Street Banks record date. The Main Street Banks' directors intend to vote
in favor of the merger at the special meeting.
Mr. Robert R. Fowler, III, who is chairman, president and chief executive
officer of Main Street Banks, owns 6% of the Main Street Banks stock outstanding
on the Main Street Banks record date. The Fowler Children's Trust, the trustee
of which is Mr. Fowler, owns 21.7% of the Main Street Banks stock outstanding on
the Main Street Banks record date. Mr. Fowler also controls another 15.9%
through 7 other family trusts. Mr. Fowler, therefore, beneficially owns a total
of 43.6% of the Main Street Banks stock outstanding of which Mr. Fowler
disclaims beneficial ownership of 195,200 shares owned by his wife, Mary Fowler,
and 405,520 shares owned by Hunter Fowler, L.P., a family limited partnership
for which his daughter, Robin Fowler, has voting control. Management of Main
Street Banks is not aware of any other person or entity owning 5% or more of the
outstanding shares of Main Street Banks stock.
VOTING OF PROXIES
FIRST STERLING--All executed proxies 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, issuance of shares, the restated articles of incorporation, the
directors stock option plan and the three nominees for Class III directors.
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).
17
<PAGE>
MAIN STREET BANKS--All executed proxies received prior to the Main Street
Banks meeting will be voted at the Main Street Banks 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 Main
Street Banks 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 Main Street Banks 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 or any
other matters to be considered at the First Sterling meeting. 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
(resulting from failure to give voting instructions) will be be counted as votes
cast at the First Sterling meeting.
MAIN STREET BANKS--You may abstain from voting on the merger agreement.
Abstentions will be considered shares present and entitled to vote at the Main
Street Banks 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 MAIN STREET BANKS MEETING AND THE
FIRST STERLING MEETING, ABSTENTIONS BY MAIN STREET BANKS AND FIRST STERLING
SHAREHOLDERS AND BROKER NON-VOTES HAVE THE EFFECT OF VOTES AGAINST THE MERGER
AGREEMENT. ABSTENTIONS AND BROKER NON-VOTES SHALL HAVE THE EFFECT OF VOTES
AGAINST THE ISSUANCE OF ADDITIONAL SHARES, THE RESTATED ARTICLES OF
INCORPORATION AND THE DIRECTORS STOCK OPTION PLAN AT THE FIRST STERLING MEETING.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed First Sterling or Main Street Banks
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 Main Street Banks, in the case of a
Main Street Banks 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.
18
<PAGE>
SOLICITATION OF PROXIES
First Sterling and Main Street Banks will each bear the cost of the
solicitation of proxies from its own shareholders, except that First Sterling
and Main Street Banks 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 Main Street Banks 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 and reasonable expenses. First Sterling and Main
Street Banks 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.
MAIN STREET BANKS SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER--EXCHANGE OF MAIN
STREET BANKS STOCK CERTIFICATES," AT PAGE 33, EACH MAIN STREET BANKS SHAREHOLDER
WILL BE PROVIDED WITH MATERIALS FOR EXCHANGING SHARES OF MAIN STREET BANKS AS
PROMPTLY AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
THE MERGER
THE FOLLOWING INFORMATION DESCRIBES THE MATERIAL INFORMATION PERTAINING TO
THE MERGER. THE DESCRIPTION IS NOT COMPLETE AND IS QUALIFIED BY THE MORE
DETAILED APPENDICES TO THIS DOCUMENT WHICH ARE INCORPORATED BY REFERENCE
INCLUDING THE MERGER AGREEMENT IN APPENDIX A. WE URGE YOU TO READ THE APPENDICES
IN THEIR ENTIRETY.
OVERVIEW
The merger agreement provides for a transaction in which Main Street Banks
will merge with and into First Sterling. First Sterling will be the surviving
corporation resulting from the merger. At the effective time of the merger, each
share of outstanding Main Street Banks' common stock will cease to be
outstanding and will be converted into the right to receive 1.01 shares of First
Sterling common stock.
BACKGROUND OF THE MERGER
In early 1996, Main Street Banks' board of directors became concerned about
the strategic future of Main Street Banks in light of the challenges it was
facing as an independent organization in an increasingly competitive
environment. These challenges included: (1) significantly increased competition;
(2) narrowing profit margins for Main Street Banks and banks generally; (3) a
desire for a publicly-traded stock for purposes of liquidity and possible use as
transaction currency; (4) a need to grow faster than what appeared to be
possible internally; and (5) to realize efficiencies of scale in administration
and service areas, and to more fully utilize Main Street Banks' capacity in
these areas.
In light of these concerns, Main Street Banks' board of directors authorized
its management to contact smaller community banks to discuss their potential
interest in being acquired by Main Street Banks. Management was also authorized
to speak to other community banks whose geographic location, banking philosophy,
personality and size were similar to Main Street Banks about a potential "merger
of equals." Management focused on potential "merger of equals" partners that
were publicly traded which would give Main Street Banks increased liquidity and
a transaction currency by which to continue their growth.
From the beginning of 1996 until the middle of 1998, Main Street Banks'
management spoke with various community banks in the greater metropolitan
Atlanta area about either being acquired by Main Street Banks or engaging in a
merger of equals.
The board of directors of Main Street Banks also considered whether it would
be in the best interest of the shareholders of Main Street Banks to engage in a
transaction with a larger company,
19
<PAGE>
whereby Main Street Banks would be acquired. In 1998, Main Street Banks received
an informal preliminary solicitation regarding a possible transaction. The board
of directors of Main Street Banks did not believe that continuing such
discussions would be fruitful, as it believed that pursuing a course of seeking
smaller acquisitions or engaging in a merger of equals with another institution
would be in the best interest of the shareholders of Main Street Banks.
Since 1995, First Sterling has been reviewing and analyzing possible
acquisition and merger of equals opportunities in the Atlanta metropolitan area.
Its strategic plan has been to enhance shareholder value by creating a larger
organization in the Atlanta metropolitan area. The goal has been to provide
broader and more comprehensive services to its customers, create efficiencies in
the administration and service functions and provide a larger shareholder base
with a more liquid security trading in a national market.
The first merger occurred in 1996 when First Sterling's predecessor Westside
Financial Corporation, a one bank holding company located in Kennesaw, Cobb
County, Georgia merged with Eastside Holding Corporation, a one bank holding
company located in Snellville, Gwinnett County, Georgia. The combined company's
subsidiary banks established branches in Marietta and Lawrenceville, the
respective county seats of Cobb and Gwinnett counties and continued to grow
internally. First Sterling's common stock was listed on the Nasdaq National
Market in the second quarter of 1998. In 1999 First Sterling consummated a
merger with Georgia Bancshares, Inc. and thereby acquired Community Bank of
Georgia with its headquarters located in Tucker, DeKalb County, Georgia.
Management of First Sterling continued to discuss and analyze merger and
acquisition opportunities with various community bank holding companies. One of
the brokerage firms making a market in First Sterling stock informed First
Sterling's chief executive officer, Mr. Milligan, that Main Street Banks could
potentially be a merger of equals partner and introduced Mr. Milligan to Main
Street Banks' executive vice president, Mr. Hay. Managements of First Sterling
and Main Street Banks explored the desirability of a merger of First Sterling
and Main Street Banks in light of their respective goals. The combined banks
would have significantly larger geographic coverage and nearly $1 billion in
assets. This merger of equals also would offer greater growth opportunities for
the shareholders of both First Sterling and Main Street Banks. In light of this
perceived opportunity, management of First Sterling and Main Street Banks
informed their respective boards of directors at their July 1999 board meetings
that they believed further discussion was appropriate.
Throughout August and September, First Sterling and Main Street Banks'
managements analyzed the merger to determine whether First Sterling and Main
Street Banks shared compatible banking philosophies, how the employees and
management personnel could best be utilized if a merger occurred, and whether a
merger of equals would result in a more valuable institution.
In October and November, a series of meetings were held between Main Street
Banks' chief executive officer, Mr. Fowler, Mr. Hay and Mr. Milligan. At these
meetings, more details of a possible combination of the two companies were
discussed. First Sterling involved its legal counsel (Miller & Martin LLP) and
retained investment bankers (Brown, Burke Capital Partners, Inc.) for
assistance. Main Street Banks retained legal counsel (Alston & Bird LLP) and an
investment banker (The Carson Medlin Company) to assist in the process.
In late November, it appeared that the parties could agree on the key issues
of price and structure. Management of First Sterling and Main Street Banks
performed limited due diligence on the business, operations and loan portfolio
of the other company, and the entire boards of directors of Main Street Banks
and First Sterling were informally advised of the possible transaction. Upon
conclusion of the limited due diligence review and completion of the final
negotiations concerning price and other issues, the boards of directors of Main
Street Banks and First Sterling held special meetings on December 1, 1999 to
consider and vote upon the agreement between the parties.
20
<PAGE>
At the December 1, 1999 board meeting for Main Street Banks, The Carson
Medlin Company presented a financial analysis of the merger. The presentation
included an overview of the bank merger market, an analysis of First Sterling in
terms of financial and stock data, total stockholder returns, and a discussion
of the potential benefits of a merger of equals to Main Street Banks
shareholders. Carson Medlin concluded the presentation with their opinion that
the exchange ratio for Main Street Banks common stock was fair, from a financial
point of view, to the holders of Main Street Banks common stock. Alston & Bird
also presented a discussion of the legal aspects of the merger agreement, its
ancillary documents, the employment agreements for Mr. Robert R. Fowler, III,
Mr. Sam B. Hay, III and Mr. Joseph K. Strickland, Jr. and an amendment to
Mr. Milligan's employment agreement and Mr. Fowler's intent to vote in the
future as a shareholder of First Sterling for certain existing First Sterling
directors as directors of the combined company. Main Street Banks' board of
directors thoroughly reviewed the information provided by Carson Medlin and
Alston & Bird, and there was a full discussion by the board and its financial
and legal advisors regarding the specific effects of the merger proposal,
including the employment agreements above. Following this discussion, the board
of directors of Main Street Banks voted unanimously to approve the merger
agreement.
At the December 1, 1999 board meeting for First Sterling, Brown, Burke
Capital Partners, Inc. presented a financial analysis of the merger. The
presentation included an overview of the bank merger market and an analysis and
discussion on the potential benefits of a merger with Main Street Banks to First
Sterling shareholders. Brown, Burke concluded the presentation with its opinion
that the exchange ratio for Main Street Banks common stock was fair, from a
financial point of view, to the holders of First Sterling common stock.
Miller & Martin also presented a discussion of the material sections of the
merger agreement, its ancillary documents, the employment agreements for
Mr. Robert R. Fowler, III, Mr. Sam B. Hay, III and Mr. Joseph K. Strickland, Jr.
and an amendment to Mr. Milligan's employment agreement and Mr. Fowler's intent
to vote in the future as a shareholder of First Sterling for certain existing
First Sterling directors as directors of the combined company. First Sterling's
board of directors thoroughly reviewed the information provided by Brown, Burke
and Miller & Martin, and there was a full discussion by the board and its
financial and legal advisors regarding the specific effects of the merger
proposal, including the employment agreements above. Following this discussion,
the board of directors of First Sterling voted unanimously to approve the merger
agreement.
The definitive merger agreement was executed immediately following the
December 1, 1999 meetings of the boards of directors of First Sterling and Main
Street Banks.
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 and operating results of First Sterling and Main
Street Banks;
- a comparison of the terms of the merger to other comparable
merger-of-equals transactions involving financial institutions, based,
among other things, on multiples of book value and earnings;
- the merger provides First Sterling with a natural extension of its
existing metropolitan Atlanta community bank franchise by establishing a
presence in Barrow, Clarke, Newton, Rockdale and Walton counties in
Georgia;
- the merger should reduce duplicative administrative expenses and increase
profitability;
- the larger size of the combined institution and a larger shareholder base
should increase the potential trading volume and liquidity of First
Sterling stock; and
21
<PAGE>
- 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 interest 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, including the issuance of up to 8,917,290 shares of First
Sterling stock to Main Street Banks shareholders in accordance with the terms of
the merger agreement.
MAIN STREET BANKS' REASONS FOR THE MERGER
The Main Street Banks' board of directors, with the assistance of outside
financial and legal advisors, evaluated the financial, legal and market
considerations bearing on the decision to recommend the merger. The terms of the
merger, including the exchange ratio for shares of Main Street Banks' common
stock, are the result of arm's-length negotiations between representatives of
Main Street Banks and First Sterling. In reaching its conclusion that the merger
agreement is in the best interest of Main Street Banks and its shareholders, the
Main Street Banks' board carefully considered, without assigning any relative or
specific values, the following material factors:
- the exchange ratio of the proposed merger, including the fact that Main
Street Banks shareholders will not recognize any gain or loss for federal
income tax purposes on the receipt of First Sterling's common stock in the
merger;
- a comparison of the terms of the proposed merger with comparable
merger-of-equals transactions, both in the Southeastern United States and
elsewhere;
- information concerning the business, financial condition, results of
operations and prospects of Main Street Banks and First Sterling;
- competitive factors and trends toward consolidation in the banking
industry;
- an analysis of the contribution of each company to the combined entity's
shareholders' equity, total assets, loans, deposits, and earnings relative
to the percentage of the combined entity that each shareholder will own
subsequent to the merger;
- the review by the Main Street Banks' board with its legal and financial
advisors of the provisions of the merger agreement;
- the opinion rendered by Carson Medlin to the Main Street Banks' board that
the exchange ratio is fair, from a financial point of view, to the holders
of Main Street Banks' common stock;
- alternatives to the merger, including continuing to operate Main Street
Banks on a stand-alone basis, considering the breadth of its product line,
economic conditions and the prospects for community banking and
competition in the financial services area;
- the fact that First Sterling common stock is traded on the Nasdaq National
Market and that the combined company may have greater liquidity, access to
the capital markets and investor interest than either company on a
stand-alone basis;
- that this merger provides Main Street Banks with a natural extension of
its existing community banking franchise by establishing a presence in the
metropolitan Atlanta counties of Cobb, Gwinnett and Dekalb; and
- that the merger should increase profitability as a result of the
elimination of duplicative administrative expenses.
22
<PAGE>
The Main Street Banks' board of directors believes that by becoming part of
a larger organization with greater resources, Main Street Banks will be able to
serve its customers and communities better and to provide services that will be
competitive in the combined companies market and elsewhere. Similarly, a larger
organization will be able to provide greater career opportunities for Main
Street Banks' employees.
The Main Street Banks' board of directors also considered the separate
agreements and benefits proposed for employees and management and concluded that
those terms were reasonable. See "Interests of certain persons in the merger" on
page 48.
While each member of the Main Street Banks' board of directors individually
considered the foregoing and other factors, the board did not collectively
assign any specific or relative weights to the factors considered and did not
make any determination with respect to any individual factor. The Main Street
Banks' board of directors collectively made its determination with respect to
the merger based on the conclusion reached by its members, in light of the
factors that each of them considered appropriate, that the merger is in the best
interest of Main Street Banks' shareholders.
RECOMMENDATION OF THE MAIN STREET BANKS BOARD OF DIRECTORS
The board of directors of Main Street Banks believes that the terms of the
merger are in the best interest of Main Street Banks and its shareholders and
has unanimously approved the merger agreement. The board of directors of Main
Street Banks unanimously recommends that the shareholders of Main Street Banks
approve the merger agreement.
OPINION OF FINANCIAL ADVISOR TO FIRST STERLING
First Sterling has retained Brown, Burke Capital Partners, Inc. to act as
its financial advisor in connection with the merger. On October 27, 1999,
representatives of Brown, Burke participated in a meeting of the executive
committee of the board of directors of First Sterling to discuss financial
implications of a merger with Main Street Banks. Representatives of Brown, Burke
also participated in a meeting of the First Sterling board of directors held on
December 1, 1999 when the First Sterling board approved the merger with Main
Street Banks, subject to satisfactory completion of a merger agreement. At that
meeting Brown, Burke rendered its oral opinion to the effect that, as of such
date, an exchange ratio of 1.01 common shares of First Sterling for each common
share of Main Street Banks was fair to the First Sterling stockholders from a
financial point of view. Brown, Burke has also subsequently rendered its written
opinion to the First Sterling board that on the date of this joint proxy
statement/prospectus, based on the information set forth therein, the exchange
ratio was fair, from a financial point of view, to the First Sterling
stockholders.
THE FULL TEXT OF BROWN, BURKE'S WRITTEN OPINION IS ATTACHED AS APPENDIX D TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
THE DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX D. FIRST STERLING STOCKHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY BROWN, BURKE IN CONNECTION THEREWITH.
Brown, Burke's opinion is directed to the First Sterling board only and is
directed only to the exchange ratio and does not constitute a recommendation to
any First Sterling stockholder regarding how such stockholder should vote at the
annual meeting.
In arriving at its opinion, Brown, Burke among other things:
- analyzed certain audited and unaudited financial statements and other
information of First Sterling and Main Street Banks;
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<PAGE>
- reviewed and discussed with appropriate management personnel of First
Sterling and Main Street Banks the past and current business activities
and financial results and the business and financial outlook of First
Sterling and Main Street Banks;
- reviewed the historical price and trading activity of the common stock of
First Sterling and other similar banking institutions;
- compared certain financial and stock market data relating to First
Sterling with similar data of other publicly held banking institutions;
- performed an analysis comparing the pro forma consequences of the merger
to both First Sterling and Main Street Banks stockholders with respect to
earnings per share and book value and tangible book value per share
represented by the First Sterling common stock that will be held after the
merger to those same measures represented by the common stock currently
held;
- considered the relative contributions of First Sterling and Main Street
Banks to a combined institution in terms of balance sheet, revenue,
earnings and ownership measures;
- reviewed the prices paid in certain comparable transactions of community
banking institutions and the multiples of earnings and book value and the
level of deposit base premium received by the participating institutions;
- reviewed the merger agreement and certain related documents;
- considered the potential synergies and cost savings made available to
First Sterling and Main Street Banks through the merger;
- evaluated the financial and capital implications to First Sterling of the
merger;
- considered stock trading/liquidity implications to First Sterling
stockholders of the merger; and
- performed such other analyses as Brown, Burke deemed appropriate.
In conducting its analysis and arriving at its opinion, Brown, Burke assumed
and relied upon, without independent verification, the accuracy and completeness
of the information it reviewed for the purposes of the opinion. Brown, Burke
also relied upon the management of First Sterling and Main Street Banks with
respect to the reasonableness and achievability of the certain limited budgeted
financial forecasts for the remainder of 1999 (and the assumptions and bases
underlying such forecasts) provided to it. Brown, Burke also assumed, with First
Sterling's consent, that the aggregate allowances for loan losses for each of
First Sterling and Main Street Banks are adequate to cover such losses. Brown,
Burke is not an expert in the evaluation of allowances for loan losses and has
not reviewed any individual credit files. Brown, Burke did not make, nor was it
furnished with, independent valuations or appraisals of the assets or
liabilities of either First Sterling or Main Street Banks or any of their
subsidiaries. Brown, Burke did not express any opinion about what the value of
First Sterling common stock actually will be when issued to the holders of Main
Street Banks common stock pursuant to the merger or the price at which First
Sterling common stock will trade subsequent to the merger. First Sterling has
informed Brown, Burke, and Brown, Burke has assumed, that the merger will be
recorded utilizing pooling-of-interests accounting under generally accepted
accounting principles.
No limitation was imposed by First Sterling or the First Sterling board on
the scope of Brown, Burke's investigation or the procedures to be followed by
Brown, Burke in rendering its opinion. The opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to Brown, Burke as of, the date of its analysis.
In addressing the fairness, from a financial point of view, of the
consideration to be issued by First Sterling to the stockholders of Main Street
Banks, Brown, Burke employed a variety of generally recognized valuation
methodologies and merger analyses and performed those which it believed were
most appropriate for developing its opinion. The preparation of a fairness
opinion involves various determinations of the most appropriate and relevant
methods of financial analysis and the application
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<PAGE>
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. In arriving at its
fairness opinion, Brown, Burke did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments about
the significance and relevancy of each analysis and factor. None of the analyses
performed by Brown, Burke was assigned a greater significance by Brown, Burke
than any other. Accordingly, Brown, Burke believes that its analyses must be
considered as a whole and that a review of selected portions of such analyses
and the factors considered therein, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying its opinion and any conclusions reached therein. In its analyses,
Brown, Burke made numerous assumptions with respect to industry performance,
general business and economic conditions, and other matters, many of which are
beyond First Sterling's and Main Street Banks' control. Any estimates contained
in Brown, Burke's analyses are not necessarily indicative of actual values or
predictive of future results or values that may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. In addition, as described above, Brown, Burke's
opinion and presentation to the First Sterling board was one of many factors
taken into consideration by the First Sterling board in making its determination
to approve the merger agreement.
The following is a brief summary of analyses performed by Brown, Burke in
connection with its oral opinion delivered to the First Sterling board on
December 1, 1999:
SUMMARY OF PROPOSAL. Brown, Burke reviewed the terms of the proposed
transaction as reflected in the draft merger agreement, including the
calculation of the market value of the consideration represented by the exchange
ratio. Brown, Burke stated that based on the price of First Sterling common
stock on November 30, 1999 of $9.75, an exchange ratio of 1.01 shares of First
Sterling for each share of Main Street Banks common stock and options would
provide a per share purchase price of $9.85 and a fully diluted aggregate
valuation of $86.9 million.
PER SHARE FIRST STERLING MERGER CONSEQUENCES ANALYSIS. Based upon an
exchange ratio of 1.01 shares of First Sterling common stock for each share of
Main Street Banks common stock and using the earnings estimates for 1999 and
2000 for Main Street Banks prepared by Main Street Banks management, earnings
estimates for 1999 and 2000 for First Sterling developed with First Sterling
management and based on certain cost savings expected to result from the merger,
Brown, Burke compared the estimated 1999 and 2000 earnings per share of First
Sterling common stock on a stand-alone basis to the equivalent pro forma
earnings per share of First Sterling reflecting consummation of the merger.
Brown, Burke concluded that the merger would result in an equivalent earnings
per share increase of 7.5% in 1999 and 12.6% in 2000 for First Sterling
stockholders in the combined company.
Brown, Burke also analyzed the impact of the merger on the amount of fully
diluted book value and tangible book value represented by a share of First
Sterling common stock. Brown, Burke assumed consummation of the merger as of
September 30, 1999. Brown, Burke concluded that the Merger would result in a
decrease of 3.9% in fully diluted book value and a decrease of 5.9% in fully
diluted tangible book value on an equivalent per share basis, respectively, for
First Sterling stockholders on a pro forma basis as of September 30, 1999.
RELATIVE CONTRIBUTION ANALYSIS. Brown, Burke compared various income
statement, balance sheet and market value measures for First Sterling and Main
Street Banks and calculated the relative contribution of each institution to the
combined, post merger organization. In this comparison Brown, Burke noted that
Main Street Banks is projected to contribute 62.7% of the combined
organization's core, recurring net income for the year ended December 31, 1999.
Brown, Burke also noted that as of September 30, 1999, on a pro forma basis,
Main Street Banks would have contributed 61.1%, 58.6%, 59.5% and 63.3% of the
combined organization's gross loans, total deposits, total assets and fully
25
<PAGE>
diluted shareholder's equity, respectively. Brown, Burke referenced that Main
Street Banks shareholders would hold approximately 61.7% of the combined
organization's common shares and common share equivalents based upon an exchange
ratio of 1.01.
ANALYSIS OF SELECTED OTHER BANK MERGERS INVOLVING NATIONWIDE COMMUNITY
BANKS. Brown, Burke reviewed 18 mergers involving banks and bank holding
companies announced between January 1999 and November 1999 in which the seller's
return on average assets was between 1.25% and 1.75% and assets were less than
$1 billion. Brown, Burke noted in particular the exchange ratios in these
mergers as a multiple of earnings and book values and the transaction premiums
paid in excess of tangible book value as a percentage of core deposits. Brown,
Burke also reviewed other data in connection with each of these mergers,
including the amount of total assets and the capital level of the acquired
institutions and the return on equity and the return on assets of the acquired
institutions. Brown, Burke then compared this data to that of Main Street Banks
and to the value to be received by Main Street Banks stockholders in the merger.
This comparison yielded a range of transaction values as multiples of latest
twelve-months earnings per share of a low of 10.1 times and a high of 42.3 times
and a median value of 19.6 times. The Main Street Banks exchange ratio reflected
that the multiple of trailing earnings was 12.3 times. The calculations yielded
a range of transaction values as multiples of book value per share of a low of
1.65 times to a high of 4.48 times and a median value of 3.09 times. The Main
Street Banks exchange ratio reflected that the multiple of book value was 1.92
times. Finally, the calculations yielded a range of deposit base premiums paid
from a low of 9.7% to a high of 37.2%, with a median value of 26.8%. The
equivalent premium on Main Street Banks deposits represented by the exchange
ratio was 12.9%, reflecting that this was a merger of equals.
No company or transaction used in the above analyses as a comparison is
identical to First Sterling, Main Street Banks, or the merger, and most of the
transactions were not mergers of equals. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial growth, and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which they are being compared. Mathematical analysis (such as
determining the average or median) in and of itself, does not necessarily
provide meaningful intercompany comparisons.
In connection with its written opinion dated the date of this joint proxy
statement/prospectus, Brown, Burke confirmed the appropriateness of the analyses
used to render its December 1, 1999 report and oral opinion by performing
procedures to update certain of such analyses and by reviewing the assumptions
on which such analyses were based and the factors considered in connection
therewith.
Brown, Burke is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for estate, tax, corporate and other purposes. First Sterling has
paid Brown, Burke a fee of $10,000 in connection with its engagement. An
additional fee of 0.25% of the market value of First Sterling's fully diluted
common shares and common share equivalents immediately prior to consummation of
the merger transaction, will be payable to Brown, Burke upon consummation of the
transaction, $10,000 of which shall be due upon delivery of Brown, Burke's
fairness opinion. Assuming the market price of a share of First Sterling common
stock at the effective date of the merger is $8.88 (the closing price of First
Sterling common stock on March 7, 2000) this additional fee would be
approximately $123,000. No compensation payable to Brown, Burke is contingent on
the conclusions reached in the opinion of Brown, Burke. First Sterling has also
agreed to reimburse Brown, Burke for reasonable out of pocket-expenses and to
indemnify Brown, Burke and certain related persons against certain liabilities
relating to or arising out of its engagement.
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<PAGE>
OPINION OF FINANCIAL ADVISOR TO MAIN STREET BANKS
In October 1999, representatives of Carson Medlin met with the senior
officers of Main Street Banks and with Alston & Bird to discuss a potential
merger of equals transaction with First Sterling as well as other potential
transactions by which Main Street Banks would affiliate with other financial
institutions. A number of related discussions followed. On November 15, 1999,
Main Street Banks engaged Carson Medlin to provide financial advisory services
in connection with a proposed transaction which would lead to a merger of equals
of Main Street Banks with First Sterling. Main Street Banks selected Carson
Medlin as its financial adviser on the basis of Carson Medlin's experience and
expertise in serving as financial advisor to community banks in merger
transactions. Carson Medlin is an investment banking firm which specializes in
the securities of financial institutions located in the southeastern and western
United States. As part of its investment banking activities, Carson Medlin is
regularly engaged in the valuation of financial institutions and transactions
relating to their securities, including mergers and acquisitions.
On November 30, 1999, Carson Medlin delivered to Main Street Banks' board of
directors, in conjunction with their meeting held to consider the merger, its
opinion to the effect that the exchange ratio provided for in the merger
agreement is fair, from a financial point of view, to the shareholders of Main
Street Banks.
You should consider the following when reading the discussion of Carson
Medlin's opinion in this document:
- The summary of Carson Medlin's opinion set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full
text of the opinion that is attached as Appendix E to this document. You
should read the opinion in its entirety for a full discussion of the
procedures followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by Carson Medlin
in connection with its opinion.
- Carson Medlin's opinion is addressed to Main Street Banks' board of
directors and is substantially identical to the written opinion delivered
to Main Street Banks' board dated November 30, 1999.
- Carson Medlin expressed no opinion as to the price at which First Sterling
common stock would actually be trading at any time.
- Carson Medlin's opinion does not address the relative merits of the merger
and the other business strategies considered by Main Street Banks' board,
nor does it address the appropriateness of the decision of Main Street
Banks' board to proceed with the merger.
- Carson Medlin's opinion has been provided to Main Street Banks' board only
in connection with the merger and does not constitute a recommendation to
any Main Street Banks shareholder regarding how he or she should vote at
the special meeting.
No limitations were imposed by Main Street Banks' board or its management
upon Carson Medlin with respect to the investigations made or the procedures
followed by Carson Medlin in rendering its opinion.
The preparation of a financial fairness opinion involves various
determinations as to the most appropriate methods of financial analysis and the
application of those methods to the particular circumstances. It is therefore
not readily susceptible to partial analysis or summary description. In
connection with rendering its opinion, Carson Medlin performed a variety of
financial analyses. Carson Medlin believes that its analyses must be considered
together as a whole and that selecting portions of its analyses and the factors
it considered in its analyses, without considering all other analyses and
factors, could create an incomplete or inaccurate view of the analyses and the
process underlying the rendering of Carson Medlin's opinion.
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<PAGE>
In performing its analyses, Carson Medlin made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of First Sterling and Main Street
Banks and which may not be realized. Any estimates contained in Carson Medlin's
analyses are not necessarily predictive of future results or values, which may
be significantly more or less favorable than the estimates. Estimates of values
of companies do not purport to be appraisals or necessarily reflect the prices
at which the companies or their securities may actually be sold. Except as
described below, none of the analyses performed by Carson Medlin was assigned a
greater significance by Carson Medlin than any other. The relative importance or
weight given to these analyses by Carson Medlin is not affected by the order of
presentation of the analyses (and the corresponding results). When the summaries
of financial analyses include information presented in tabular format, the
tables should be read together with the text of those summaries.
Carson Medlin has relied upon, without independent verification, the
accuracy and completeness of the information it reviewed for the purpose of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of First Sterling or Main
Street Banks, nor was it furnished with any appraisals.
Carson Medlin is not an expert in the evaluation of loan portfolios,
including under-performing or non-performing assets, loan charge-offs or the
allowance for loan losses; has not reviewed any individual credit files of First
Sterling or Main Street Banks; and has assumed that First Sterling's and Main
Street Banks' loan loss allowances are in the aggregate adequate to cover future
losses. Carson Medlin's opinion is necessarily based on economic, market and
other conditions existing on the date of its opinion, and on information as of
various earlier dates made available to it which is not necessarily indicative
of current market conditions.
In rendering its opinion, Carson Medlin made the following assumptions:
- that the merger will be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles;
- that all material governmental, regulatory and other consents and
approvals necessary for the consummation of the merger would be obtained
without any adverse effect on Main Street Banks, First Sterling or on the
anticipated benefits of the merger;
- that Main Street Banks and First Sterling had provided it with all of the
information prepared by Main Street Banks and First Sterling or their
representatives that might be material to Carson Medlin in its review; and
- that the financial projections it reviewed were reasonably prepared on a
basis reflecting the best currently available estimates and judgment of
the management of Main Street Banks and First Sterling as to the future
operating and financial performance of Main Street Banks and First
Sterling.
In connection with its opinion, Carson Medlin reviewed:
- the merger agreement;
- the annual reports to shareholders of First Sterling, including the
audited financial statements for the five years ended December 31, 1998;
- audited financial statements of Main Street Banks for the five years ended
December 31, 1998;
- unaudited interim financial statements of First Sterling for the nine
months ended September 30, 1999;
- unaudited interim financial statements of Main Street Banks for the nine
months ended September 30, 1999; and
- certain other financial and operating information with respect to the
business, operations and prospects of First Sterling and Main Street
Banks.
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<PAGE>
In addition, Carson Medlin:
- held discussions with members of the senior management of Main Street
Banks and First Sterling regarding the historical and current business
operations, financial condition and future prospects of their respective
companies;
- reviewed the historical market prices and trading activity for the common
stock of First Sterling compared with that of certain other publicly
traded companies which it deemed to be relevant and the limited
information available regarding the limited trading activity of Main
Street Banks common stock;
- compared the results of operations of Main Street Banks and First Sterling
with those of certain other financial institutions which it deemed to be
relevant;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of certain other recent business
combinations of financial institutions;
- analyzed the pro forma financial impact of the merger on Main Street Banks
and First Sterling; and
- conducted such other studies, analyses, inquiries and examinations as
Carson Medlin deemed appropriate.
VALUATION METHODOLOGIES
The following is a summary of the material analyses performed by Carson
Medlin in connection with its opinion provided to Main Street Banks' board of
directors as of November 30, 1999. The summary does not purport to be a complete
description of the analyses performed by Carson Medlin.
SUMMARY OF MERGER AND ANALYSIS
Carson Medlin reviewed the terms of the proposed merger, including the form
of consideration, the exchange ratio, the market value of Main Street Banks' and
First Sterling's common stocks as of November 30, 1999. Under the terms of the
merger agreement, each outstanding share of Main Street Banks common stock will
be converted into the right to receive 1.01 shares of First Sterling's common
stock with a value of $9.85 per share of Main Street Banks common stock, based
on the closing price of First Sterling's common stock on November 30, 1999 of
$9.75 per share. As a result of the merger, Main Street Banks existing
shareholders will own 63.4% of the resulting entity and First Sterling existing
shareholders will own 36.6%.
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<PAGE>
INDUSTRY COMPARATIVE ANALYSIS
In connection with rendering its opinion, Carson Medlin compared selected
operating results of Main Street Banks and First Sterling to those of 54
publicly traded community commercial banks in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Virginia and West Virginia as
contained in the Southeastern Independent Bank Review a proprietary research
publication prepared quarterly by Carson Medlin since 1991. The SIBR banks range
in asset size from approximately $126 million to $3.2 billion and in
shareholders' equity from approximately $14 million to $412 million. Carson
Medlin considers this group of financial institutions more comparable to Main
Street Banks and First Sterling than larger, more widely traded regional
financial institutions. Carson Medlin compared, among other factors, the
profitability, capitalization, and asset quality of Main Street Banks and First
Sterling to these financial institutions. Carson Medlin noted the following
results reported for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
MAIN
STREET FIRST MEAN FOR
BANKS STERLING SIBR BANKS
-------- --------- ----------
<S> <C> <C> <C>
Return on Average Assets...................... 1.48% 1.23% 1.17%
Return on Average Equity...................... 15.6% 14.4% 11.7%
Shareholders' Equity to Total Assets.......... 9.0% 7.7% 9.7%
Nonperforming Assets Ratio(1)................. 0.95% 0.14% 0.88%
</TABLE>
- ------------------------
(1) defined as loans 90 days past due, nonaccrual loans and other real estate
to total loans net of unearned income and other real estate, at
September 30, 1999
This comparison indicated that Main Street Banks had significantly higher
than average profitability and slightly below average asset quality and level of
equity compared to SIBR banks. This comparison indicated that First Sterling had
above average profitability and asset quality compared to SIBR banks and a level
of equity that was below average.
Carson Medlin also noted the following comparison of First Sterling's recent
market valuation to the average valuation of the SIBR banks.
<TABLE>
<CAPTION>
FIRST MEAN FOR
STERLING SIBR BANKS
--------- ----------
<S> <C> <C>
Market value to trailing 12-months earnings........... 17.5x 14.7x
Market value to current book value.................... 233% 166%
</TABLE>
This comparison indicated that First Sterling's relative market valuation was
above average in comparison to the comparable financial institutions.
Carson Medlin also examined the limited information regarding the limited
trading activity of Main Street Banks common stock. Main Street Banks common
stock has not traded in any public market or securities exchange, and the number
of shares traded was insufficient to reflect a meaningful market value.
Therefore, Carson Medlin did not consider the market value of Main Street Banks
common stock in its analysis.
Carson Medlin also reviewed selected investment research reports on and
earnings estimates for First Sterling as well as other information which Carson
Medlin deemed relevant.
PRESENT VALUE ANALYSIS
Carson Medlin calculated the present value of Main Street Banks, both
assuming that Main Street Banks remained an independent bank as well as assuming
that Main Street Banks merged with First Sterling. For purposes of this
analysis, Carson Medlin utilized certain projections of First Sterling's and
Main Street Banks' future growth of assets, earnings and dividends provided to
Carson Medlin by the
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<PAGE>
management of Main Street Banks and First Sterling and assumed that the common
stocks of Main Street Banks and First Sterling would be sold at the end of
4 years at 20 times projected 2003 earnings. This value was then discounted to
present value utilizing discount rates of 12%, 13% and 14%. These rates were
selected because, in Carson Medlin's experience, they represent the rates that
investors in securities such as Main Street Banks' and First Sterling's common
stock would require in view of the potential appreciation and risks. On the
basis of these assumptions, Carson Medlin calculated that the present value of
Main Street Banks as an independent bank ranged from $20.09 per share to $21.50
per share. Carson Medlin calculated the present value of Main Street Banks
proportionate ownership in the combined company ranged from $22.10 per share to
$23.66 per share, higher than the present value of Main Street Banks as an
independent bank.
The earnings projected for the combined company included certain anticipated
cost savings and revenue enhancements. Carson Medlin assumed these
"consolidation synergies" based on its discussions with the management of Main
Street Banks and First Sterling. The actual results achieved by the combined
company may vary from the projected results and the variations may be material.
Because of the inherent uncertainties associated with merging two companies,
there can be no assurance that the combined company will be able to realize the
full cost savings and/or revenue enhancements that Carson Medlin assumed to
result from the merger and the consolidation of the operations of First Sterling
and Main Street Banks or that such savings will be realized at the times
assumed. Furthermore, there can be no assurance that any costs savings which are
realized will not be offset by increases in other expenses, operating losses,
other charges to earnings or losses of revenue, including losses due to
unanticipated difficulties in integrating the two companies. Carson Medlin noted
that it considered present value analysis because it is a widely used valuation
methodology, but also noted that the results of this methodology are highly
dependent upon the numerous assumptions that must be made, including assets and
earnings growth rates, dividend payout rates, terminal values and discount
rates.
CONTRIBUTION ANALYSIS
Carson Medlin reviewed the relative contributions of various balance sheet
and income statement components to be made in the merger by Main Street Banks
and First Sterling to the resulting combined institution based on (1) balance
sheet data at September 30, 1999, and (2) projected net income for 1999 through
2003 as estimated by management of Main Street Banks and First Sterling. The
income statement and balance sheet components analyzed included total assets,
total deposits, shareholders' equity, and net income. The following table
compares the pro forma ownership of Main Street Banks and First Sterling
shareholders in the combined company based upon the exchange ratio to each
company's respective contribution of the financial factors:
<TABLE>
<CAPTION>
PRO FORMA OWNERSHIP OF COMBINED COMPANY
------------------------------------------------------
MAIN STREET SHAREHOLDERS FIRST STERLING SHAREHOLDERS
------------------------ ---------------------------
<S> <C> <C> <C>
I. OWNERSHIP.............................. 64.6% 35.4%
</TABLE>
<TABLE>
<CAPTION>
CONTRIBUTION TO COMBINED COMPANY
----------------------------------------
MAIN STREET FIRST STERLING
CONTRIBUTION CONTRIBUTION
------------------ -------------------
<S> <C> <C> <C>
II. FINANCIAL FACTORS
Income Statement
Estimated 1999 net income.............. 63.6% 36.4%
Estimated 2000-2003 net income......... 63.7% 36.3%
Balance Sheet as of September 30, 1999
Total assets........................... 59.5% 40.5%
Total deposits......................... 58.6% 41.4%
Shareholders' equity................... 63.3% 36.7%
</TABLE>
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<PAGE>
Carson Medlin considers the proportion of the financial factors contributed
by Main Street Banks and First Sterling, respectively, in comparison to the
ownership in the entity resulting from the merger by their respective existing
shareholders groups to be relatively similar to other recent merger of equals
transactions involving financial institutions where board representation as well
as management responsibilities at the resulting combined entity were shared
relatively equally by the merging parties.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and could be evaluated as of the
date of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of Main
Street Banks or First Sterling could materially affect the assumptions used in
preparing the opinion.
Main Street Banks paid Carson Medlin a fee of $5,000 due upon delivery to
Main Street Banks by Carson Medlin of its initial analysis of the proposed
merger and $20,000 upon the execution by Main Street Banks of a definitive
agreement to effect a merger. Main Street Banks has agreed to pay Carson Medlin
an additional fee of $100,000 when the merger is consummated. In addition to the
fees payable pursuant to the foregoing and regardless of whether the merger is
consummated, Main Street Banks has also agreed to reimburse Carson Medlin for
its reasonable out-of-pocket expenses, including expenses of counsel, incurred
in connection with its retention.
EXCHANGE OF MAIN STREET BANKS STOCK CERTIFICATES
As soon as practicable after the consummation of the merger, a letter of
transmittal furnishing instructions for exchanging Main Street Banks stock
certificates (and for replacing any lost, stolen or destroyed certificates) will
be mailed to each Main Street Banks shareholder of record as of the close of
business on the effective date of the merger. Each Main Street Banks 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
for First Sterling. As soon as practicable after receipt by the exchange agent
of your Main Street Banks stock certificates, you will be mailed the First
Sterling stock and/or a check for any fractional share interest or dividends or
distributions to which you are entitled pursuant to the merger agreement.
As of the effective date of the merger, each Main Street Banks 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 Main Street Banks 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.
Any dividends or distributions or other cash payable to you will be retained,
without interest, for your account until surrender of your stock certificate.
There will be no transfers of shares of Main Street Banks common stock on
Main Street Banks' stock transfer books after the effective time. Main Street
Banks common stock certificates presented for transfer after the effective time
will be canceled and exchanged for First Sterling common stock certificates and
a check for any amount to be paid for a fractional share interest.
Existing First Sterling shareholders will keep their existing stock
certificates and should not deliver any certificates for First Sterling stock.
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FRACTIONAL SHARES
First Sterling will not issue any fractional shares of First Sterling common
stock to former Main Street Banks' shareholders. Instead, you will receive cash
without interest for any fractional share interest. The amount of cash received
will be determined by multiplying the fraction by the average of the last
regular closing sales prices of First Sterling common stock on Nasdaq for the 10
trading days immediately preceding the effective time of the merger. You will
not be entitled to dividends, voting rights or any other shareholder rights with
respect to any fractional share interest.
EFFECTIVE TIME OF THE MERGER
The merger will be consummated if it is approved by the shareholders of
First Sterling and Main Street Banks, and, unless waived, First Sterling and
Main Street Banks obtain all required consents and approvals and satisfy the
other conditions to the obligations of the parties to consummate the merger. The
merger will become effective on the date and at the time that a certificate of
merger reflecting the merger is filed with the Secretary of State of Georgia, or
a later date or time that is indicated in the certificate. We presently expect
that the effective date will occur in the second quarter of 2000.
TERMS OF THE MERGER
Upon completion of the merger, the separate legal existence of Main Street
Banks will cease. All property, rights, powers, duties, obligations, debts and
liabilities of Main Street Banks will automatically be transferred to First
Sterling. The articles of incorporation of First Sterling shall be amended and
restated (subject to approval of the shareholders of First Sterling). These
restated articles of incorporation of First Sterling will govern the combined
entity.
Upon the merger, each outstanding share of Main Street Banks stock will be
automatically converted into, and become a right to receive 1.01 shares of First
Sterling stock. This is the "exchange ratio." Existing shares of First Sterling
held by First Sterling shareholders immediately prior to the merger shall not be
converted and will continue to be issued and outstanding.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
- the organization of First Sterling and Main Street Banks;
- the capital structures of First Sterling and Main Street Banks;
- the due authorization, execution, delivery, performance and enforceability
of the merger agreement;
- consents or approvals of regulatory authorities and 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, 1999, in the
consolidated assets, business, liabilities, financial condition or results
of operations of First Sterling (or its subsidiaries) or Main Street Banks
(or its subsidiary) or in any of its relationships with customers,
employees, lessors, or others;
- the filing of tax returns and payment of taxes;
- the absence of undisclosed material pending or threatened litigation;
- compliance with applicable laws and regulations;
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<PAGE>
- 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 Main Street Banks.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, First Sterling and Main Street Banks 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 Main Street Banks
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, not to:
- engage in certain activities such as selling property (except in the
ordinary course of business), making capital contributions to affiliates,
making capital expenditures (except in the ordinary course of business);
- enter into any compensation agreements or increase salaries, employee
benefits, directors' fees or bonuses, except to the extent consistent with
past practices;
- change employee benefit plans;
- enter into any agreements with officers, directors, immediate family
members of such officers and directors, or affiliates of the banks;
- enter into agreements that call for payment of $200,000, or more, with
certain exceptions; and
- fail to maintain books, accounts and records in the ususal, regular and
ordinary manner, on a basis consistent in all material aspects with prior
years.
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 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;
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<PAGE>
- to file all reports required to be filed with regulatory agencies for
periods ending on or after December 31, 1999; and
- to allow representatives of the other to attend our board of directors and
loan and executive committee meetings (except during discussions of the
merger).
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;
- the Restated Articles of Incorporation shall have been approved by the
First Sterling shareholders;
- 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--Required regulatory approvals" at page 37);
- no action, suit, proceeding or claim shall have been instituted, made or
threatened relating to the merger;
- 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 (see "The merger--Material federal income
tax consequences of the merger" at page 39);
- we shall each have received an opinion from Ernst & Young LLP and
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" at page 40);
- the aggregate number of shares of Main Street Banks stock dissenting to
the merger shall not disqualify the merger to be accounted for as a
pooling-of-interests.
- the accuracy in all material respects as of December 1, 1999 and as of the
effective date of the merger of our representations and warranties, 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 of the
merger; and
- other conditions which are customary for transactions of the type
contemplated by the merger agreement. See "The merger--Representations and
warranties" at page 35 and "The merger--Conduct of business pending the
merger" at page 35.
REQUIRED REGULATORY APPROVALS
The merger may not proceed unless we receive the required regulatory
approvals. We know of no reason why such approvals would not be obtained, but we
cannot assure you that such regulatory approvals will be obtained or when we
will obtain them. Applications for the approvals described in this section have
been submitted to the Federal Reserve and the Georgia Department of Banking and
Finance, the only regulatory authorities that need to approve the merger.
We are not aware of any other material regulatory approvals or actions that
are required for consummation of the merger. Should any other approval or action
be required, we presently contemplate that such approval or action would be
sought.
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<PAGE>
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:
- 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
- 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 fifteenth day 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.
The Georgia Department of Banking and Finance also must approve the merger.
In its evaluation of the merger, the Georgia Department will take into account
considerations similar to those applied by the Federal Reserve.
NASDAQ LISTING
First Sterling shares are currently listed on the Nasdaq National Market.
The continued listing of the First Sterling shares and the listing of the shares
to be issued in the merger may require application to and approval of Nasdaq. An
application for listing such shares shall be made to Nasdaq, if necessary.
WAIVER, AMENDMENT, AND TERMINATION
We may agree to amend the merger agreement. However, after approval of the
merger agreement by our shareholders, we cannot make any amendment which
modifies the exchange ratio specifying the conversion of Main Street Banks
shares into First Sterling shares. 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 the fault of the terminating party, the
closing of the merger does not occur on or before June 30, 2000;
- by either of us if regulatory approval is denied; or
- by either of us if: (i) the other materially breaches its representations,
warranties or covenants of the merger agreement and the breach is not
corrected for 30 days after notice; (ii) an event or circumstance arises
as a result of which the other party will be unable to satisfy certain
conditions of the merger agreement; or (iii) if, at the closing of the
merger, any condition to the obligations of such party is not met.
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
36
<PAGE>
under the merger agreement. In the event of a termination, we shall each be
responsible for the costs, expenses and fees which have been incurred by each of
us in attempting to accomplish the transactions contemplated in the merger
agreement, including the expenses associated with our own fairness opinion,
attorneys and consultants.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger, the First Sterling board of directors shall initially have
eight members. The board of directors will be divided into three classes. The
members of the classes and the annual shareholders' meeting at which their terms
expire are as follows:
<TABLE>
<S> <C>
Class I with a term expiring in 2001..... Robert R. Fowler, III, Sam B. Hay, III
and C. Candler Hunt
Class II with a term expiring in 2002.... Frank B. Turner and Eugene L. Argo
Class III with a term expiring in 2003... Edward C. Milligan, P. Harris Hines and
Harry L. Hudson, Jr.
</TABLE>
Mr. Fowler, the chairman and chief executive officer of Main Street Banks, will
be the chairman of the First Sterling board of directors after the merger.
Justice Hines will serve as vice chairman of the First Sterling board of
directors. Mr. Milligan shall continue to serve as president and chief executive
officer of First Sterling and his employment agreement shall be amended to
provide that, in addition to continuing as chief executive officer, he shall
become chairman of the board of directors two years after the date of the
merger. Mr. Hay will serve as executive vice president and chief operating
officer of First Sterling and his employment agreement shall provide that, in
addition to continuing as chief operating officer, he shall become president of
First Sterling two years after the date of the merger. Mr. Joseph K. Strickland,
Jr., the president and chief operating officer of Main Street Banks shall serve
as executive vice president, banking, of First Sterling after the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material anticipated federal income tax
consequences of the merger. This summary is based on the federal income tax laws
now in effect and as currently interpreted. This summary does not take into
account possible changes in these laws or interpretations, including amendments
to applicable statutes or regulations or changes in judicial or administrative
rulings, some of which may have retroactive effect. This summary does not
address all aspects of the possible federal income tax consequences of the
merger and is not intended as tax advice to any person.
In particular, this summary does not address the federal income tax
consequences of the merger to Main Street Banks shareholders in light of their
particular circumstances or status. For example, this summary does not address
the federal income taxation of the merger to Main Street Banks shareholders who
are foreign persons, tax-exempt entities, dealers in securities, insurance
companies or corporations, among others. Nor does this summary address any
consequences of the merger under any state, local, estate or foreign laws, or
the tax treatment of shares of Main Street Banks or options or other rights to
purchase shares of Main Street Banks stock that are or have been received as
compensation. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO YOU, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND
OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
In connection with the filing of the registration statement of which this
document is a part, Miller & Martin LLP delivered a tax opinion to First
Sterling and Main Street Banks. The following discussion summarizes the material
income tax consequences of the merger to the shareholders of First
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<PAGE>
Sterling and Main Street Banks which were described in that opinion. This
discussion is qualified in its entirety by reference to the tax opinion, which
is included as an exhibit to the registration statement. In connection with the
tax opinion, Miller & Martin LLP has relied upon factual assumptions which are
customary in similar tax opinions and representations made by First Sterling and
Main Street Banks in the merger agreement.
Cash that a dissenting Main Street Banks shareholder receives will be
treated as having been received as a distribution in redemption of his or her
Main Street Banks stock. A dissenting shareholder will realize and recognize
gain or loss in an amount equal to the difference between the amount of cash
received and the adjusted tax basis of the Main Street Banks stock surrendered.
Such gain or loss will be capital gain or loss if the dissenting shareholder
held the Main Street stock as a capital asset at the effective time of the
merger and will be long-term capital gain or loss if such shares of Main Street
Bank common stock have been held for more than 12 months as of the effective
time of the merger. MAIN STREET BANKS SHAREHOLDERS ELECTING TO EXERCISE
DISSENTERS' RIGHTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR TAX TREATMENT FOR
THEIR PARTICULAR CIRCUMSTANCES.
The payment of cash to holders of Main Street stock in lieu of fractional
share interests of First Sterling's common stock will be treated as if the
fractional shares were issued as part of the exchange pursuant to the merger and
then were redeemed by First Sterling. These cash payments will be treated as
having been received as distributions in full payment in exchange for the First
Sterling common stock redeemed. A Main Street shareholder who receives such cash
will recognize gain or loss equal to the difference between the amount of cash
and the tax basis allocated to the fractional share interest exchanged therefor.
Such gain or loss will be capital gain or loss if such stockholder's Main Street
stock is held as a capital asset at the effective time of the merger and will be
long-term capital gain or loss if such shares of Main Street stock have been
held for more than 12 months as of the effective time of the merger.
The aggregate tax basis of the First Sterling stock that Main Street Banks
shareholders receive pursuant to the merger will be the same tax basis as their
shares of Main Street Banks stock being exchanged, decreased by any portion of
the tax basis allocated to fractional shares of First Sterling stock that First
Sterling treats as redeemed.
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<PAGE>
The holding period of the shares of First Sterling stock that Main Street
Banks shareholders receive will include the holding period of the shares of Main
Street Banks stock being exchanged, provided that the Main Street Banks stock is
held as a capital asset on the date of the consummation of the merger.
Based upon the merger agreement, the factual assumptions and representations
made by First Sterling and Main Street Banks, Miller & Martin LLP is of the
opinion that:
- The merger will be a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
- The shareholders of Main Street Banks will recognize no gain or loss upon
the exchange of their Main Street Banks stock solely for shares of First
Sterling stock plus cash in lieu of fractional shares, except for the
recognition of gain as a result of the receipt by the Main Street Banks
shareholders of cash in lieu of fractional shares.
- Neither First Sterling nor Main Street Banks will recognize any income,
gain or loss as a consequence of the merger.
ACCOUNTING TREATMENT
It is anticipated that the merger will be accounted for as a
pooling-of-interests transaction under accounting principles generally accepted
in the United States. Under this accounting method, Main Street Banks
shareholders will be deemed to have combined their existing voting common stock
interest with that of holders of First Sterling stock by exchanging their shares
for shares of First Sterling common stock. Accordingly, the book value of the
assets, liabilities and shareholders' equity of Main Street Banks as reported on
its consolidated balance sheet will carry over to First Sterling's consolidated
balance sheet, and no goodwill will be created. First Sterling will be able to
include in its consolidated income the consolidated income of Main Street Banks
for the entire fiscal year in which the merger occurs. The unaudited pro forma
financial information contained in this joint proxy statement/prospectus has
been prepared using the pooling-of-interests method of accounting. If the merger
does not qualify for pooling-of-interests accounting treatment, we may terminate
the transaction.
EXPENSES AND FEES
First Sterling and Main Street Banks shall each be responsible for the
costs, expenses and fees which have been incurred by each company in attempting
to accomplish the merger, including, the expenses associated with its own
fairness opinion, attorneys and consultants.
STATUTORY PROVISIONS FOR DISSENTING SHAREHOLDERS
THE FOLLOWING DISCUSSION IS NOT A COMPLETE DESCRIPTION OF THE LAW RELATING
TO APPRAISAL RIGHTS AVAILABLE UNDER GEORGIA LAW AND IS QUALIFIED BY THE FULL
TEXT OF ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE. ARTICLE 13 IS
REPRINTED IN ITS ENTIRETY AS Appendix C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. IF YOU DESIRE TO EXERCISE APPRAISAL RIGHTS, YOU SHOULD
REVIEW CAREFULLY ARTICLE 13 AND ARE URGED TO CONSULT A LEGAL ADVISOR BEFORE
ELECTING OR ATTEMPTING TO EXERCISE THESE RIGHTS.
Any holder of record of Main Street Banks 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 Main Street
Banks stock if the proposed merger is consummated.
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<PAGE>
A shareholder of Main Street Banks who objects to the merger and desires to
receive payment of the "fair value" of his or her Main Street Banks stock:
(a) Must file a written objection to the merger with Main Street Banks
either prior to the meeting or at the Main Street Banks 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 not vote his or her shares in favor of the merger agreement;
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 Main Street Banks 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 Main Street Banks must be forwarded to
Main Street Banks, Incorporated, 1134 Clark Street, Covington, Georgia 30014,
Attention: Corporate Secretary.
If the merger is approved, Main Street Banks 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
Main Street Banks in writing, or, if none, at the shareholder's address as it
appears on the records of Main Street Banks. Main Street Banks 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 Main Street Banks.
If all conditions in (a), (b) and (c) above are satisfied in full, Main
Street Banks 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 Main Street Banks stock at a specific price. If
Main Street Banks and any dissenting shareholder are unable to agree on the fair
value of the shares within sixty days, Main Street Banks will commence a
proceeding in superior court of the county where its main office is located, to
determine the rights of the dissenting shareholders and the fair value of his or
her shares. If Main Street Banks 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 Main Street Banks, 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 Main Street Banks and in favor of
any or all dissenters if the court finds Main Street Banks did not substantially
comply with the dissenters' provisions; or (2) against Main Street Banks 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 Main Street Banks, the court may award
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<PAGE>
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 Main Street Banks stock dissenting to the merger shall not exceed an amount
which would cause the transaction not to be accounted for as a
pooling-of-interests. 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.
Upon compliance with the statutory procedures, dissenting shareholders will
not have any rights as shareholders of Main Street Banks or of First Sterling,
including, among other things, the right to receive dividends and the right to
vote on matters submitted for shareholder consideration.
Main Street Banks' shareholders should note that cash paid to dissenting
shareholders in satisfaction of the fair value of their shares will be
recognized as gain or loss for federal income tax purposes.
FAILURE BY A MAIN STREET BANKS SHAREHOLDER TO FOLLOW THE STEPS REQUIRED BY
THE GEORGIA BUSINESS CORPORATION CODE FOR PERFECTING APPRAISAL RIGHTS MAY RESULT
IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS AND
THE REQUIREMENT THAT THEY BE STRICTLY COMPLIED WITH, IF YOU HOLD MAIN STREET
BANKS COMMON STOCK AND ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND EXERCISING YOUR APPRAISAL RIGHTS UNDER THE GEORGIA
BUSINESS CORPORATION CODE, YOU SHOULD CONSULT YOUR LEGAL ADVISORS.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of First Sterling common stock to be issued in the merger will be
freely transferable under the Securities Act of 1933. However, this will not be
the case for shares issued to any shareholder who may be deemed to be an
"affiliate" of Main Street Banks for purposes of Rule 145 under the Securities
Act as of the date of the shareholders' meetings. Affiliates may resell their
First Sterling stock (a) only in transactions registered under the Securities
Act of 1933 or permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted by the Securities Act and
(b) following the satisfaction of the requirements of the Securities and
Exchange Commission's Accounting Series Release Nos. 130 and 135 relating to
publication of financial results of the post-merger combined operations of First
Sterling and Main Street Banks. These rules also apply to First Sterling stock
owned by affiliates of First Sterling. Affiliates generally include individuals
or entities that directly, or indirectly through one or more intermediaries,
control, are controlled by or are under common control with First Sterling or
Main Street Banks and include directors, certain executive officers and
principal shareholders. The restrictions on resales by an affiliate extend also
to certain related parties of the affiliate, including spouses, relatives and
spouse's relatives who in each case have the same home as the affiliate.
The merger agreement requires First Sterling and Main Street Banks to use
all reasonable efforts to cause each of their affiliates to deliver a written
agreement to the effect generally that the affiliate will not offer or otherwise
dispose of any shares of First Sterling stock owned by the affiliate, except in
compliance with (a) the Securities Act and the rules and regulations issued
under the Securities Act and (b) the requirements of the accounting releases
described above.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1999, combines the historical consolidated balance sheets of First
Sterling and Main Street Banks as if the merger had been effective on
December 31, 1999, after giving effect to certain adjustments. These adjustments
are based on estimates. The unaudited pro forma condensed combined statements of
income for the years ended December 31, 1999, 1998 and 1997 present the combined
results of operations of First Sterling and Main Street Banks as if the
companies had been combined for the entire period. The unaudited pro forma
condensed combined financial information has been prepared from, and should be
read in conjunction with, the historical consolidated financial statements of
First Sterling and Main Street Banks.
The unaudited pro forma condensed combined financial information reflects
the application of the pooling-of-interests method of accounting for the merger.
Under this method of accounting, the recorded assets, liabilities, shareholders'
equity, income and expenses of First Sterling and Main Street Banks are combined
and reflected at their historical amounts.
The pro forma combined figures shown in the unaudited pro forma condensed
combined financial information are simply arithmetical combinations of First
Sterling's and Main Street Banks' separate financial results. You should not
assume that First Sterling and Main Street Banks would have achieved the pro
forma combined results if they had actually been combined during the periods
presented.
The combined company expects to incur merger and other non-recurring
expenses as a result of the merger and to achieve merger benefits in the form of
operating cost savings. The pro forma earnings, which do not reflect any direct
costs or potential savings which are expected to result from the consolidation
of the operations of First Sterling and Main Street Banks, are not indicative of
the results of future operations. No assurances can be given with respect to the
ultimate level of expense savings.
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<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO
FIRST MAIN PRO FORMA FORMA
STERLING STREET BANKS ADJUSTMENTS COMBINED
-------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 13,477 $ 22,345 $ $$35,822
Interest-bearing deposits in banks............... 1,225 509 1,734
Federal funds sold and securities purchased under
resell agreements.............................. 20,200 15,420 35,620
Securities available-for-sale.................... 50,364 48,672 99,036
Securities held-to-maturity...................... -- 15,542 15,542
Mortgage loans held for sale..................... -- 1,357 1,357
Loans, net....................................... 246,508 375,164 621,672
Premises and equipment........................... 10,816 15,851 26,667
Other assets..................................... 5,661 8,656 14,317
-------- -------- --------
Total assets............................... $348,251 $503,515 $851,766
======== ======== ========
LIABILITIES
Deposits......................................... $303,633 $402,596 $706,229
Federal funds purchased and securities sold under
resell agreements.............................. 8,873 10,000 18,873
Other borrowings................................. 7,143 42,000 49,143
Other liabilities................................ 1,739 2,448 4,187
-------- -------- --------
Total liabilities.......................... 321,388 457,044 778,432
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock..................................... 18,483 8,829 791 (1) 28,103
Capital surplus.................................. -- 791 (791 )(1) --
Retained earnings................................ 11,381 37,683 49,064
Accumulated other comprehensive(loss)............ (1,967) (832) (2,799)
Treasury stock................................... (1,034) (1,034)
-------- -------- --------
Total shareholders' equity................. 26,863 73,334
-------- -------- --------
Total liabilities and shareholders'
equity................................... $348,251 $503,515 $851,766
======== ======== ========
</TABLE>
- ------------------------
(1) To reclassify capital surplus of Main Street Banks to common stock
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PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO
FIRST MAIN FORMA
STERLING STREET BANKS COMBINED
-------- ------------ --------
<S> <C> <C> <C>
Interest income
Loans..................................................... $21,721 $34,592 $56,313
Taxable securities........................................ 2,552 2,939 5,491
Nontaxable securities..................................... 444 628 1,072
Deposits in banks......................................... 25 15 40
Federal funds sold and securities purchased under resell
agreements.............................................. 985 267 1,252
------- ------- -------
Total interest income................................. 25,727 38,441 64,168
======= ======= =======
Interest expense
Deposits.................................................. 10,257 12,213 22,470
Federal funds purchased and securities sold under
repurchase agreements................................... 189 162 351
Other borrowings.......................................... 193 1,628 1,821
------- ------- -------
Total interest expense................................ 10,639 14,003 24,642
------- ------- -------
Net interest income................................... 15,088 24,438 39,526
Provision for loan losses................................. 795 935 1,730
------- ------- -------
Net interest income after provision for loan losses... 14,293 23,503 37,796
------- ------- -------
Other income
Service charges on deposit accounts....................... 833 3,467 4,300
Net realized gains (losses) on sales of securities
available-for-sale...................................... (5) 14 9
Gains on sale of loans.................................... 31 321 352
Gains (losses) on sale of other assets.................... (25) 548 523
Other operating income.................................... 531 2,477 3,008
------- ------- -------
Total other income.................................... 1,365 6,827 8,192
------- ------- -------
Other expense
Salaries and employee benefits............................ 5,221 10,328 15,549
Equipment and occupancy expenses.......................... 1,116 2,919 4,035
Other operating expenses.................................. 3,275 6,172 9,447
------- ------- -------
Total other expenses.................................. 9,612 19,419 29,031
------- ------- -------
Income before income taxes............................ 6,046 10,911 16,957
Income tax expense.......................................... 2,196 3,677 5,873
------- ------- -------
Net income............................................ $ 3,850 $ 7,234 $11,084
======= ======= =======
Basic earnings per common share............................. $ 0.79 $ 0.82 $ 0.80
======= ======= =======
Diluted earnings per common share........................... $ 0.74 $ 0.82 $ 0.79
======= ======= =======
</TABLE>
44
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO
FIRST MAIN FORMA
STERLING STREET BANKS COMBINED
-------- ------------ --------
<S> <C> <C> <C>
Interest income
Loans..................................................... $17,339 $31,599 $48,938
Taxable securities........................................ 2,101 3,178 5,279
Nontaxable securities..................................... 348 688 1,036
Deposits in banks......................................... 3 9 12
Federal funds sold and securities purchased under resell
agreements.............................................. 1,676 314 1,990
------- ------- -------
Total interest income................................. 21,467 35,788 57,255
------- ------- -------
Interest expense
Deposits.................................................. 9,258 12,599 21,857
Federal funds purchased and securities sold under
repurchase agreements................................... 25 63 88
Other borrowings.......................................... 28 604 632
------- ------- -------
Total interest expense................................ 9,311 13,266 22,577
------- ------- -------
Net interest income................................... 12,156 22,522 34,678
Provision for loan losses................................. 561 865 1,426
------- ------- -------
Net interest income after provision for loan losses... 11,595 21,657 33,252
------- ------- -------
Other income
Service charges on deposit accounts....................... 739 3,099 3,838
Net realized gains on sales of securities
available-for-sale...................................... 24 18 42
Gains on sale of loans.................................... 160 337 497
Gains (losses) on sale of other assets.................... (101) 55 (46)
Other operating income.................................... 760 2,286 3,046
------- ------- -------
Total other income.................................... 1,582 5,795 7,377
------- ------- -------
Other expense
Salaries and employee benefits............................ 4,492 9,934 14,426
Equipment and occupancy expenses.......................... 920 2,730 3,650
Other operating expenses.................................. 2,864 5,183 8,047
------- ------- -------
Total other expenses.................................. 8,276 17,847 26,123
------- ------- -------
Income before income taxes............................ 4,901 9,605 14,506
Income tax expense........................................ 1,585 3,090 4,675
------- ------- -------
Net income............................................ $ 3,316 $ 6,515 $ 9,831
======= ======= =======
Basic earnings per common share........................... $ 0.68 $ 0.75 $ 0.72
======= ======= =======
Diluted earnings per common share......................... $ 0.64 $ 0.75 $ 0.70
======= ======= =======
</TABLE>
45
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO
FIRST MAIN FORMA
STERLING STREET BANKS COMBINED
-------- ------------ --------
<S> <C> <C> <C>
Interest income
Loans..................................................... $14,135 $28,415 $42,550
Taxable securities........................................ 2,231 3,731 5,962
Nontaxable securities..................................... 192 784 976
Deposits in banks......................................... 6 10 16
Federal funds sold and securities purchased under resell
agreements.............................................. 2,112 707 2,819
------- ------- -------
Total interest income................................. 18,676 33,647 52,323
------- ------- -------
Interest expense
Deposits.................................................. 7,971 12,917 20,888
Federal funds purchased and securities sold under
repurchase agreements................................... 18 4 22
Other borrowings............................................ -- 122 122
------- ------- -------
Total interest expense................................ 7,989 13,043 21,032
------- ------- -------
Net interest income................................... 10,687 20,604 31,291
Provision for loan losses................................... 680 1,405 2,085
------- ------- -------
Net interest income after provision for loan losses... 10,007 19,199 29,206
------- ------- -------
Other income
Service charges on deposit accounts....................... 696 2,898 3,594
Net realized gains (losses) on sales of securities
available-for-sale...................................... (4) 21 17
Gains on sale of loans.................................... 279 99 378
Losses on sale of other assets............................ (42) (150) (192)
Other operating income.................................... 564 1,480 2,044
------- ------- -------
Total other income.................................... 1,493 4,348 5,841
------- ------- -------
Other expense
Salaries and employee benefits............................ 4,093 8,649 12,742
Equipment and occupancy expenses.......................... 953 2,338 3,291
Other operating expenses.................................. 2,206 4,572 6,778
------- ------- -------
Total other expenses.................................. 7,252 15,559 22,811
------- ------- -------
Income before income taxes............................ 4,248 7,988 12,236
Income tax expense.......................................... 1,459 2,498 3,957
------- ------- -------
Net income............................................ $ 2,789 $ 5,490 $ 8,279
======= ======= =======
Basic earnings per common share............................. $ 0.58 $ 0.63 $ 0.61
======= ======= =======
Diluted earnings per common share........................... $ 0.55 $ 0.63 $ 0.60
======= ======= =======
</TABLE>
46
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Except for the employment agreements and Robert R. Fowler III's non-binding
letter described below, 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 options to
purchase stock or from his or her proposed position as a director or executive
officer of First Sterling or one of the subsidiary banks.
EMPLOYMENT AGREEMENTS OF FIRST STERLING EXECUTIVE OFFICERS AFTER THE MERGER
ROBERT R. FOWLER III. Upon consummation of the merger, First Sterling would
enter into an employment agreement with Robert R. Fowler III as set forth in
Exhibit B to the merger agreement. He would be employed as chairman of the board
of directors of First Sterling and vice chairman of the board of directors of
Main Street Bank. On the second anniversary of the employment agreement, the
executive would resign as chairman of the board of the company and take on the
position of chairman emeritus of the company and retain his position and duties
as vice chairman of the board of directors of Main Street Bank for the remainder
of the term. As chairman emeritus of the company, the executive would be an
active participant in strategic planning, business development and development
and maintenance of corporate shareholder and community relations for First
Sterling. He shall also advise the board of directors with respect to proposed
mergers and acquisitions. The term of the agreement shall end on June 30, 2008.
Mr. Fowler shall receive an annual base salary of $200,000 subject to annual
increases of at least three percent (3%) and such other increases as may be
approved by the board of directors. First Sterling would agree that Main Street
Bank shall continue providing the executive with a split dollar insurance
agreement which provides for a $2,000,000 face amount of life insurance on the
executive's life. If the executive is terminated for reason other than for cause
or if the executive voluntarily terminates for good reason then First Sterling
shall continue to pay the executive his base salary for the remainder of the
term and shall continue his welfare plans for such time period. If the executive
becomes re-employed with another employer then the medical and other welfare
benefits provided by First Sterling shall be secondary to those provided under
the other employer's plan.
The agreement provides for restrictions on the ability of Mr. Fowler to
compete with First Sterling during the term of the agreement and for two years
following his termination of service with First Sterling. He is also restricted
in disclosing and using First Sterling's confidential information and trade
secrets. He is also restricted from soliciting First Sterling customers with
whom he has had material contact during the 12 months immediately preceding the
termination of his service. In consideration for Mr. Fowler entering into the
restrictive covenants, First Sterling shall pay him the amount of $200,000 per
year throughout the term.
EDWARD C. MILLIGAN. The current president and chief executive officer of
First Sterling, Edward C. Milligan, presently has an employment agreement with
First Sterling. The term of the agreement is a continuing term of two years
which is automatically extended each day for an additional day so that the
remaining term shall continue to be two years. Either party may, by written
notice to the other, fix the term to a finite term of two years without further
automatic extension commencing with the date of such notice. In the event that
Mr. Milligan's employment is involuntarily terminated prior to a change in
control, Mr. Milligan is entitled to receive a lump sum amount equal to one
times the annual base salary paid to him over the previous 12-month period plus
an amount equal to his annual incentive bonus paid to him over the previous
12-month period. If Mr. Milligan is terminated without cause after a change in
control has occurred or if he voluntarily terminates his employment for good
reason after a change in control has occurred, he shall be entitled to receive a
lump sum in an amount equal to two times his annual base salary paid to him over
the previous 12-month period plus an amount equal to two times the annual
incentive cash bonus paid to him over the preceding 12-month period. He would
47
<PAGE>
also be entitled to participate for a period of 24 months following the date of
termination in all welfare benefit plans at least as favorable as in effect
during the 90-day period preceding his termination. If he is re-employed during
such 24-month period and if the new employer does not provide the same level of
welfare benefits to which he is entitled to under the employment agreement then
First Sterling would provide such supplemental benefits as necessary to insure
that the executive is at the same level of welfare benefit coverage.
Upon consummation of the merger, Mr. Milligan's employment agreement would
be amended and restated as set forth in the attached Exhibit B to the merger
agreement. Under the restated employment agreement, Mr. Milligan would be
employed as the president and chief executive officer of the company and, in two
years, would become the chairman of the board of the company and would continue
as chief executive officer of the company. His term of employment would be
increased to a period of three years and on the third anniversary of, and on
each anniversary thereafter, would be extended for an additional one year
period. Either party, by notice to the other, may cause the term of the
employment to cease to extend automatically. Mr. Milligan's initial annual base
salary would be $154,000 subject to annual increases of 3% and such other
increases as may be approved by the board of directors. It is expected that
after the merger is consummated the board of directors of the combined company
will review the compensation of the company's senior officers in light of the
larger company and increased duties and responsibilities. If the executive is
terminated at any time during the term by First Sterling for any reason other
than for cause or if the executive voluntarily terminates his employment with
the company for good reason then First Sterling shall pay to the executive an
amount equal to three times the sum of his annual base salary plus a pro rata
amount of his targeted annual bonus for the year of termination based on the
number of days employed during such year. First Sterling shall also continue to
provide benefits to the executive and his family at least equal to those
provided if his employment had not been terminated. If the executive is
re-employed during such three year period, the medical and other welfare
benefits that First Sterling is obligated to provide under the employment
agreement would be secondary to those provided by the new employer. The
employment agreement also contains restrictions on the ability of the executive
to compete with First Sterling for a period of two years following the date of
termination for any reason whatsoever. He is also restricted on the disclosure
and use of First Sterling's confidential information and trade secrets and in
his ability to solicit First Sterling customers with whom he had material
contact during the 12-month period immediately preceding his termination.
SAM B. HAY III. Upon consummation of the merger, First Sterling would enter
into an employment agreement with Sam B. Hay as set forth in the attached
Exhibit B to the merger agreement. Mr. Hay would be employed as the executive
vice president and chief operating officer of the company and, in two years,
would become the president of the company and would continue as chief operating
officer of the company. His term of employment would be for a period of three
years and on the third anniversary of, and on each anniversary thereafter, would
be extended for an additional one year period. Either party, by notice to the
other, may cause the term of the employment to cease to extend automatically.
Mr. Hay's initial annual base salary would be $140,000 subject to annual
increases of 3% and such other increases as may be approved by the board of
directors. If the executive is terminated at any time during the term by First
Sterling for any reason other than for cause or if the executive voluntarily
terminates his employment with the company for good reason then First Sterling
shall pay to the executive an amount equal to three times the sum of his annual
base salary plus a pro rata amount of his targeted annual bonus for the year of
termination based on the number of days employed during such year. First
Sterling shall also continue to provide benefits to the executive and his family
at least equal to those provided if his employment had not been terminated. If
the executive is re-employed during such three year period, the medical and
other welfare benefits that First Sterling is obligated to provide under the
employment agreement would be secondary to those provided by the new employer.
The employment agreement also contains restrictions on the ability of the
executive to compete with First Sterling for a period of two years following the
date of termination for any reason
48
<PAGE>
whatsoever. He is also restricted on the disclosure and use of First Sterling's
confidential information and trade secrets and in his ability to solicit First
Sterling customers with whom he had material contact during the 12-month period
immediately preceding his termination.
JOSEPH K. STRICKLAND, JR. Upon consummation of the merger, First Sterling
would enter into an employment agreement with Joseph K. Strickland, Jr. as set
forth in the attached Exhibit B to the merger agreement. Mr. Strickland would be
employed as the executive vice president, banking, of the company. His term of
employment would be for a period of two years and on the second anniversary, and
on each anniversary thereafter, would be extended for an additional one year
period. Either party, by notice to the other, may cause the term of the
employment to cease to extend automatically. Mr. Strickland's initial annual
base salary would be $142,662 subject to annual increases of 3% and such other
increases as may be approved by the board of directors. If the executive is
terminated at any time during the term by First Sterling for any reason other
than for cause or if the executive voluntarily terminates his employment with
the company for good reason then First Sterling shall pay to the executive an
amount equal to two times the sum of his annual base salary plus a pro rata
amount of his targeted annual bonus for the year of termination based on the
number of days employed during such year. First Sterling shall also continue to
provide benefits to the executive and his family at least equal to those
provided if his employment had not been terminated. If the executive is
re-employed during such two year period, the medical and other welfare benefits
that First Sterling is obligated to provide under the employment agreement would
be secondary to those provided by the new employer. The employment agreement
also contains restrictions on the ability of the executive to compete with First
Sterling for a period of two years following the date of termination for any
reason whatsoever. He is also restricted on the disclosure and use of First
Sterling's confidential information and trade secrets and in his ability to
solicit First Sterling customers with whom he had material contact during the
12-month period immediately preceding his termination.
The employment agreements with each executive described above provide that
additional payments will be made to such persons to reimburse them for any
excise taxes that may be owed in the event that payments under such agreements
exceed the limitations of Section 280G of the Internal Revenue Code.
CHRISTOPHER H. BURNETT. Christopher H. Burnett, a First Sterling board
member and the current president and chief executive officer of Eastside,
presently has an employment agreement with Eastside. The term of the agreement
is a continuing term of one year which is automatically extended each day for an
additional day so that the remaining term will continue to be one year. Either
party may, by written notice to the other, fix the term to a finite term of one
year without further automatic extension commencing with the date of the notice.
Mr. Burnett's base salary is $118,520 per year subject to increases from time to
time to reflect the duties required by Mr. Burnett.
In the event that Mr. Burnett's employment is involuntarily terminated prior
to a change in control of First Sterling, Mr. Burnett is entitled to receive a
lump sum amount equal to 50% of the annual base salary paid to him over the
previous 12-month period plus an amount equal to 50% of his annual incentive
bonus paid to him over the previous 12-month period. If Mr. Burnett is
terminated without cause after a change in control has occurred or if he
voluntarily terminates his employment for good reason after a change in control
has occurred, he will be entitled to receive a lump sum in an amount equal to
one times his annual base salary paid to him over the previous 12-month period
plus an amount equal to one times the annual incentive cash bonus paid to him
over the preceding 12-month period. He would also be entitled to participate for
a period of 12 months following the date of termination in all welfare benefit
plans at least as favorable as in effect during the 90-day period preceding his
termination. If he is re-employed during such 12-month period and if the new
employer doesn't provide the same level of welfare benefits for which he is
entitled to under the employment agreement then Eastside would provide the
supplemental benefits that are necessary to ensure that Mr. Burnett is at the
same level of welfare benefit coverage. The employment agreement also contains
49
<PAGE>
restrictions on the ability of Mr. Burnett to compete with Eastside for a period
of six months following the date of termination for any reason whatsoever. He is
also restricted on the disclosure and use of Eastside's and First Sterling's
confidential information.
TED A. MURPHY. A First Sterling board member and the current president and
chief executive officer of Community Bank, Ted A. Murphy, presently has an
employment agreement with Community Bank. The term of the agreement is three
years and expires on December 31, 2000. Mr. Murphy's annual base salary is
$152,586 for calendar year 2000. Mr. Murphy's employment may be terminated by
his death, complete disability, as defined in his employment agreement, for
cause, as defined in the employment agreement, and by Mr. Murphy submitting
written notice to Community Bank of his intent to terminate his employment.
If Mr. Murphy's employment is involuntarily terminated during the term of
his employment agreement for reasons other than for cause, or under certain
circumstances in the event of a change in control of Community Bank and/or First
Sterling as the successor in interest to Georgia Bancshares, Community Bank will
pay Mr. Murphy a sum equal to the gross monthly compensation which would be
payable to Mr. Murphy under the terms and conditions of his employment agreement
and payable for 24 consecutive months or the remainder of the term of
Mr. Murphy's employment agreement, whichever is greater. However, if Mr. Murphy
and Community Bank agree, Community Bank may pay this severance compensation to
him in one lump sum or other equal payments. Community Bank will also maintain
Mr. Murphy's full medical and disability benefits for him and his family at no
expense to him for 24 months after the termination or the remainder of the term
of the employment agreement, whichever is greater. If Mr. Murphy voluntarily
terminates his employment, he is restricted in his ability to compete with
Community Bank for a period of 12 months following the date of termination.
SHARES OWNED BY MANAGEMENT AND THE BOARD
As of the record date, the directors and executive officers of First
Sterling beneficially own approximately 758,539 shares or 14.72% of First
Sterling stock.
As of the record date, the directors and executive officers of Main Street
Banks beneficially own approximately 5,441,786 shares or 62% of Main Street
Banks stock.
ROBERT FOWLER'S NONBINDING LETTER
Mr. Robert R. Fowler III, the chairman and chief executive officer of Main
Street Banks currently has voting power over 527,550 shares of Main Street Banks
stock in his personal name and voting power as the sole or co-trustee over
3,330,368 shares held in various family trusts. After the merger, Mr. Fowler,
the family trusts and family limited partnership will own approximately 28.17%
of First Sterling stock of which Mr. Fowler disclaims beneficial ownership of
195,200 shares owned by his wife, Mary H. Fowler, and 405,520 shares owned by
Hunter/Fowler L.P., a family limited partnership consisting of Mr. Fowler and
his daughter, Robin H. Fowler.
In a letter dated December 1, 1999 to the board of directors of First
Sterling, Mr. Fowler stated that it was his present intention for a period of
six years following consummation of the merger to take such action as reasonably
necessary at the board level and to vote all shares of First Sterling stock over
which he has voting control, including the shares owned by the family trusts, to
maintain the same equal ratio of the number of Main Street Banks and First
Sterling directors. He also stated that it is his intention to specifically vote
the shares over which he has voting control for the reelection to the First
Sterling board of directors of Eugene L. Argo upon the expiration of his term in
2002 and for the reelection of Edward C. Milligan, P. Harris Hines and Harry L.
Hudson, Jr. when their terms expire in 2003.
50
<PAGE>
He also expressed his intention that if any of these persons failed to
complete their terms of office he would support for election to those vacant
positions the person who is or persons who are nominated by the remaining
members of the group composed of Messrs. Argo, Milligan, Hines and Hudson.
Mr. Fowler also stated in his letter that he intended to resign as chairman of
the First Sterling board two years following the date of the merger and to
support Mr. Milligan as his successor as chairman and Mr. Hay as the president
of First Sterling.
Mr. Fowler's letter is simply an expression of his intention on December 1,
1999. It is not legally binding against him. He can change his mind at any time
and take action which is completely different from his expressed intention on
December 1, 1999. If he desires, he could vote against the First Sterling
directors named above.
SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information relevant to First Sterling and Main Street Banks. A
change in applicable statutes, regulations or regulatory policy may have a
material effect on the business of First Sterling.
GENERAL
First Sterling and Main Street Banks are bank holding companies registered
with the Federal Reserve and the Georgia Department of Banking and Finance under
the Bank Holding Company Act and the Georgia Bank Holding Company Act,
respectively. As a result, our companies are subject to the supervision,
examination and reporting requirements of these acts and the regulations of the
Federal Reserve and the Georgia Department of Banking and Finance issued under
these acts. Our subsidiary banks are Georgia chartered commercial banks. Each of
the bank subsidiaries is an FDIC member whose deposits are insured to the full
extent permitted by law. As a result, our banks are subject to the supervision,
examination and reporting requirements of the Georgia Department of Banking and
Finance and the FDIC.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve before:
- it may acquire direct or indirect ownership or control of any voting
shares of any bank if, after the acquisition, the bank holding company
will directly or indirectly own or control more than five (5%) percent of
the voting shares of the bank;
- it or any of its subsidiaries, other than a bank, may acquire all or
substantially all of the assets of any bank; or
- it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides that the Federal Reserve may
not approve any transaction that would result in a monopoly or that would
substantially lessen competition in the banking business, unless the public
interest in meeting the needs of the communities to be served outweighs the
anti-competitive effects. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks involved and the convenience and needs of the communities to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues focuses, in part, on
the performance under the Community Reinvestment Act of 1977, both of which are
discussed in more detail below.
51
<PAGE>
The Bank Holding Company Act generally prohibits a bank holding company from
engaging in activities other than:
- banking;
- managing or controlling banks or other permissible subsidiaries; and
- acquiring or retaining direct or indirect control of any company engaged
in any activities other than activities closely related to banking or
managing or controlling banks.
However, the activities permissible to bank holding companies and their
affiliates were substantially expanded by the Gramm-Leach-Bliley Act, which the
President signed on November 12, 1999. Gramm-Leach-Bliley repeals the
anti-affiliation provisions of the Glass-Steagall Act to permit the common
ownership of commercial banks, investment banks and insurance companies. The BHC
Act was amended to permit a financial holding company to engage in any activity
and acquire and retain any company that the Federal Reserve determines to be
(a) financial in nature or incidental to such financial activity or
(b) complementary to a financial activity and does not pose a substantial risk
to the safety and soundness of depository institutions or the financial system
generally. The Federal Reserve must consult with the Secretary of the Treasury
in determining whether an activity is financial in nature or incidental to a
financial activity. Holding companies may continue to own companies conducting
activities which had been approved by Federal order or regulation on the day
before Gramm-Leach-Bliley was enacted.
In determining whether a particular activity is permissible, the Federal
Reserve considers whether performing the activity can be expected to produce
benefits to the public that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or
control of any subsidiary when the continuation of the activity or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that bank holding company.
All of our subsidiary banks are members of the FDIC. Consequently, the FDIC
insures their deposits to the maximum extent provided by law. Our banks are also
subject to numerous state and federal statutes and regulations that affect their
business, activities and operations, and each is supervised and examined by one
or more state or federal bank regulatory agencies.
Our subsidiary banks are subject to regulation, supervision, and examination
by the FDIC and the Georgia Department of Banking and Finance. The FDIC and the
Georgia Department of Banking and Finance regularly examine the operations of
our banks and are given the authority to approve or disapprove mergers,
consolidations, the establishment of branches and similar corporate actions. The
FDIC and the Georgia Department of Banking and Finance also have the power to
prevent the continuance or development of unsafe or unsound banking practices or
other violations of law.
PAYMENT OF DIVIDENDS
First Sterling and Main Street Banks are legal entities separate and
distinct from their bank subsidiaries. Substantially all of First Sterling's and
Main Street Banks' revenues result from amounts paid as dividends to First
Sterling and Main Street Banks by their subsidiary banks. Our banking
subsidiaries are subject to statutory and regulatory limitations on the payment
of dividends to First Sterling and Main Street Banks. First Sterling and Main
Street Banks are also subject to statutory and regulatory limitations on
dividend payments to their shareholders.
If, in the opinion of the federal banking regulators, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice, the regulatory authority may require, after notice
and hearing, that the institution cease and desist from the practice. The
federal
52
<PAGE>
banking agencies have indicated that paying dividends that deplete a depository
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991, a depository institution may not pay any dividend if payment would
cause it to become undercapitalized or if it already is undercapitalized. The
federal agencies have also issued policy statements that provide that bank
holding companies and insured banks should generally only pay dividends out of
current operating earnings. See "--Prompt corrective action" at page 56.
The Georgia Financial Institutions Code and the Georgia Banking Department's
regulations provide:
- that dividends of cash or property may be paid only out of the bank's
retained earnings;
- 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
- that dividends may not be paid without prior approval of the Georgia
Banking Department if
- the bank's total classified assets at its most recent examination
exceed 80% of its equity capital;
- 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
- the ratio of equity capital to total adjusted assets is less than 6%.
Applying these dividend restrictions, and without prior approval of the
Georgia Banking Department, as of December 31, 1999, Eastside, Westside and
Community could pay aggregate dividends of $2,200,834 to First Sterling and Main
Street could pay dividends of $3,622,838 to Main Street Banks. In 1999,
Eastside, Westside and Community paid $1,047,131 in cash dividends to First
Sterling and Main Street paid $2,827,136 in cash dividends to Main Street Banks.
The payment of dividends by our bank holding companies and our subsidiaries
may also be affected or limited by other factors, such as a requirement by a
regulatory agency to maintain adequate capital above regulatory guidelines.
FINANCIAL RELATIONSHIP BETWEEN FIRST STERLING AND MAIN STREET BANKS AND THEIR
SUBSIDIARIES
There are also various legal restrictions on the extent to which First
Sterling or Main Street Banks can borrow or otherwise obtain credit from their
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 and Main Street Banks are
expected to act as a source of financial strength to their 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 or
Main Street Banks 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.
53
<PAGE>
CAPITAL ADEQUACY
First Sterling and Main Street Banks are required to comply with the capital
adequacy standards established by the Federal Reserve. Our subsidiary banks are
required to comply with the capital adequacy standards established by the FDIC.
The Federal Reserve has promulgated two basic measures of capital adequacy for
bank holding companies: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company to be
considered in compliance.
The risk-based capital standards are designed to:
- make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies;
- account for off-balance-sheet exposure; and
- minimize disincentives for holding liquid assets.
Assets and off-balance-sheet items are assigned to broad risk categories,
each with appropriate weights. The resulting capital ratios represent capital as
a percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted assets
is eight (8%) percent. At least half of total capital must be comprised of Tier
1 Capital, which is common stock, undivided profits, minority interests in the
equity accounts of consolidated subsidiaries and noncumulative perpetual
preferred stock, less goodwill and certain other intangible assets. The
remainder may consist of Tier 2 Capital, which is subordinated debt, other
preferred stock and a limited amount of loan loss reserves. At December 31,
1999, First Sterling's total risk-based capital ratio and its Tier 1 risk-based
capital ratio were 11.06% and 9.99% respectively. On a First Sterling and Main
Street Banks combined basis such ratios at December 31, 1999, would have been
12.40% and 11.23% respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets, of 3.0% for bank holding companies that meet specified
criteria. All other bank holding companies generally are required to maintain a
leverage ratio of at least 3%, plus an additional cushion of 1% to 2% basis
points. First Sterling's ratio at December 31, 1999 was 7.66%. On a First
Sterling and Main Street Banks combined basis, such ratio at December 31, 1999
would have been 8.58%. 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 Federal
Reserve has indicated that it will consider a "tangible Tier 1 Capital leverage
ratio" and other indicia of capital strength in evaluating proposals for
expansion or new activities. The Federal Reserve has not advised First Sterling
of any specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to it.
Our subsidiary banks are subject to risk-based and leverage capital
requirements adopted by the FDIC which are substantially similar to those
adopted by the Federal Reserve for bank holding companies. Our banks were in
compliance with applicable minimum capital requirements as of December 31,
54
<PAGE>
1999. The following chart shows relevant regulatory ratios for each bank
subsidiary as of December 31, 1999:
<TABLE>
<CAPTION>
TIER 1 TOTAL CAPITAL LEVERAGE RATIO
-------- ------------- --------------
<S> <C> <C> <C>
Eastside.................................... 8.83% 9.92% 7.49%
Westside.................................... 10.41% 11.37% 6.99%
Community................................... 10.35% 11.50% 8.88%
Main Street................................. 11.50% 12.76% 8.81%
</TABLE>
Neither our bank holding companies nor our bank subsidiaries have been
advised by any federal banking agency of any specific minimum capital ratio
requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on taking brokered deposits, and
certain other restrictions on its business. As described below, the FDIC can
impose substantial additional restrictions upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "--Prompt
corrective action" at page 56.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act, among other things, requires the federal
regulatory agencies to take "prompt corrective action" if a depository
institution does not meet minimum capital requirements. The Act 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";
- "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 December 31, 1999, First Sterling,
Westside, Community, Main Street Banks and Main Street each had capital levels
that
55
<PAGE>
qualify each as being "well capitalized" and Eastside had a capital level that
qualifies it as "adequately capitalized" under such regulations.
The Act generally prohibits an 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.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act requires federal bank regulatory agencies to
encourage financial institutions to meet the credit needs of low- and
moderate-income borrowers in their local communities. An institution's size and
business strategy determines the type of examination that it will receive.
Large, retail-oriented institutions will be examined using a performance-based
lending, investment and service test. Small institutions will be examined using
a streamlined approach. All institutions may opt to be evaluated under a
strategic plan formulated with community input and pre-approved by the bank
regulatory agency.
Community Reinvestment Act regulations provide for certain disclosure
obligations. Each institution must post a notice advising the public of its
right to comment to the institution and its regulator on the institution's
Community Reinvestment Act performance and to review the institution's Community
Reinvestment Act public file. Each lending institution must maintain for public
inspection a public file that includes a listing of branch locations and
services, a summary of lending activity, a map of its communities and any
written comments from the public on its performance in meeting community credit
needs. The Community Reinvestment Act requires public disclosure of a financial
institution's written Community Reinvestment Act evaluations. This promotes
enforcement of Community Reinvestment Act requirements by providing the public
with the status of a particular institution's community reinvestment record.
The recently enacted Gramm-Leach-Bliley Act makes various changes to the
CRA. Among other changes, CRA agreements with private parties must be disclosed
and annual CRA reports must be made to a bank's primary federal regulator. A
bank holding company will not be permitted to become a financial holding company
and no new activities authorized under this Act may be commenced by a holding
company or by a bank financial subsidiary if any of its bank subsidiaries
received less than a "satisfactory" CRA rating in its latest CRA examination.
56
<PAGE>
LEGISLATIVE AND REGULATORY CHANGES
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act into
law. The Act allows bank holding companies that are well managed and well
capitalized and whose depositor subsidiaries have satisfactory or better CRA
ratings to engage in a substantially broader range of nonbanking activities than
are currently permissible, including insurance underwriting and securities
activities.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of First Sterling will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their effect on First Sterling cannot be predicted.
Current and future legislation and the policies established by federal and
state regulatory authorities will affect First Sterling's future operations.
Banking legislation and regulations may limit our growth and the return to our
investors by restricting certain of our activities.
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.
57
<PAGE>
INFORMATION ABOUT FIRST STERLING
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 1999 Annual Report on Form 10-KSB,
and First Sterling's 1999 Current Reports on Form 8-K. First Sterling's 1999
Annual Report on Form 10-KSB is enclosed with this joint proxy
statement/prospectus. Copies of the 1999 Current Reports may be obtained from
First Sterling as indicated under "Where you can get more information" at
page 112. See "Incorporation of certain documents by reference" at page 112.
First Sterling is a three-bank holding company that engages through its
subsidiaries, The Westside Bank & Trust Company, The Eastside Bank and Trust
Company and Community Bank of Georgia, in providing full banking services to
customers of the subsidiary banks. The Company's executive offices are located
at 676 Chastain Road, Kennesaw, Georgia 30144, and its telephone number is
770-422-2888. First Sterling was incorporated on March 16, 1994 as a Georgia
business corporation under the name of Westside Financial Corporation.
On August 31, 1994, Westside Financial Corporation purchased all of the
shares of common stock of The Westside Bank & Trust Company. On December 21,
1995, the boards of directors of Eastside Holding Corporation, the only
shareholder of The Eastside Bank & Trust Company, and Westside Financial
Corporation, the only shareholder of The Westside Bank & Trust Company, executed
a definitive agreement to merge the two holding companies, with Westside
Financial Corporation surviving.
The merger was consummated on July 31, 1996, at which time Westside
Financial Corporation changed its name to First Sterling Banks, Inc. Each bank
retained its board of directors, management and trade name. The merger was
accounted for as a pooling-of-interests and was subject to approval by federal
and state bank holding company regulators and a majority of the shareholders of
Eastside Holding Corporation. The merger was approved by Eastside shareholders
on July 16, 1996. Eastside Financial Services Inc. (EFS), commenced operations
in 1994 as a wholly owned subsidiary of Eastside Bank. The purpose and business
of EFS is to provide assistance to the Eastside Bank and other community banks
in the closing, sale on the secondary market, and servicing of loans guaranteed
by the Small Business Administration.
On April 23, 1999, First Sterling merged with Georgia Bancshares, Inc. and
its subsidiary Community Bank of Georgia by exchanging 1,461,632 shares of its
common stock for all of the common stock of Georgia Bancshares, Inc. The
combination was accounted for as a pooling-of-interests and all prior financial
statements have been restated to include Georgia Bancshares, Inc. and Community
Bank of Georgia.
First Sterling is a multi-bank holding company whose subsidiary banks serve
primarily Cobb, Gwinnett, DeKalb and surrounding counties in Georgia. First
Sterling's subsidiary banks provide a full range of commercial banking services
to its customers, except for trust services.
BOARD OF DIRECTORS
First Sterling's articles of incorporation divides its board into three
classes: Class I, II and III. The directors in each class will hold office for
the staggered terms of three years each. At the First Sterling shareholders'
meeting which shall also be its annual shareholders' meeting, the shareholders
shall elect three directors to serve as Class III directors with terms expiring
at the 2003 annual meeting. The First Sterling board has nominated P. Harris
Hines, Harry L. Hudson, Jr. and Edward C. Milligan for these positions. Justice
Hines and Messrs. James L. Armstrong, Jr. and John S. Thibadeau, Jr. are current
Class III directors. Upon consummation of the merger, the services of
Messrs. Armstrong and Thibadeau as directors of First Sterling shall terminate.
The board has decided not to nominate them for reelection to these positions.
Messrs. Hudson and Milligan are currently Class I directors with terms
58
<PAGE>
expiring at the 2001 meeting. If elected as Class III directors at the annual
meeting, they would resign as Class I directors.
If the merger is consummated then Eugene L. Argo would resign as a Class I
director and Benjamin H. Wofford, Ted A. Murphy and Christopher H. Burnett would
resign as Class II directors. The remaining First Sterling directors (assuming
that Messrs. Hines, Hudson and Milligan are the Class III directors elected at
the annual meeting) would appoint the following persons to the First Sterling
board with the terms indicated:
<TABLE>
<S> <C>
Class I (term expiring at 2001 Robert R. Fowler III; Sam B. Hay III;
meeting): C. Candler Hunt
Class II (term expiring at 2002 Frank B. Turner and Eugene L. Argo
meeting):
</TABLE>
If Messrs. Hines, Hudson and Milligan are not elected Class III directors at the
meeting then the merger will not be consummated.
The following table sets forth the name of each current director and each
nominee for Class III director of the company; a description of his position and
offices with the company (other than as a director) and with Westside, Eastside
and Community, if any; a brief description of his principal occupation and
business experience during the past five years and certain other information,
including his age as of March 1, 2000. The table also sets forth the class of
each director. The terms of the Class I directors expire at the 2001 annual
meeting; the terms of the Class II directors expire in 2002; the terms of the
present Class III directors expire in 2000; and the terms of the directors
elected at the annual meeting shall expire in 2003.
<TABLE>
<CAPTION>
NAME, YEAR FIRST ELECTED
TO BOARD OF FIRST STERLING, POSITION WITH FIRST STERLING AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------------ -------- ------------------------------------------
<S> <C> <C>
The Honorable P. Harris Hines 56 Justice Hines has served as chairman of
(1994) the board of directors of Westside since
April 1992. From January 1, 1983 until
Class III July 26, 1995, Justice Hines served as
Class III Nominee Judge of the Superior Court of Cobb
County, Georgia. Since July 26, 1995,
Justice Hines has served as a Justice of
the Supreme Court of the State of Georgia.
Harry L. Hudson, Jr. 56 Mr. Hudson is an agent for the State Farm
(1996) Insurance Company. Mr. Hudson has been
associated with State Farm since
Class I January 1, 1970, and he has served as an
Class III Nominee Agent, Agency Manager and Agency Field
Executive. Mr. Hudson is currently serving
as chairman of the board of directors of
Eastside, an office he has held since
February, 1993. He has been a member of
the board of Eastside since its
organization in 1990.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
NAME, YEAR FIRST ELECTED
TO BOARD OF FIRST STERLING, POSITION WITH FIRST STERLING AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------------ -------- ------------------------------------------
<S> <C> <C>
Edward C. Milligan 55 Mr. Milligan is chairman of the board of
(1994) directors, president and chief executive
officer of First Sterling and has served
Class I as president and chief executive officer
Class III Nominee and a director of Westside since its
organization in 1990. Mr. Milligan has
served as a director of Eastside since
August, 1996 and as a director of
Community Bank since May, 1999.
John S. Thibadeau, Jr. 52 Since 1973, Mr. Thibadeau has been
(1996) president of Deauton Corporation, a real
estate construction and development firm.
Class III As a licensed real estate broker, Mr.
Thibadeau is an officer and principal in
Thibadeau-Burton Realty and serves as vice
president of University Inn Operating Co.,
a hotel/motel management firm. He served
as chairman of the board of directors of
Eastside from its organization until
February 1, 1991, and has been a member of
the board of Eastside since its
organization in 1990.
Benjamin H. Wofford, M.D. 62 Dr. Wofford served as chairman of the
(1994) board of directors of Westside from its
organization until April 1991 and has
Class II served as a member of the board since its
organization in 1990. Prior to his
retirement in 1997, Dr. Wofford, since
1970, had been a physician specializing in
plastic and cosmetic surgery in Marietta,
Georgia.
Eugene L. Argo 67 Mr. Argo served on the board of directors
(1999) of Georgia Bancshares from February 15,
1995 until its merger with First Sterling
Class I in April of 1999. Mr. Argo serves as the
chairman of the board of directors of
Community Bank. For the past five years,
Mr. Argo has been president of Stacy's
Pharmacy, Inc. Mr. Argo also serves as
vice president of Medical Therapies, Inc.
Ted A. Murphy 62 Mr. Murphy served on the board of
(1999) directors of Georgia Bancshares from
February 15, 1995 until its merger with
Class II First Sterling in April of 1999. Since
1989, Mr. Murphy has served as president
and chief executive officer of Community
Bank and has been a member of its board of
directors.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
NAME, YEAR FIRST ELECTED
TO BOARD OF FIRST STERLING, POSITION WITH FIRST STERLING AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------------ -------- ------------------------------------------
<S> <C> <C>
James L. Armstrong, Jr. 60 Mr. Armstrong served on the board of
(1999) directors of Georgia Bancshares from
February 15, 1995 until its merger with
Class III First Sterling in April of 1999. Mr.
Armstrong is vice chairman of the board of
directors of Community Bank. For the past
five years, Mr. Armstrong has been the
owner of Jim Armstrong Insurance Agency.
Christopher H. Burnett 38 Mr. Burnett is a member of the board of
(1999) directors of Eastside and since January
1998 he has served as its president and
Class II chief executive officer. 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.
</TABLE>
Upon consummation of the merger, Robert R. Fowler, III, Sam B. Hay III, C.
Candler Hunt and Frank B. Turner, each a director of Main Street Banks, will
each become a director of First Sterling. For information concerning these
directors, see "Directors of Main Street Banks" at page 94.
BOARD COMMITTEES AND ATTENDANCE
The business and affairs of First Sterling are under the direction of its
board of directors. During 1999, its board of directors held seven (7) regular
meetings, and all of First Sterling's directors attended at least 75% of the
aggregate meeting of First Sterling's board of directors and the committees
thereof on which they sat.
First Sterling's board of directors has established an audit committee and a
compensation committee.
AUDIT COMMITTEE
The primary functions of the audit committee are to see that an audit
program is in place to protect the assets of First Sterling, assure that
adequate internal controls exist, and recommend the independent auditors for
appointment by the board of directors. The current members of the audit
committee are: Eugene L. Argo, James L. Armstrong, Jr., P. Harris Hines, Harry
L. Hudson, Jr., John S. Thibadeau, Jr. and Benjamin Wofford. During 1999, the
audit committee held 1 meeting.
COMPENSATION COMMITTEE
The primary functions of the compensation committee are to evaluate and
administer the compensation of First Sterling's chief executive officer and
other executive officers and to review the general compensation programs of
First Sterling. It also administers First Sterling's stock option plans. It has
authority to interpret the plans, make grants and determines terms and
conditions of grants within the context of the plans. The current members of the
compensation committee are: P. Harris Hines, Harry L. Hudson, Jr., Eugene L.
Argo and Benjamin H. Wofford. During 1999, the compensation committee met 4
times.
61
<PAGE>
REPORTS REQUIRED BY SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The SEC has adopted certain rules and forms which apply to First Sterling
relating to reports concerning stock ownership and transactions by directors,
officers, and principal stockholders who directly or indirectly are the
beneficial owners of more than ten percent of any class of any equity security.
The rules require that any First Sterling director, officer or principal
shareholder file a Form 3, which is an initial statement of beneficial ownership
of equity securities, a Form 4 to report any changes in beneficial ownership and
a Form 5 within forty-five (45) days after the end of First Sterling's fiscal
year to report any securities transactions during the fiscal year that have not
previously been reported on a Form 3 or Form 4.
Based on a review of Forms 3, 4 and 5 and any amendments, and certain
written representations which have been furnished to First Sterling for its
fiscal year ended December 31, 1999, except for the following, there were no
persons who were subject to this filing requirement who failed to file on a
timely basis the required reports: Eugene L. Argo failed to report two
transactions on Form 4; Christopher H. Burnett failed to report one transaction
on Form 4; and Ted A. Murphy failed to report two transactions on Form 4. All
these transactions were subsequently reported on Form 5.
CERTAIN TRANSACTIONS
During 1999, Westside, Eastside and Community had outstanding loans directly
to or indirectly accruing to the benefit of certain of the then directors,
nominees for director, and executive officers of First Sterling, and their
related interests. These loans were made in the ordinary course of business and
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
others. In the opinion of First Sterling's management, these loans do not
involve more than normal risks of collectibility or present other unfavorable
features. In the future, the banks expect to have banking transactions in the
ordinary course of business with First Sterling's directors, executive officers
and their related interests.
OFFICERS
The table set forth below shows for each officer of First Sterling (a) the
person's name, (b) his or her age at March 1, 2000, (c) the year he or she was
first elected as an officer of First Sterling, and (d) his or her present
positions with First Sterling and his or her other business experience for the
past five years.
<TABLE>
<CAPTION>
FIRST
YEAR
NAME AGE ELECTED BUSINESS EXPERIENCE
- ---- -------- -------- ---------------------------------------
<S> <C> <C> <C>
Edward C. Millligan 55 1994 Mr. Milligan serves as the chairman of
the board of directors, chief executive
officer and president of First Sterling
and as the president and chief
executive officer of Westside.(1)
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
FIRST
YEAR
NAME AGE ELECTED BUSINESS EXPERIENCE
- ---- -------- -------- ---------------------------------------
<S> <C> <C> <C>
Barbara J. Bond 51 1994 Ms. Bond serves as secretary/treasurer/
chief financial officer of First
Sterling. She serves as executive vice
president, chief financial officer and
senior operations officer of Westside
and has served in such capacities since
the organization of the bank. Ms. Bond
has served as secretary of Westside
since September 18, 1991.
</TABLE>
- ------------------------
(1) See "Board of Directors" above for a description of Mr. Milligan's prior
business experience.
EXECUTIVE COMPENSATION
CASH COMPENSATION TABLE--No compensation was paid or provided by First
Sterling to its officers in 1999, but it reimburses Westside for one-half of the
base salary paid by Westside to First Sterling's chief executive officer and
chief financial officer. The cash compensation which has been paid, accrued or
awarded by Westside for services rendered in all capacities during the fiscal
year ended December 31, 1999 to the chief executive officer and chief financial
officer of First Sterling and by Eastside and Community to their respective
chief executive officers whose compensation exceeded $100,000 are as follows:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
NAME AND ------------------- UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#) ($)
- -------------------------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward C. Milligan.......................... 1999 153,382 61,600 -- 104,343(1)
president of First Sterling 1998 142,922 56,000 -- 38,413(1)
president/chief 1997 131,672 46,200 43,717 67,708(1)
executive officer
of Westside
Barbara J. Bond............................. 1999 89,333 25,025 -- 20,588(2)
secretary/chief financial 1998 86,000 21,500 -- 7,599(2)
officer of First Sterling 1997 77,750 18,565 -- 14,174(2)
and Westside;
executive vice
president
Westside Bank
Christopher Burnett......................... 1999 118,520 33,000 -- 24,267(3)
president/chief 1998 109,601 38,000 28,544 15,600(3)
executive officer
of Eastside
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
NAME AND ------------------- UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#) ($)
- -------------------------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ted A. Murphy............................... 1999 145,320 38,390 22,000 16,223(4)
president/chief
executive officer
of Community Bank
</TABLE>
- ------------------------
(1) Includes amounts contributed by Westside during 1997, 1998 and 1999 to
Mr. Milligan's account in Westside's 401(k) plan and director's fees of
$18,550 in 1999, $14,700 in 1998 and $12,200 in 1997. Westside accrued
$48,383 as a liability for the account of Mr. Milligan pursuant to a
deferred compensation plan in 1997, $17,213 in 1998 and $79,553 in 1999.
(2) Amounts contributed by Westside during 1997, 1998 and 1999 to Ms. Bond's
account in Westside's 401(k) plan. Westside accrued $9,893 as a liability
for the account of Ms. Bond pursuant to a deferred compensation plan in
1997, $3,521 in 1998 and $16,265 in 1999.
(3) Includes amounts contributed by Eastside during 1999 to Mr. Burnett's
account in Eastside's 401(k) plan. Mr. Burnett was paid $7,200 as an
automobile allowance in each year. Mr. Burnett was paid director's fees of
$8,400 and $12,150 in 1998 and 1999 respectively.
(4) Mr. Murphy was paid $12,925 in director's fees in 1999.
STOCK OPTIONS
The following table sets forth information in regard to incentive stock
options granted to executive officers in 1999 whose compensation exceeded
$100,000:
OPTION GRANTS IN LAST FISCAL YEAR
[INDIVIDUAL GRANTS]
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN BASE PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(1) DATE
- ---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ted A. Murphy.............................. 22,000 53.36 $11.50 June 21, 2009
</TABLE>
The following table sets forth information in regard to exercise of stock
options and the fiscal year-end value of unexercised options for each of the
named executives:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE
- ---- ------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Edward C. Milligan................. -0- -0- 92,268/2,057 $687,184/$11,172
Barbara J. Bond.................... -0- -0- 37,956 $ 345,696
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE
- ---- ------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Christopher H. Burnett............. -0- -0- 5,708/22,836 $ 16,582/$66,339
Ted A. Murphy...................... -0- -0- 30,614 $ 92,241
</TABLE>
- ------------------------
(1) Mr. Milligan's remaining 2,057 shares are exercisable on September 24, 2000.
Mr. Burnett's options are vested at the rate of 1/5 per year.
DIRECTOR COMPENSATION
During 1999, each director of First Sterling was paid $2,050 per calendar
quarter for all services as a member of First Sterling's board of directors.
First Sterling's directors were paid a total of $65,100 for such services in
1999.
FIRST STERLING SECURITY OWNERSHIP
The following table sets forth certain information regarding First Sterling
common stock owned, as of the record date and after giving effect to the merger
by:
- each person who beneficially owns more than 5% of the outstanding shares
of First Sterling stock,
- each First Sterling director,
- each executive officer of First Sterling, and
- all First Sterling directors and executive officers as a group.
Management of First Sterling is not aware of any person or entity which owns 5%
or more of First Sterling stock.
Except as otherwise indicated, the persons named in the table have sole
voting and investment powers with respect to all shares shown as beneficially
owned by them. The information shown below is based upon information furnished
by the named persons and based upon "beneficial ownership" concepts set forth in
rules issued under the Securities Exchange Act of 1934. Under these rules, a
person is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or to direct the voting
of the security, or "investment power," which includes the power to dispose or
to direct the disposition of the security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to be a
beneficial owner of the same securities. Under applicable SEC rules the number
of outstanding shares of common stock used in the computation of the "Percent of
Class" includes currently exercisable stock options owned by the shareholder.
<TABLE>
<CAPTION>
FIRST STERLING STOCK FIRST STERLING STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED AFTER
NAME OF BENEFICIAL OWNER BEFORE MERGER MERGER
- ------------------------ -------------------- ------------------------
<S> <C> <C>
Eugene L. Argo.......................................... 193,074.0000 193,074.0000
(3.95%) (1.40%)
James L. Armstrong, Jr.................................. 74,049.0000 74,049.0000
(1.51%) (0.54%)
Barbara J. Bond......................................... 45,527.0000 45,527.0000
(0.93%) (0.33%)
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
FIRST STERLING STOCK FIRST STERLING STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED AFTER
NAME OF BENEFICIAL OWNER BEFORE MERGER MERGER
- ------------------------ -------------------- ------------------------
<S> <C> <C>
Christopher H. Burnett.................................. 40,427.2960 40,427.2960
(0.82%) (0.29%)
The Honorable P. Harris Hines........................... 23,264.0344 23,264.0344
(0.47%) (0.17%)
Harry L. Hudson, Jr..................................... 45,067.1955 45,067.1955
(0.92%) (0.33%)
Edward C. Milligan...................................... 150,746.8370 150,746.8370
(3.03%) (1.08%)
Ted A. Murphy........................................... 65,618.0000 65,618.0000
(1.34%) (0.47%)
John S. Thibadeau, Jr................................... 28,216.0000 28,216.0000
(0.58%) (0.20%)
Benjamin H. Wofford, M.D................................ 92,549.4565 92,549.4565
(1.89%) (0.67%)
All First Sterling, directors and executive officers, as
a group (10 persons).................................. 758,538.8194 758,538.8194
(14.72%) (5.39%)
</TABLE>
Mr. Argo's stock ownership includes 11,759 shares of First Sterling stock
obtainable upon the exercise of options and 54,152 shares held by spouse.
Mr. Armstrong's stock ownership includes 11,759 shares of First Sterling
stock obtainable upon the exercise of options..
Ms. Bond's stock ownership includes 37,956 shares of First Sterling stock
obtainable upon the exercise of options.
Mr. Burnett's stock ownership includes 28,544 shares obtainable upon the
exercise of options, 1,300 shares held by minor children and 2,869.296 held in
his 401(k) plan.
Justice Hines' stock ownership includes 15,815 shares of First Sterling
stock obtainable upon the exercise of options and 254.0344 held in his dividend
reinvestment plan.
Mr. Hudson's stock ownership includes 12,858 shares of First Sterling stock
obtainable upon the exercise of the options and 25,716 shares held as joint
tenant with spouse and 1,975.1955 held in his dividend reinvestment plan.
Mr. Milligan's stock ownership includes 94,325 shares of First Sterling
stock obtainable upon the exercise of the options and 816.869 shares held by his
minor child, 4,305.002 held in a deferred compensation plan and 2,298.966 held
in his 401(k) plan.
Mr. Murphy's stock ownership includes 30,614 shares of First Sterling stock
obtainable upon the exercise of options and 12,004 held by spouse.
Mr. Thibadeau's stock ownership includes 12,858 shares of First Sterling
stock obtainable upon the exercise of options.
Dr. Wofford's stock ownership includes 15,815 shares of First Sterling stock
obtainable upon the exercise of options and 15,815 shares held as joint tenant
with spouse and 2,869.4565 held in his dividend reinvestment plan.
The stock ownership of all First Sterling directors and executive officers,
as a group, includes 272,303 shares of First Sterling stock obtainable upon the
exercise of options.
66
<PAGE>
INFORMATION ABOUT MAIN STREET BANKS
BACKGROUND
Main Street Bank was founded in 1901 as "The Bank of Covington" and operated
as a state chartered commercial bank under that name until 1996, when it was
renamed "Main Street Bank." This name change was the culmination of a long-term
strategy of expansion from Main Street Banks' headquarters in Covington to
communities in surrounding Georgia counties. In May 1988, Main Street Banks
Incorporated was formed to serve as a holding company for The Bank of Covington.
Upon formation, The Bank of Covington, which had four locations in Covington,
Newton County, was Main Street Banks' sole subsidiary.
Main Street Banks began implementing its expansion strategy shortly after
formation of the holding company. In August 1990, Main Street Banks purchased
Southern Heritage Savings Bank located in Winterville, Clarke County, Georgia.
In December 1990, Main Street Banks purchased two branches of Prime Bank,
formerly DeKalb Federal Savings Bank, in Conyers, Rockdale County, Georgia. At
the same time, Main Street Banks formed its third subsidiary, Main Street
Savings Bank, FSB.
In 1993, Main Street Savings Bank purchased three branches of the former
First Federal Savings Bank of Georgia in Winder, Barrow County; Loganville,
Walton County; and Athens, Clarke County from the Resolution Trust Corporation.
At the beginning of 1996, Main Street Banks was a three-subsidiary holding
company operating 15 branches in six counties. In late 1996 Main Street Banks
consolidated its subsidiaries into one subsidiary, Main Street Bank.
Since that time, Main Street Banks has continued to provide leading
technology combined with small-town customer service in all of its locations.
Main Street Banks continues to be a traditional community bank in all its
communities. Main Street Banks currently owns and operates 13 banking offices in
six counties, and had approximately $515,514,800 million in assets as of
December 31, 1999.
LINES OF BUSINESS
Main Street Banks' subsidiary bank provides basic banking services to its
customers in the form of receiving deposits and making loans. The brick and
mortar facility with people-to-people banking has been its mainstay since 1901.
As the financial industry becomes more technology-driven, Main Street Banks has
recognized the need to adapt and has developed new products and business lines
to meet the changing needs and desires of its customers. In addition to a wide
variety of checking, savings, certificates of deposit and loan accounts, Main
Street Banks also offers credit and debit cards, Ready Reserve lines of credit,
check imaging, corporate PC banking, consumer Internet banking, and voice
response touch-tone banking. Main Street Banks recently began offering Internet
banking. In addition, it offers mortgages, brokerage services, insurance
products, and accounts receivable financing through four business lines known as
Main Street Mortgage, Main Street Investments, Main Street Insurance and
Business Manager.
Main Street Banks services are:
REAL ESTATE LENDING. Main Street Banks real estate loans consist of
residential first and second mortgage loans, residential construction loans and
home equity lines of credit, and term loans secured by first and second
mortgages on the residences of borrowers for home improvements, education and
other personal expenditures. At December 31, 1999, real estate loans were
$138.1 million and constituted approximately 36.2% of total loans. Main Street
Banks makes mortgage loans with a variety of terms, including fixed and floating
rates. At December 31, 1999, approximately 59.7% of Main Street Banks real
estate loans had fixed rates, while approximately 40.3% had variable rates.
Generally, Main Street Banks retains real estate loans with maturities under
10 years and sells mortgage loans with longer maturities. Almost all of Main
Street Banks loans for acquisition, development and construction
67
<PAGE>
purposes are secured by single-family residences or residential development
property. Main Street Banks also offers Small Business Administration loans.
Risks associated with real estate lending include fluctuations in the value
of real estate, new job creation trends and the borrower's financial stability.
Real estate loans are made consistent with Main Street Banks appraisal policy
and real estate lending policy, which prescribe maximum loan-to-value ratios and
maturities. Main Street Banks expects that these loan-to-value ratios are
sufficient to compensate for fluctuations in the real estate market and to
minimize the risk of loss. See "Main Street Banks' management's discussion and
analysis of financial condition and results of operations--For the years ended
December 31, 1999, 1998 and 1997--Financial condition--Loan portfolio" at
page 81.
CONSUMER LENDING. Main Street Banks offers consumer installment loans to
business owners and other individuals for personal, family, and household
purposes. Main Street Banks also offers credit cards and home equity lines of
credit to consumers. At December 31, 1999, consumer loans constituted
approximately 9.1% of total loans, with approximately 99.6% of Main Street Banks
consumer loans having fixed rates and the remaining 0.4% having variable rates.
Consumer lending presents certain unique risks. Consumer loan repayments depend
upon a borrower's financial stability and are more likely to be adversely
affected by job loss, divorce, illness and other personal hardships. In
addition, collateral such as automobiles and other personal property securing
consumer loans depreciates rapidly and sometimes is an inadequate repayment
source if a borrower defaults. In evaluating these loans, Main Street Banks
requires its lending officers to review the borrower's level and stability of
income, past credit history, and the impact of these facts on the borrower's
ability to repay the loan in a timely manner. In addition, Main Street Banks
requires that its banking officers maintain an appropriate margin between the
loan amount and collateral value. See "Main Street Banks' management's
discussion and analysis of financial condition and results of operations--For
the years ended December 31, 1999, 1998 and 1997--Financial condition--Loan
portfolio" at page 81.
COMMERCIAL LENDING. Main Street Banks commercial loan portfolio is
dispersed among various business lines such as a wide variety of small
businesses, commercial real estate (both owner-occupied and investment
property), and acquisition and development and construction lending. These loans
are primarily for the financing of property and plants used in the course of
business by these business operators, and to a lesser degree, for the financing
of equipment, inventory and accounts receivable. Of Main Street Banks commercial
real estate loans, approximately 65.0% are secured by properties that house the
businesses of the property's owners. The remainder is made up of loans on
properties that may be deemed investment property. At December 31, 1999,
commercial loans constituted approximately 54.7% of total loans, with
approximately 78.6% of commercial loans having fixed rates and the remaining
21.4% having variable rates.
Commercial lending entails greater risks than traditional, single-family
residential lending. Commercial loans typically involve larger loan balances
concentrated among fewer borrowers. The analysis of commercial loans, which
requires expertise in evaluating a commercial enterprise and its collateral, is
generally more complex than the analysis required for single family residential
lending. Like consumer loans, commercial loans are subject to adverse conditions
in the economy, as well as the market for the specific goods and services sold
by the commercial borrower. Loans secured by commercial real estate can also be
affected by trends in the local real estate market. In making all these loans,
Main Street Banks manages its credit risk by actively monitoring measures such
as cash flow, collateral value and other appropriate credit factors. See "Main
Street Banks' management's discussion and analysis of financial condition and
results of operations--For the years ended December 31, 1999, 1998 and
1997--Financial condition--Loan portfolio" at page 81.
DEPOSITS AND OTHER BORROWINGS. Deposits are a key component of Main Street
Banks banking business, serving as a source of funding for lending as well as
for increasing customer account relationships. Main Street Banks offers
competitively priced deposit products, including checking, savings and
68
<PAGE>
time deposit accounts, as it seeks to increase core deposits and market share.
Borrowings, principally from the Federal Home Loan Bank, and lines of credit
with other banks, provide sources of additional liquidity and funding.
BROKERAGE SERVICES/INVESTMENTS. Main Street Banks provides brokerage
services through Main Street Investments, a comprehensive brokerage service.
Main Street Investments offers its customers a wide variety of investment
options, including stocks and bonds, mutual funds, annuities, 401(k) plans, life
insurance, Individual Retirement Accounts and Simplified Employee Pension
Accounts, estate planning and financial needs analysis.
INSURANCE. Main Street Banks provides insurance services through Main
Street Insurance, a full-service insurance agency that enables it to offer
customers both consumer and commercial insurance products.
ACCOUNTS RECEIVABLE. Main Street Banks provides accounts receivable
financing through the Business Manager program. Business Manager is a process
through which Main Street Banks finances existing receivables on a discounted
basis and takes over the responsibility for billing its customer's clients and
collecting their payments, and providing business owners with needed liquidity.
Main Street Banks developed brokerage, insurance, and accounts receivable
services as a strategy to retain existing customers, to attract additional
customers from its market areas, and to enhance its franchise by offering a
broader scope of financial services.
Main Street Banks operating revenues are derived primarily from interest
earned from its loan and investment securities portfolios and fee income from
loan and deposit products. Main Street Banks is not dependent upon a single
customer, or a few customers, the loss of any one or more of which would have a
material adverse effect on its financial condition or results of operations.
MARKET AREAS
Main Street Banks is ranked twentieth in asset size out of 349 Georgia
banks. Main Street Banks operates principally in North Georgia, within the
eastern side of metropolitan Atlanta, extending into the Athens area. Main
Street Banks has a total of 13 banking offices located in Barrow, Clarke,
Gwinnett, Newton, Rockdale and Walton counties. Main Street Banks primary market
area is the six-county region in which it has branches, and its secondary market
includes counties contiguous to that region.
The following chart describes the communities in which Main Street Banks
operates. Market share data is based on deposit information available from the
FDIC. Branch deposit data is as of June 30, 1999. Population household and
income figures are available from DEMOGRAPHICS USA-COUNTY
69
<PAGE>
EDITION, MARKET STATISTICS, 1998 EDITION and unemployment rates are August 1998
estimates by the Georgia Department of Labor.
<TABLE>
<CAPTION>
AVERAGE
HOUSEHOLD
EFFECTIVE
BUYING UNEMPLOYMENT DEPOSIT
COUNTY POPULATION HOUSEHOLDS INCOME RATE MARKET SHARE
- ------ ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Barrow.............................. 39,000 13,900 $34,947 4.0% 12.14%
Clarke.............................. 93,000 35,700 33,879 3.3 4.62
Gwinnett............................ 508,700 184,400 52,152 2.5 .21
Newton.............................. 55,300 19,500 35,225 3.6 35.64
Rockdale............................ 67,600 23,100 48,728 2.7 12.58
Walton.............................. 52,300 18,400 35,730 3.5 2.48
</TABLE>
COMPETITION
Main Street Banks competes with several local and regional commercial banks,
thrifts, credit unions and mortgage companies for deposits, loans, and other
banking-related financial services. There is intense competition in Main Street
Banks market areas from other financial institutions as well as other "non-bank"
companies that engage in similar activities. Some of Main Street Banks
competitors are not subject to the degree of regulatory review and restrictions
that apply to us. In addition, Main Street Banks must compete with much larger
financial institutions that have greater financial resources than it does and
that compete aggressively for market share. These competitors attempt to gain
market share through their financial product mix, pricing strategies and banking
center locations. Legislative developments related to interstate branching and
banking in general are creating more competitive pressure on smaller financial
institutions by providing large banking institutions easier access to a broader
marketplace. Main Street Banks also competes with insurance companies, savings
banks, consumer finance companies, investment banking firms, brokerage houses,
mutual fund managers, investment advisors, and credit unions. Retail
establishments compete for loans by offering credit cards and retail installment
contracts for the purchase of goods and merchandise.
Main Street Banks anticipates that competition from both bank and non-bank
entities will continue to grow. Main Street Banks has been able to compete
effectively with other financial institutions by emphasizing customer service
and local office decision-making, by establishing long-term customer
relationships and building customer loyalty, and by providing products and
services designed to address the specific needs of its customers.
EMPLOYEE RELATIONS
As of December 31, 1999, Main Street Banks had 276 employees, of whom 235
were full-time and 41 part-time. In addition to a bonus program, Main Street
Banks currently maintains an employee benefit program providing, among other
benefits, a medical insurance plan, a profit sharing and 401(k) retirement plan,
and life and disability insurance. Main Street Banks also grants shares of stock
in Main Street Banks to some of its officers under its Restricted Stock Plan and
have also adopted a long-term incentive plan under which it may grant other
forms of stock-based compensation to selected employees. Main Street Banks
considers these employee benefits, as a whole, to be generally competitive with
employee benefits provided by other employers in Georgia. Main Street Banks
believes its future success depends, in part, on its ability to continue to
attract and retain skilled retail, technical, and managerial personnel in order
to maintain its quality delivery of financial and banking services. None
70
<PAGE>
of its employees is subject to a collective bargaining agreement, and it has
never experienced a work stoppage.
FACILITIES
Main Street Banks executive offices are located at 1121 Floyd Street and its
main banking office is located at 1134 Clark Street, Covington, Georgia 30014.
Main Street Banks principal support and operational functions are located at
2118 Usher Street, Covington, Georgia 30014. All of Main Street Banks branch
offices are located in Georgia. The following chart indicates whether each
office is leased or owned and lists the loan and deposit balances for each
office, as of December 31, 1999.
<TABLE>
<CAPTION>
OWNED
(O) LOANS AS OF DEPOSITS AS OF
BANKING OFFICES LEASED (L) DECEMBER 31, 1999 DECEMBER 31, 1999
- --------------- ---------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
COVINGTON
Main Office....................................... O 120,954 129,003
1134 Clark Street
Covington, GA 30014
North Office...................................... O 10,611 35,141
3110 Hwy. 278
Covington, GA 30014
Eastside Office................................... O 1,520 5,583
9130 Hwy. 278
Covington, GA 30014
Kroger Office (supermarket)....................... L 141 2,872
3139 Hwy. 278
Covington, GA 30014
CONYERS
2405 Salem Road................................... O 4,969 15,010
Conyers, GA 30013
1887 Hwy. 20, SE.................................. O 40,651 34,154
Conyers, GA 30013
940 Main Street NE................................ O 4,999 33,211
Conyers, GA 30012
LOGANVILLE
4644 Hwy. 78...................................... O 18,800 17,434
Loganville, GA 30052
WINDER
45 East Athens Street............................. O 53,416 48,537
Winder, GA 30680
LAWRENCEVILLE
867 Buford Drive.................................. O 45,127 22,132
Lawrenceville, GA 30043
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
OWNED
(O) LOANS AS OF DEPOSITS AS OF
BANKING OFFICES LEASED (L) DECEMBER 31, 1999 DECEMBER 31, 1999
- --------------- ---------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
ATHENS
2065 Timothy Road................................. O 70,71 0 25,528
Athens, GA 30606
475 East Broad Street............................. O 7,892 15,064
Athens, GA 30601
190 Gaines School Road............................ O 1,618 18,927
Athens, GA 30605
Main Street Insurance............................. O NA NA
4644 Hwy. 78
Loganville, GA 30052
Main Street Investments........................... O NA NA
1134 Clark Street
Covington, GA 30014
Main Street Mortgage.............................. O NA NA
475 East Broad Street
Athens, GA 30601
COVINGTON
Corporate Offices and Marketing................... L N/A N/A
1121 Floyd Street
Covington, GA 30014
Operations Center................................. L N/A N/A
2118 Usher Street
Covington, GA 30014
Human Resources................................... O N/A N/A
1122 Pace Street
Covington, GA 30014
Accounting and Card Services...................... L N/A N/A
1114 Pace Street
Covington, GA 30014
</TABLE>
See the following section for a description of the terms of the leases for
Main Street Banks corporate and marketing offices, operations center and
accounting and card services offices, which Mr. Fowler leases to Main Street
Bank.
CERTAIN TRANSACTIONS
Main Street Banks' directors and certain business organizations and
individuals associated with them are customers of and have banking transactions
with Main Street Banks' subsidiary bank and Main Street Banks' other former
banking subsidiaries in the ordinary course of business. Such transactions
include loans, commitments, lines of credit and letters of credit. All of those
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not and do not involve more than normal
72
<PAGE>
risk of collectibility or present any other unfavorable features. Additional
transactions with these persons and businesses are anticipated in the future.
Robert R. Fowler, III, president, chief executive officer and chairman of
the board, has entered into three lease agreements with Main Street Banks,
through which he leases to Main Street Banks buildings that it uses for its
operations center, corporate and marketing offices, and accounting and card
services office. These leases are described below:
OPERATIONS CENTER. Main Street Banks entered into the lease agreement for
its operations center on April 1, 1998. The operations center building is 22,300
square feet and is located at 2118 Usher Street, Covington, Georgia 30014. Under
this lease agreement, Main Street Banks paid to Mr. Fowler rent at a rate of
$2.36 per square foot or an aggregate of $52,630 for the period from April 1,
1998 until April 1, 1999. The lease agreement provides a rental schedule by
which the rental rate is adjusted each year on the anniversary date of the lease
agreement. Main Street Banks expects to pay rent in the amount of $65,526 for
the period from April 1, 1999 until April 1, 2000. The lease agreement expires
March 31, 2007. Main Street Banks has the option to renew the lease agreement
for two successive five-year extension periods. Additionally, Main Street Banks
may terminate the lease agreement after the completion of five years of the term
with a termination payment equal to six months rent. The termination payments
decrease by the amount of one month's rental payment for each succeeding lease
year.
CORPORATE AND MARKETING OFFICES. Main Street Banks entered into the lease
agreement for its corporate and marketing offices located at 1121 Floyd Street,
Covington, Georgia 30014 in May 1999. This building contains approximately 4,980
square feet. The rental rate from June 1, 1999 through December 1, 1999 is
$2,747 per month and will increase to $3,245 per month on January 1, 2000.
Thereafter, the lease agreement provides for 3% increases to the rental rate on
each January 1 until the expiration date, December 31, 2009. Main Street Banks
has the option to renew the lease agreement for two successive five-year
extension periods.
ACCOUNTING AND CARD SERVICES OFFICES. Main Street Banks entered into the
lease agreement for its accounting and card services offices, located at 1114
Pace Street, Covington, Georgia 30014, on March 25, 1994. This building is
approximately 4,300 square feet. Since July 1999 the rental rate under this
lease agreement has been $1,850 per month. The rental rate will increase to
$2,220 per month in July 2003 and to $2,664 in July 2007. This lease agreement
expires on June 30, 2013.
Main Street Banks believes that the terms of the lease agreements are at
least as favorable to it as terms available from unrelated third parties.
LEGAL PROCEEDINGS
In the ordinary course of operations, Main Street Banks is a party to
various legal proceedings. In the opinion of its management, there are no
proceedings pending, or to its knowledge, threatened in which an adverse
decision would have a material adverse effect on its financial condition or
results of operations.
73
<PAGE>
MAIN STREET BANKS SECURITY OWNERSHIP
The following table sets forth certain information regarding Main Street
Banks common stock owned, as of the record date and after giving effect to the
merger by:
- each person who beneficially owned more than 5% of the outstanding shares
of Main Street Banks;
- each Main Street Banks' director;
- the executive officers of Main Street Banks; and
- all Main Street Banks' directors and executive officers as a group.
Except as otherwise indicated, the persons named in the table have sole
voting and investment powers with respect to all shares shown as beneficially
owned by them. The information shown below is based upon information furnished
by the named persons and based upon "beneficial ownership" concepts set forth in
rules issued under the Securities Exchange Act of 1934. Under these rules, the
person is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or to direct the voting
of the security, or "investment power," which includes the power to dispose or
to direct the disposition of the security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to be a
beneficial owner of the same securities.
<TABLE>
<CAPTION>
FIRST STERLING
MAIN STREET BANKS STOCK
STOCK BENEFICIALLY BENEFICIALLY
OWNED BEFORE OWNED AFTER
NAME OF BENEFICIAL OWNER MERGER THE MERGER
- ------------------------ ------------------ --------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Robert R. Fowler, III....................................... 4,458,638 4,503,224
Frank B. Turner............................................. 193,440 195,374
Samuel B. Hay, III.......................................... 270,000 272,700
Joseph K. Strickland, Jr.................................... 134,500 135,845
C. Candler Hunt............................................. 385,208 389,060
All Main Street Banks directors and executive officers, as a
group (5 persons)......................................... 5,441,786 5,496,703
5% Beneficial Owners:
Fowler Children's Trust................................... 1,922,568 1,941,793
Robert R. Fowler III........................................ 4,458,638 4,503,224
</TABLE>
- ------------------------
Mr. Fowler's stock ownership includes the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES MANNER HELD
- ---------------- ------------------------------------------------------------
<C> <S>
162,000 Issued under Main Street's Restricted Stock Award Plan
1,922,568 Held by the Fowler Children's Trust
207,000 Held by the Estate of Louly T. Fowler
640,800 Held by three Fowler Family Grandchildren's Trusts
560,000 Held by three Fowler Family Generation Skipping Tax Exempt
Grandchildren's Trusts
405,520 Held by Hunter Fowler, L.P., a family limited partnership
formed by Mr. Fowler and his daughter
195,200 Held by Mr. Fowler's spouse, Mary H. Fowler
</TABLE>
74
<PAGE>
Mr. Fowler is the executor of the Estate of Louly T. Fowler, Trustee of the
Children's trust, sole trustee for all three Grandchildren's Trusts as well as
one of the Generation Skipping Tax Exempt Trusts and Co-Trustee of the other two
Generation Skipping Tax Exempt Trusts described above. Mr. Fowler disclaims
beneficial ownership of the 405,520 shares held by the family limited
partnership and the 195,200 shares held by Mr. Fowler's spouse, Mary H. Fowler.
Mr. Hay's stock ownership includes 102,000 shares of stock issued to
Mr. Hay pursuant to Main Street's Restricted Stock Award Plan.
Mr. Hunt's ownership includes 285,672 shares owned by his mother, Caroline
C. Hunt. Mr. Hunt votes these shares as attorney-in-fact for his mother.
Mr. Strickland's stock ownership includes 93,000 shares of stock issued to
Mr. Strickland pursuant to Main Street's Restricted Stock Award Plan and 48,000
shares held by Sterne Agee & Leach as IRA custodian for Mr. Strickland.
The ownership of all of Main Street Banks' directors and executive officers,
as a group, includes the shares described above for each individual director and
executive officer.
MAIN STREET BANKS' MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations analyzes the major elements of Main Street Banks' consolidated
statements of financial condition and consolidated statements of income. This
section should be read in conjunction with Main Street Banks' consolidated
financial statements and accompanying notes and other detailed information
appearing elsewhere in this joint proxy statement/prospectus.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following discussion contains certain forward-looking statements which
are based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements include statements identified by
use of the words "may," "should," "will," "contemplate," "continue," "possible,"
"believe," "expect," "intend," "anticipate," "estimate," "project," or similar
expressions. Our ability to predict results or the actual effect of future plans
or strategies is inherently uncertain and involve risks and uncertainties that
may cause actual results, performance or such investments to be materially
different from those expressed or implied from such forward looking statements.
Factors which could have a material adverse effect on our operations include,
but are not limited to, changes in interest rates and the level and composition
of deposits, loan demand and the values of loan collateral, mortgages,
securities and other interest sensitive assets and liabilities, general economic
conditions, legislation and regulation, monetary and fiscal policies of the
federal government, including policies of the Treasury Department and the
Federal Reserve Board, competition, demand for financial services in our market
area, and accounting principles and guidelines and the failure of assumptions
underlying the establishment of the reserve for possible loan losses. You should
consider these risks and uncertainties in evaluating forward-looking statements
and should not place undue reliance on such statements. We will not publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. All written
or oral forward statements attributable to Main Street Banks are qualified in
their entirety by these cautionary statements.
75
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OVERVIEW
Net income was $7.2 million, $6.5 million and $5.5 million for the years
ended December 31, 1999, 1998 and 1997, respectively, and basic and diluted
earnings per share were $0.82, $0.75 and $0.63 for these same periods. Earnings
growth from 1997 to 1998 and from 1998 to 1999 resulted principally from an
increase in net interest income which primarily was driven by strong loan demand
and an increase in non-interest income as a result of the addition and the
continued growth of several fee-based lines of business. Main Street Banks
posted returns on average assets of 1.55%, 1.56% and 1.38% and returns on
average equity of 16.20%, 16.13% and 15.15% for the years ended December 31,
1999, 1998 and 1997, respectively. Main Street Banks' efficiency ratio was
62.11% in 1999, 63.06% in 1998 and 62.36% in 1997.
Total assets at December 31, 1999, 1998 and 1997 were $503.5 million,
$431.3 million and $400.2 million, respectively. Total deposits at December 31,
1999, 1998 and 1997 were $402.6 million, $365.9 million and $355.9 million,
respectively. Loans, net of unearned income, were $381.4 million at
December 31, 1999, an increase of $56.8 million or 17.5% from $324.6 million at
the end of 1998. Loans, net of unearned income, were $298.1 million at year end
1997. Shareholders' equity was $46.5 million, $42.9 million and $38.1 million at
December 31, 1999, 1998 and 1997, respectively.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income for 1999 was $24.4 million,
compared to $22.5 million for 1998, an increase of $1.9 million or 8.4%. The
improvement in net interest income for 1999 was primarily due to the increase in
total interest earning assets, primarily in the loan portfolio. High loan volume
helped make up for a decrease in loan yield caused primarily by decreases in
interest rates in late 1998. The yield on interest earning assets decreased from
9.51% in 1998 to 9.18% in 1999 due to declining market interest rates and
heightened competition for loan business. The cost of funds decreased from 4.40%
in 1998 to 4.18% in 1999 primarily due to an increase in lower yielding demand
deposit accounts.
Net interest income for 1998 was $22.5 million, compared to $20.6 million
for 1997, an increase of $1.9 million or 9.2%. The improvement in net interest
income for 1998 was primarily due to the increase in total interest earning
assets, primarily in the loan portfolio. During 1998, the yield on interest
earning assets increased 17 basis points from 9.34% in 1997 to 9.51% in 1998 due
to the increase in volume of higher yielding loans. The cost of funds increased
slightly from 4.38% in 1997 to 4.40% in 1998.
The following table presents the total dollar amount of average balances,
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. Nonaccrual loans were $1.5 million,
$1.4 million and $754,000 at December 31, 1999, 1998, and 1997, respectively.
These amounts are included in the average loan balances in the table below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned
income(1)................ $354,668 $34,592 9.75% $312,014 $31,599 10.13% $281,572 $28,414 10.09%
Investment securities:
Taxable.................. 46,931 2,939 6.26 50,044 3,178 6.35 57,916 3,731 6.44
Non-taxable(2)........... 14,445 952 6.59 12,466 1,043 8.36 12,435 1,188 9.56
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
deposits................. 376 15 3.99 123 9 7.32 109 10 9.17
Federal funds sold......... 5,635 267 4.74 5,365 314 5.85 12,665 707 5.58
-------- ------- ---- -------- ------- ----- -------- ------- -----
Total interest-earning
assets..................... 422,055 38,765 9.18% 380,012 36,143 9.51% 364,697 34,050 9.34%
Noninterest-earning assets
Cash and due from banks.... 22,454 19,250 15,787
Allowance for loan
losses................... (6,152) (5,471) (4,800)
Premises and equipment..... 15,012 13,959 13,174
Other real estate owned.... 1,040 832 628
Other assets............... 11,478 8,966 7,803
-------- -------- --------
Total assets............. $465,887 $417,548 $397,289
======== ======== ========
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand and money market
deposits................... $ 90,776 $ 2,048 2.26% $ 80,373 $ 1,993 2.48% $ 79,625 $ 1,834 2.30%
Savings deposits............. 25,179 449 1.78 23,917 479 2.00 23,226 466 2.01
Time deposits................ 186,994 9,717 5.20 185,237 10,127 5.47 193,050 10,617 5.50
FHLB advances................ 28,227 1,605 5.69 10,252 586 5.72 1,764 106 6.01
Federal funds purchased and
other borrowings........... 3,607 184 5.10 1,382 81 5.86 310 20 6.45
-------- ------- -------- ------- -------- -------
Total interest-bearing
Liabilities................ 334,783 14,003 4.18% 301,161 13,266 4.40% 297,975 13,043 4.38%
Non-interest-bearing:
Demand deposits.......... 81,464 71,694 59,118
Other liabilities........ 4,985 4,296 3,969
-------- -------- --------
Total liabilities........ 421,232 377,151 361,062
Shareholders' equity......... 44,655 40,397 36,227
-------- -------- --------
Total liabilities and
shareholders' equity..... $465,887 $417,548 $397,289
======== ======== ========
Net interest rate spread..... 5.00% 5.13% 4.93%
Net interest income and
margin(3).................. $24,762 5.87% $22,877 6.02% $21,007 5.76%
</TABLE>
77
<PAGE>
- ------------------------------
(1) Fee income related to loans of $2,990,000, $2,585,000 and $1,935,000 for the
years ended December 31, 1999, 1998, and 1997, respectively, is included in
interest income.
(2) In order to make pre-tax income and resultant yields on tax-exempt
investments comparable to those on taxable investments, a tax-equivalent
adjustment has been computed using a federal income tax rate of 34%.
(3) The net interest margin is equal to net interest income divided by average
interest-earning assets.
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the change in interest rates. For purposes of
this table, changes attributable to both rate and volume which cannot be
segregated have been allocated to rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 YEARS ENDED DECEMBER 31
------------------------------ ------------------------------
1999 VS. 1998 1998 VS. 1997
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------ ------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.......................................... $4,321 $(1,328) $2,993 $3,060 $ 125 $3,185
Investment securities:
Taxable........................................ (198) (41) (239) (508) (45) (553)
Non-taxable.................................... 166 (257) (91) 3 (150) (147)
Interest-bearing deposits...................... 9 (3) 6 1 (2) (1)
Federal funds sold............................. 16 (63) (47) (407) 14 (393)
------ ------- ------ ------ ----- ------
Total increase (decrease) in interest income... 4,314 (1,692) 2,622 2,149 (58) 2,091
------ ------- ------ ------ ----- ------
Interest-bearing liabilities:
Demand and money market deposits............... 258 (204) 54 14 145 159
Savings deposits............................... 25 (55) (30) 15 (2) 13
Time deposits.................................. 96 (506) (410) (453) (37) (490)
FHLB advances.................................. 1,028 (9) 1,019 510 (30) 480
Federal funds purchased and other borrowings... 195 (92) 103 69 (8) 61
------ ------- ------ ------ ----- ------
Total increase (decrease) in interest
expense...................................... 1,602 (866) 736 155 68 223
------ ------- ------ ------ ----- ------
Increase (decrease) in net interest income..... $2,712 $ (826) $1,886 $1,994 $(126) $1,868
</TABLE>
PROVISION FOR LOAN LOSSES. The allowance for loan losses at December 31,
1998 was $6.2 million, representing 1.64% of outstanding loans. One year
earlier, this ratio was 1.80% of outstanding loans. The provision for loan
losses charged against earnings was $935,000 in 1999 compared to $865,000 in
1998. Net loans charged off in 1999 were $541,000 compared to $107,000 in 1998.
During 1998, Main Street Banks made provisions totaling $865,000 to the
allowance for loan losses, a decrease of $540,000 compared to 1997. Net loans
charged off in 1998 were $107,000 compared to $821,000 in loan charge-offs for
1997.
NONINTEREST INCOME. For 1999, noninterest income totaled $6.8 million, an
increase of $1.0 million or 17.8% versus $5.8 million in 1998. This increase is
due mainly to an increase in service charge income and increases in revenues
from Main Street Banks' investment, insurance and card services divisions as
business grew from these lines. A one-time gain on the sale of the West Broad
Office of $304,000 before taxes was recognized during first quarter of 1999 and
a one-time gain on the sale of an interest rate cap of $196,000 before taxes was
recognized in the third quarter of 1999. Noninterest income for 1998 was
$5.8 million, a $1.5 million or 34.9% increase from 1997 primarily due to an
78
<PAGE>
increase in mortgage, investment, insurance, and card services income.
Nonoperating income for 1998 included a $136,000 pretax gain on the sale of the
Winterville office.
The following table presents the major categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts................. $3,467 $3,099 $2,898
Mortgage division income............................ 1,013 1,035 620
Investment division income.......................... 278 123 31
Insurance division income........................... 120 76 --
Card services income................................ 858 679 445
Nonoperating income................................. 599 192 (16)
Other noninterest income............................ 492 591 370
------ ------ ------
Total noninterest income.......................... $6,827 $5,795 $4,348
====== ====== ======
</TABLE>
NONINTEREST EXPENSE. For the years ended 1999, 1998 and 1997, noninterest
expense totaled $19.4 million, $17.8 million, $15.6 million, respectively. The
following table presents the major categories of noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................... $10,328 $ 9,934 $ 8,649
Bank premises expense............................ 1,366 1,351 1,223
Equipment rentals, depreciation and
maintenance.................................... 1,553 1,379 1,115
Professional fees................................ 868 315 309
Regulatory assessments........................... 157 161 108
Intangible amortization.......................... 439 439 439
Other............................................ 4,709 4,268 3,717
------- ------- -------
Total noninterest expense...................... $19,420 $17,847 $15,560
======= ======= =======
</TABLE>
For 1999, noninterest expense totaled $19.4 million, an increase of
$1.6 million or 8.8% over $17.8 million in 1998. Professional fees were $553,000
higher than 1998 due to consultant fees paid for an efficiency study and
expenses related to a cancelled stock offering. In addition, processing expenses
for card services increased significantly with increased credit card business.
For 1998, non-interest expense totaled $17.8 million, an increase of
$2.2 million or 14.1% over $15.6 million in 1997. Salaries and employee benefits
for 1998 totaled $9.9 million, an increase of $1.3 million or 15.1% over
$8.6 million for 1997. This was due to several new positions added. Other
expenses increased principally due to increased occupancy, equipment and other
expenses related to the opening of the Eastside Office and the new Operations
Center.
INCOME TAXES. Income tax expense includes both federal income tax and
Georgia state income tax. The amount of federal income tax expense is influenced
by the amount of taxable income, the amount of tax-exempt income, the amount of
non-deductible interest expense and the amount of other non-deductible expenses.
In 1999, income tax expense was $3.7 million compared to $3.1 million in 1998.
The 1997 amount was $2.5 million. The effective tax rates in 1999, 1998 and
1997, respectively, were 33.7%, 32.2% and 31.3%.
79
<PAGE>
IMPACT OF INFLATION. The effects of inflation on the local economy and on
Main Street Banks' operating results have been relatively modest for the past
several years. Since substantially all of Main Street Banks' assets and
liabilities are monetary in nature, such as cash, securities, loans and
deposits, their values are less sensitive to the effects of inflation than to
changing interest rates, which do not necessarily change in accordance with
inflation rates. Main Street Banks tries to control the impact of interest rate
fluctuations by managing the relationship between its interest rate sensitive
assets and liabilities. Changes in interest rates will affect the volume of
loans generated and the values of investment securities and collateral held.
Increasing interest rates such as those experienced since mid-1999 generally
decrease the values of securities and collateral, and reduce loan demand,
especially real estate loans.See "--Financial condition--Interest rate
sensitivity and liquidity" at page 89.
FINANCIAL CONDITION
LOAN PORTFOLIO. At December 31, 1999, loans, net of unearned income, were
$381.4 million, an increase of $56.8 million or 17.5% over net loans at
December 31, 1998 of $324.6 million. The growth in the loan portfolio was
attributable to a consistent focus on growth and a strong lending market. At
December 31, 1999 real estate-construction loans increased $14.9 million or
31.2% and real estate mortgage loans increased $26.7 million or 12.1% from
December 31, 1998. Due to the sensitivity of repayment of construction loans to
fluctuations in the economy, Main Street Banks maintained a policy of keeping
construction loans below 18% of total loans, an amount Main Street Banks'
management believes will provide protection in the event of an economic
downturn.
At December 31, 1998, loans, net of unearned income, were $324.6 million, an
increase of $26.5 million or 8.9% over net loans at December 31, 1997 of
$298.1 million. The growth in the loan portfolio was also attributable to Main
Street Banks' consistent focus on growth and a strong lending market. At
December 31, 1998 real estate-construction loans increased $8.4 million or 21.2%
and real estate mortgage loans increased $13.9 million or 6.7% from
December 31, 1997.
The following table summarizes the loan portfolio of Main Street Banks by
type of loan:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial and industrial................. $ 20,530 $ 15,188 $ 13,917 $ 11,392 $ 10,190
Real estate-construction.................. 62,740 47,831 39,449 25,917 19,962
Real estate-mortgage...................... 247,492 220,743 206,803 183,400 169,686
Consumer and other........................ 50,646 40,855 37,922 38,122 37,894
-------- -------- -------- -------- --------
$381,408 $324,617 $298,091 $258,831 $237,732
======== ======== ======== ======== ========
Mortgage loans held for sale.............. $ 1,357 $ 4,283 -- -- --
======== ======== ======== ======== ========
Percent of loans by category to total
loans (Excluding loans held for sale):
Commercial and industrial................. 5.38% 4.68% 4.67% 4.40% 4.29%
Real estate-construction.................. 16.45% 14.73% 13.23% 10.01% 8.40%
Real estate-mortgage...................... 64.89% 68.00% 69.38% 70.86% 71.38%
Consumer and other........................ 13.28% 12.59% 12.72% 14.73% 15.93%
-------- -------- -------- -------- --------
100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
</TABLE>
To accomplish Main Street Banks' lending objectives, management seeks to
achieve consistent loan growth within its primary market areas while maximizing
loan yields and maintaining a high quality loan portfolio. Main Street Banks
monitors its lending objectives primarily through its senior loan committee.
Main Street Banks' lending objectives are clearly defined in its Lending Policy,
which is
80
<PAGE>
reviewed annually and approved by the board of directors. The senior loan
committee is chaired by Main Street Banks' chief credit officer. Other members
of the committee include Main Street Banks' five division executives, its risk
management officer and various lending officers.
Generally, all loans with total related debt of $250,000 or more are
reviewed for approval by the senior loan committee. However, for certain loans
that Main Street Banks' board of directors has identified as low risk loans,
i.e., residential mortgage loans and consumer loans, the division executives
have approval authority up to $500,000. The next level of approval authority
rests with Main Street Banks' board of directors. The board of directors is
generally responsible for ratifying the actions of the senior loan committee and
serving as the ultimate approval authority for single advances of $1 million or
more. Additionally, Main Street Banks' board of directors is responsible for
approving all new loan requests for which a borrower's total debt exceeds
$2.5 million.
Main Street Banks primarily focuses on the following loan categories:
(1) commercial, (2) real estate construction, (3) real estate mortgage and
(4) consumer loans. Main Street Banks' management has strategically located its
branches in high growth markets and has taken advantage of a surge in
residential and industrial growth in northeastern Georgia.
Real estate mortgage lending has significantly contributed to Main Street
Banks' loan growth during the past several years. Generally, these loans are
owner-occupied and are amortized over a 15 year to 20 year period with a three
to five year maturity. The underwriting criteria for these loans is very similar
to the underwriting criteria used in the mortgage industry. Typically, a
borrower's debt to income ratio can not exceed 36% and the loan to appraised
value ratio cannot exceed 89.9%. However, Main Street Banks' knowledge of its
customers and its market allows Main Street Banks to be more flexible in meeting
its customers' needs. Main Street Banks also underwrites commercial mortgage
loans. Loans included in this category are primarily for the acquisition or
refinancing of owner occupied commercial buildings. These loans are underwritten
on the borrower's ability to meet certain minimum debt service requirements and
the value of the underlying collateral to meet certain loan to value guidelines.
Main Street Banks also perfects its interest in equipment or other business
assets of the borrower and obtains personal guaranties.
Main Street Banks also underwrites loans to finance the construction of
residential and non-residential properties which include speculative and
pre-sale loans. Speculative construction loans involve a higher degree of risk,
as these are made on the basis that a borrower will be able to sell the project
to a potential buyer after a project is completed. Pre-sale construction loans
usually have a pre-qualified buyer under contract before construction is to
begin. The major risk for pre-sale loans is getting the project completed in a
timely manner and according to plan specifications. Non-residential construction
loans include construction loans for churches, commercial buildings, strip
shopping centers, and acquisition and development loans. These loans also carry
a higher degree of risk and require strict underwriting guidelines. All
construction loans are secured by first liens on real estate and generally have
floating interest rates. Main Street Banks conducts periodic inspections either
directly or through an agent prior to approval of periodic draws on these loans.
As an underwriting guideline, management focuses on the borrower's past
experience in completing projects in a timely manner and the borrower's
financial condition with special emphasis placed on liquidity ratios. Although
the construction loans are deemed to be of higher risk, Main Street Banks
believes that it can monitor and manage this risk properly.
Main Street Banks also underwrites commercial and industrial loans.
Generally, these loans are for working capital purposes and are secured by
inventory, accounts receivable or equipment. Main Street Banks maintains strict
underwriting standards for this type of lending. Potential borrowers must meet
certain working capital and debt ratios as well as generate positive cash flow
from operations. Borrowers in this category will generally have a debt service
coverage ratio of at least 1.3 to 1. Main Street Banks will also perfect its
interest in equipment or other business assets of the borrower and obtain
81
<PAGE>
personal guaranties. This loan category represents Main Street Banks smallest
loan category. Main Street Banks does not originate and does not currently hold
in its portfolio any foreign loans.
Consumer loans include automobile loans, recreational vehicle loans, boat
loans, home improvement loans, home equity loans, personal loans (collateralized
and uncollateralized) and deposit account collateralized loans. The terms of
these loans typically range from 12 to 120 months and vary based upon the nature
of collateral and size of the loan. Consumer loans involve greater risk than
residential mortgage loans. This is due to the fact that these loans may be
unsecured or secured by rapidly depreciating assets such as automobiles.
Repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan balance. The remaining deficiency
often does not warrant further substantial collection efforts against the
borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws may limit the amount which can be recovered on such loans.
The contractual maturity ranges of the commercial and industrial and real
estate-construction portfolios and the amount of such loans with predetermined
interest rates and floating rates in each maturity range as of December 31, 1999
are summarized as follows:
<TABLE>
<CAPTION>
AFTER ONE
ONE YEAR OR YEAR THROUGH AFTER FIVE
LESS FIVE YEARS YEARS TOTAL
----------- ------------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial.......... $ 6,189 $5,249 $9,092 $20,530
Real estate-construction........... 59,964 2,042 734 62,740
------- ------ ------ -------
Total............................ $66,153 $7,291 $9,826 $83,270
======= ====== ====== =======
Loans with a predetermined interest
rate............................. $24,212 $7,291 $9,826 $41,329
Loans with a floating interest
rate............................. 41,941 -- -- 41,941
------- ------ ------ -------
Total.......................... $66,153 $7,291 $9,826 $83,270
======= ====== ====== =======
</TABLE>
NONPERFORMING ASSETS. Main Street Banks has several procedures in place to
assist management in maintaining the overall quality of its loan portfolio. Main
Street Banks has established written guidelines contained in its Lending Policy
for the collection of past due loan accounts. These guidelines explain in detail
Main Street Bank's policy on the collection of loans over 30, 60, and 90 days
delinquent. Generally, loans over 90 days delinquent are placed in a nonaccrual
status. However, if the loan is deemed to be in process of collection, it may be
maintained on an accrual basis. Main Street Banks' Management makes loan
officers aware of its lending policy and the collection policy contained therein
on a continuous basis. Main Street Banks' Management has also staffed its
collection department with properly trained staff to assist lenders with
collection efforts and to maintain records and develop reports on delinquent
borrowers. Main Street Banks' lending approach, as well as a healthy local
economy, has resulted in strong asset quality. Main Street Banks had
nonperforming assets of $2.2 million, $2.3 million, and $1.4 million as of
December 31, 1999, 1998 or 1997, respectively. For 1999 and 1998, the gross
amount of interest income that would have been recorded on nonperforming loans,
if all such loans had been accruing interest at the original contract rate, was
approximately $85,000 and $12,000 respectively. Management is not aware of any
loans that meet the definition of a troubled debt restructuring as of
December 31, 1999 or 1998. Main Street Banks records real estate acquired
through foreclosure at the lesser of the outstanding loan balance or the fair
value at the time of foreclosure, less estimated cost to sell. Main Street Banks
usually disposes of real estate acquired through foreclosure within one year;
however, if it is unable to dispose of the foreclosed property, the property's
value is assessed annually and written down to its fair value less cost to sell.
82
<PAGE>
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans.................... $1,474 $1,442 $ 754 $ 993 $1,726
Other real estate and
repossessions..................... 750 880 675 687 100
Total nonperforming assets.......... $2,224 $2,322 $1,429 $1,680 $1,826
Loans past due 90 days or more and
still accruing.................... $ 426 $ 359 $ 850 $ 156 $ 289
Ratio of past due loans to loans,
net of unearned income(1)......... 0.11% 0.11% 0.29% 0.06% 0.12%
Ratio of nonperforming assets to
loans, net of unearned income, and
other real estate(1).............. 0.58% 0.71% 0.48% 0.65% 0.77%
</TABLE>
- ------------------------
(1) Excludes mortgage loans held for sale.
Management is not aware of any potential problem loans other than those
noted in the table above.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a reserve
established through charges to earnings in the form of a provision for loan
losses. The provision for loan losses is based on management's evaluation of the
economic environment, the history of charged-off loans and recoveries, size and
composite of the loan portfolio, nonperforming and past-due loans, and other
aspects of the loan portfolio. Main Street Banks' management has established an
allowance for loan losses which it believes is adequate for anticipated losses
in its loan portfolio. Based on a continuous credit evaluation of the loan
portfolio, management presents a quarterly review of the allowance for loan
losses to Main Street Banks' board of directors. The review that management has
developed primarily focuses on risk by evaluating the level of loans in certain
risk categories. These categories have also been established by management and
take the form of loan grades. These loan grades closely mirror regulatory
classification guidelines and include pass loan categories 1 through 4 and
special mention, substandard, doubtful, and loss categories of 5 through 8,
respectively. By grading the loan portfolio in this manner, Main Street Banks'
management is able to effectively evaluate the portfolio by risk, which
management believes is the most effective way to analyze the loan portfolio and
thus analyze the adequacy of the reserve for loan losses. Also, Main Street
Banks' management reviews activity in the allowance for loan losses, such as
charge-offs and recoveries, during each quarter to identify trends.
Main Street Banks follows a loan review program to evaluate the credit risk
in the loan portfolio. Through the loan review process, Main Street Banks
maintains an internally classified loan list which, along with the delinquency
list of loans, helps management assess the overall quality of the loan portfolio
and the adequacy of the allowance for loan losses. Loans classified as
"substandard" are those loans with clear and defined weaknesses such as a
highly-leveraged position, unfavorable financial ratios, uncertain financial
ratios, uncertain repayment sources, or poor financial condition which may
jeopardize recoverability of the debt. Loans classified as "doubtful" are those
loans that have characteristics similar to substandard loans but have an
increased risk of loss, or at least a portion of the loan may require being
charged-off. Loans classified as "loss" are those loans that are in the process
of being charged-off. For the year ended 1999, net charge-offs totaled $541,000
or 0.15% of average loans outstanding for the period, net of unearned income,
compared to $107,000 or 0.03% in net charge-offs during 1998. Main Street Banks'
net charge-offs totaled $821,000 or 0.29% of average loans, net of
83
<PAGE>
unearned income, outstanding in 1997. During 1999, Main Street Banks recorded a
provision for loan losses of $935,000 compared with $865,000 for 1998. At
December 31, 1999, the allowance for loan losses totaled $6.2 million, or 1.64%
of total loans, net of unearned income. Main Street Banks made a provision for
loan losses of $1.4 million during 1997. At December 31, 1998, the allowance for
loan losses was $5.85 million, or 1.80% of total loans, net of unearned income.
At December 31, 1997, the allowance was $5.1 million, or 1.71% of total loans,
net of unearned income.
The following table presents an analysis of the allowance for loan losses
and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding (net of
unearned income)................ $354,668 $312,014 $281,572 $249,065 $231,024
Total loans, net of unearned
income, at end of period........ 381,408 $324,617 $298,091 $258,831 $237,732
Allowance for loan losses at
beginning of period............. 5,850 5,092 4,508 4,234 3,338
Provision for loans losses........ 935 865 1,405 935 1,160
Charge-offs:
Commercial and industrial....... (256) (132) (93) (141) (24)
Real estate..................... (74) (54) (221) (265) (62)
Consumer........................ (520) (322) (762) (484) (269)
Recoveries:
Commercial and industrial....... 33 62 38 37 1
Real estate..................... 49 118 28 45 9
Consumer........................ 227 221 189 147 81
-------- -------- -------- -------- --------
Net charge-offs................... $ (541) $ (107) $ (821) $ (661) $ (264)
-------- -------- -------- -------- --------
Allowance for loan losses at end
of period....................... $ 6,244 $ 5,850 $ 5,092 $ 4,508 $ 4,234
======== ======== ======== ======== ========
Ratio of allowance to end of
period loans.................... 1.64% 1.80% 1.71% 1.74% 1.78%
Ratio of net charge-offs to
average loans................... 0.15% 0.03% 0.29% 0.27% 0.11%
Ratio of allowance to end of
period nonperforming Loans...... 423.61% 405.69% 675.33% 453.98% 245.31%
</TABLE>
84
<PAGE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future losses may occur. The total allowance is
available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------- ---------------------- --------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
-------- ----------- -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses applicable to:
Commercial and industrial... $ 194 3.11% $ 274 4.68% $ 238 4.67% $ 198
Real estate................. 5,081 81.37 4,840 82.74 4,207 82.61 3,646
Consumer and other.......... 969 15.52 736 12.58 647 12.72 664
------ ------ ------ ------ ------ ------ ------
Total allowance for loan
losses.................... $6,244 100.00% $5,850 100.00% $5,092 100.00% $4,508
====== ====== ====== ====== ====== ====== ======
<CAPTION>
DECEMBER 31
------------------------------------
1996 1995
----------- ----------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
TOTAL LOANS AMOUNT TOTAL LOANS
----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for
loan losses applicable to:
Commercial and industrial... 4.40% $ 182 4.29%
Real estate................. 80.87 3,378 79.78
Consumer and other.......... 14.73 674 15.93
------ ------ ------
Total allowance for loan
losses.................... 100.00% $4,234 100.00%
====== ====== ======
</TABLE>
Main Street Banks believes that the allocation of its allowance for loan
losses is reasonable. Where management is able to identify specific loans or
categories of loans where specific amounts of reserve are required, allocations
are assigned to those categories. Federal and state bank regulators also require
that a bank maintain a reserve that is sufficient to absorb an estimated amount
of unidentified potential losses based on management's perception of economic
conditions, loan portfolio growth, historical charge-off experience and exposure
concentrations.
Main Street Banks believes that the allowance for loan losses at
December 31, 1999 is adequate to cover losses inherent in the portfolio as of
such date. There can be no assurance that Main Street Banks will not sustain
losses in future periods which could be substantial in relation to the size of
the allowance at December 31, 1999.
The allowance for loan losses is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance and the size of the allowance for
loan losses in comparison to a group of peer banks identified by the regulators.
During their routine examinations of banks, the FDIC and the Georgia Department
of Banking, may require a bank to make additional provisions to its allowance
for loan losses when, in the opinion of the regulators, credit evaluations and
allowance for loan loss methodology differ materially from those of management.
While it is the Bank's policy to charge off in the current period loans for
which a loss is considered probable there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans on
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
INVESTMENT SECURITIES. Main Street Banks uses its securities portfolio both
as a source of income and as a source of liquidity. At December 31, 1999,
investment securities totaled $64.2 million, an increase of $2.1 million from
$62.1 million at December 31, 1998. At December 31, 1999, investment securities
represented 12.8% of total assets, compared to 14.9% of total assets at
December 31, 1998. The average yield on a fully taxable equivalent basis on the
investment portfolio for the year ended December 31, 1999 was 6.16% compared to
a yield of 6.41% for the year ended December 31, 1998. At December 31, 1998,
investment securities were $62.1 million, a decrease of $6.1 million from
$68.2 million at December 31, 1997. This was due to several maturities and calls
of securities where the proceeds were not reinvested in investment securities.
At December 31, 1998, investment securities represented 17.0% of total deposits
and 14.9% of total assets. Approximately $25.3 million or 41.7% of Main Street
Banks investment securities reprice within one year. The average yield on a
fully taxable equivalent basis on the investment portfolio was 6.75% for 1998,
compared to 6.99% for 1997. The
85
<PAGE>
following table summarizes the contractual maturity of investment securities and
their weighted average yields.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE BUT WITHIN FIVE BUT WITHIN TEN
YEAR YEARS YEARS AFTER TEN YEARS
------------------- ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities....... $1,000 6.30% $ 2,942 5.42% -- -- -- -- $ 3,942
U.S. government agencies and
corporations................. -- -- 19,543 5.93 $ 957 6.15% -- -- 20,500
Mortgage-backed securities..... 1,030 5.38 1,742 5.72 3,813 6.26 $15,253 5.84% 21,838
States and political
subdivisions................. 1,667 5.09 4,370 4.47 5,286 4.85 4,219 6.32 15,542
------ ---- ------- ---- ------- ---- ------- ---- -------
Total.......................... $3,697 5.50% $28,597 5.64% $10,056 5.51% $19,472 5.94% $61,822
====== ==== ======= ==== ======= ==== ======= ==== =======
</TABLE>
The following table presents the amortized costs and fair value of
securities classified as available for sale and held-to-maturity at
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES
States and political subdivisions... $15,541 $15,183 $12,497 $13,044 $12,068 $12,526
======= ======= ======= ======= ======= =======
AVAILABLE FOR SALE SECURITIES
U.S.Treasury securities............. $ 3,992 $ 3,942 $ 3,991 $ 4,041 $ 6,477 $ 6,529
U.S. Government agencies and
corporations...................... 21,008 20,500 14,495 14,604 24,526 24,633
Mortgage-backed securities.......... 22,541 21,838 29,663 29,598 23,705 23,672
------- ------- ------- ------- ------- -------
$47,541 $46,280 $48,149 $48,243 $54,708 $54,834
======= ======= ======= ======= ======= =======
</TABLE>
Mortgage-backed securities are securities which have been developed by
pooling real estate mortgages and are principally issued by federal agencies
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. These securities are deemed to have high credit ratings,
and minimum regular monthly cash flows of principal and interest are guaranteed
by the issuing agencies.
At December 31, 1999, 69.8% of the mortgage-backed securities Main Street
Banks held had contractual final maturities of more than ten years. However,
unlike U.S. Treasury and U.S. government agency securities, which have a lump
sum payment at maturity, mortgage-backed securities provide cash flows from
regular principal and interest payments and principal prepayments throughout the
lives of the securities. Mortgage-backed securities which are purchased at a
premium will generally suffer decreasing net yields as interest rates drop
because home owners tend to refinance their mortgages. Thus, the premium paid
must be amortized over a shorter period. Therefore, these securities purchased
at a discount will obtain higher net yields in a decreasing interest rate
environment. As interest rates rise, the opposite will generally be true. During
a period of increasing interest rates, fixed rate mortgage-backed securities do
not tend to experience heavy prepayments of principal and consequently, the
average life of this security will not be unduly shortened. If interest rates
begin to fall, prepayments will increase, and the average life of these
securities will decrease.
Main Street Banks has adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At
the date of purchase, Main Street Banks is
86
<PAGE>
required to classify debt and equity securities into one of three categories:
held-to-maturity, trading or available-for-sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments in debt
securities are classified as held-to-maturity and measured at amortized cost in
the financial statements only if management has the positive intent and ability
to hold those securities to maturity. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading and measured at fair value in the financial statements with unrealized
gains and losses included in earnings. Main Street Banks does not have any
securities classified as trading securities. Investments not classified as
either held-to-maturity or trading are classified as available-for-sale and
measured at fair value in the financial statements with unrealized gains and
losses reported, net of tax, in accumulated other comprehensive income, a
separate component of shareholders' equity, until realized.
DEPOSITS. Main Street Banks offers a variety of deposit accounts having a
wide range of interest rates and terms. Main Street Banks' deposits consist of
demand, savings, money market and time accounts. Main Street Banks relies
primarily on competitive pricing policies and customer service to attract and
retain these deposits. Main Street Banks does not have any brokered deposits.
Main Street Banks' lending and investing activities are funded principally by
deposits, approximately 50.5% of which are demand, money market and savings
deposits. Deposits at December 31, 1999 were $402.6 million, an increase of
$36.7 million or 10.0% from $365.9 million at December 31, 1998.
Noninterest-bearing deposits were $79.5 million at December 31, 1999, an
increase of $2.7 million, or 3.5% from $76.8 million at December 31, 1998.
Noninterest-bearing deposits as of December 31, 1998 were $76.8 million compared
to $59.5 million at December 31, 1997. Certificates of Deposit were $199.4 at
December 31,1999, an increase of $17.9 million, or 9.9% from $181.5 million at
December 31, 1998. Total deposits at December 31, 1997 were $355.9 million.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1999, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand and money market deposits............ $ 90,776 2.25% $ 80,373 2.48% $ 79,625 2.30%
Savings deposits............................ 25,179 1.78 23,917 2.00 23,226 2.01
Time deposits............................... 186,994 5.20 185,237 5.48 193,050 5.50
-------- ---- -------- ---- -------- ----
Total interest-bearing deposits............. 302,949 4.03% 289,527 4.35% 295,901 4.37%
======== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth the amount of Main Street Banks' certificates
of deposit that are $100,000 or greater by time remaining until maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less........................................ $ 8,395
Over three through six months............................... 11,477
Over six through 12 months.................................. 19,688
Over 12 months.............................................. 7,674
-------
Total..................................................... $47,234
=======
</TABLE>
OTHER BORROWINGS. Deposits are the primary source of funds for Main Street
Banks' lending and investment activities. Occasionally, it obtains additional
funds from the FHLB and correspondent banks. At December 31, 1999, Main Street
Banks had borrowings of $42.0 million in FHLB advances and
87
<PAGE>
$10.0 million in Federal Funds Purchased compared to $17.0 million and
$2.8 million, respectively, at December 31, 1998. Main Street Banks' weighted
average interest rate on FHLB advances for the period ended December 31, 1999
was 5.73%. For a more detailed discussion of the borrowings of Main Street
Banks, see note 7 to Main Street Banks' Consolidated Financial Statements
included herein.
INTEREST RATE SENSITIVITY AND LIQUIDITY. Main Street Banks' asset liability
and funds management policy provides management with the necessary guidelines
for effective funds management, and it has established a measurement system for
monitoring its net interest rate sensitivity position. Main Street Banks manages
its sensitivity position within established guidelines.
Interest rate risk is managed by the asset liability committee which is
composed of senior officers of Main Street Banks, in accordance with policies
approved by its board of directors. The asset liability committee formulates
strategies based on appropriate levels of interest rate risk. In determining the
appropriate level of interest rate risk, the asset liability committee considers
the impact on earnings and capital of the current outlook on interest rates,
potential changes in interest rates, regional economies, liquidity, business
strategies and other factors. The asset liability committee meets regularly to
review, among other things, the sensitivity of assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, purchase and sale activities, commitments to
originate loans and the maturities of investments and borrowings. Additionally,
the asset liability committee reviews liquidity, cash flow flexibility,
maturities of deposits and consumer and commercial deposit activity. Main Street
Banks' management uses two methodologies to manage interest rate risk: (i) an
analysis of relationships between interest-earning assets and interest-bearing
liabilities; and (ii) an interest rate shock simulation model. Main Street
Banks' has traditionally managed its business to reduce its overall exposure to
changes in interest rates.
Main Street Banks manages its exposure to interest rates by structuring its
balance sheet in the ordinary course of business. Main Street Banks has in the
past, and may utilize interest rate swaps, financial options, or financial
futures contracts in order to reduce interest rate risk. No such interest rate
protection instruments were in effect at the end of 1999.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time (gap) and by
analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive gap,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative gap, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
gap would tend to affect net interest income adversely, while a positive gap
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative gap would tend to result in an increase in
net interest income, while a positive gap would tend to affect net interest
income adversely.
88
<PAGE>
The following table sets forth an interest rate sensitivity analysis for
Main Street Banks at December 31, 1999:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-------------------------------------------------------------
AFTER ONE
0-30 DAYS 31-180 DAYS 181-365 DAYS YEAR TOTAL
--------- ----------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment Securities................ $ 1,473 $ 3,175 $ 9,557 $ 49,859 $ 64,064
Loans................................ 109,001 76,265 49,592 147,893 382,751
Federal funds sold and short term
investments........................ 4,590 -- -- -- 4,590
-------- -------- -------- -------- --------
Total interest-earning assets.......... 115,064 79,440 59,149 197,752 451,405
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Demand, money market and savings
deposits........................... 1,920 9,597 11,517 100,701 123,735
Time deposits........................ 9,443 80,218 74,124 35,608 199,393
Borrowings........................... 10,000 2,000 15,000 25,000 52,000
-------- -------- -------- -------- --------
Total interest-bearing
liabilities...................... 21,363 91,815 100,641 161,309 375,128
-------- -------- -------- -------- --------
Period gap............................. $ 93,701 $(12,375) $(41,492) $ 36,443 $ 76,277
======== ======== ======== ========
Cumulative gap......................... $ 93,701 $ 81,326 $ 39,834 $ 76,277
======== ======== ======== ========
Period gap to total assets............. 18.61% (2.46)% (8.24)% 7.24%
Cumulative gap to total assets......... 18.61% 16.15% 7.91% 15.15%
</TABLE>
Shortcomings are inherent in any gap analysis since certain assets and
liabilities may not move proportionally as interest rates change. In addition to
gap analysis, Main Street Banks uses an interest rate risk simulation model and
shock analysis to test the interest rate sensitivity of net interest income and
the balance sheet, respectively. Contractual maturities and repricing
opportunities of loans are incorporated in the model as are prepayment
assumptions, maturity data and call options within the investment portfolio.
Assumptions based on past experience are incorporated into the model for
nonmaturity deposit accounts. Based on Main Street Banks' December 31, 1999
simulation analysis, it estimates that a 200 basis point rise or decline in
rates over the next 12 month period would have an impact of no more than 4% on
its net interest income for the period. The change is relatively small, despite
its asset sensitive gap position.
As a financial institution, Main Street Banks' primary component of market
risk is interest rate volatility. Fluctuations in interest rates will ultimately
impact both the level of income and expense recorded on most of Main Street
Banks' assets and liabilities, and the market value of all interest-earning
assets and interest-bearing liabilities, other than those which have a short
term to maturity. Based upon the nature of Main Street Banks' operations, it is
not subject to foreign exchange or commodity price risk. Main Street Banks does
not own investment securities held as trading assets.
Main Street Banks' exposure to market risk is reviewed on a regular basis.
Interest rate risk is the potential of economic losses due to future interest
rate changes. These economic losses can be reflected as a loss of future net
interest income and/or a loss of current fair market values. The objective is to
measure the effect on net interest income and to adjust the balance sheet to
minimize the inherent risk while at the same time maximizing income. Main Street
Banks' Management realizes certain risks are inherent, and that the goal is to
identify and accept the risks.
Liquidity involves Main Street Banks' ability to raise funds to support
asset growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements
89
<PAGE>
and otherwise to operate on an ongoing basis. During the past three years, Main
Street Banks' liquidity needs have primarily been met by growth in core
deposits, as previously discussed, together with advances from the Federal Home
Loan Bank. Although access to purchased funds from correspondent banks is
available and has been utilized on occasion to take advantage of investment
opportunities, Main Street Banks does not generally rely on these external
funding sources. The cash and federal funds sold position, supplemented by
amortizing investment and loan portfolios, have generally created an adequate
liquidity position.
CAPITAL RESOURCES. Capital management consists of providing equity to
support both current and future operations. Main Street Banks is subject to
capital adequacy requirements imposed by the Federal Reserve Board and Main
Street Bank is subject to capital adequacy requirements imposed by the FDIC and
the Georgia State Department of Banking and Finance. Both the Federal Reserve
Board and the FDIC have adopted risk-based capital requirements for assessing
bank holding company and bank capital adequacy. These standards define capital
and establish minimum capital requirements in relation to assets and off-balance
sheet exposure, adjusted for credit risk. The risk-based capital standards
currently in effect are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among bank holding companies and
banks, to account for off-balance sheet exposure and to minimize disincentives
for holding liquid assets. Assets and off-balance sheet items are assigned to
broad risk categories, each with appropriate relative risk weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
The risk-based capital standards issued by the Federal Reserve Board require
all bank holding companies to have "Tier 1 capital" of at least 4.0% and "total
risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted
assets. "Tier 1 capital" generally includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings, less deductions for goodwill and various other intangibles.
"Tier 2 capital" may consist of a limited amount of intermediate-term preferred
stock, a limited amount of term subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock not qualifying
as Tier 1 capital, and a limited amount of the general valuation allowance for
loan losses. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital."
The Federal Reserve Board has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, each federal banking agency revised its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages. Main Street Bank is subject to capital adequacy guidelines of the
FDIC that are substantially similar to the Federal Reserve Board's guidelines.
Also pursuant to the Federal Deposit Insurance Corporation Improvement Act, the
FDIC has promulgated regulations setting the levels at which an insured
institution such as Main Street Bank would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under the FDIC's regulations, Main Street
Bank is classified "well capitalized" for purposes of prompt corrective action.
See "Supervision and Regulation" (page 66). Shareholders' equity increased to
$46.5 million at December 31, 1999 from
90
<PAGE>
$42.9 million at December 31, 1998, an increase of $3.6 million or 8.4%. This
increase was primarily the result of net income of $7.2 million, less dividends
declared on common stock of $2.8 million. During 1998, shareholders' equity
increased by $4.8 million or 12.6% from $38.1 million at December 31, 1997.
The following table provides a comparison of Main Street Banks' and its
banking subsidiary's leverage and risk-weighted capital ratios as of
December 31, 1999 to the minimum and well capitalized regulatory standards:
<TABLE>
<CAPTION>
MINIMUM REQUIRED FOR TO BE WELL CAPITALIZED
CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE ACTUAL RATIO AT
PURPOSES PROVISIONS ACTION DECEMBER 31, 1999
-------------------- ----------------------- -----------------
<S> <C> <C> <C>
Main Street:
Leverage ratio..................... 3.00%(1) 5.00% 9.27%
Tier 1 risk-based capital ratio.... 4.00 6.00 12.17
Risk-based capital ratio........... 8.00 10.00 13.42
Banking Subsidiary:
Leverage ratio..................... 3.00%(2) 5.00% 8.81%
Tier 1 risk-based capital ratio.... 4.00 6.00 11.50
Risk-based capital ratio........... 8.00 10.00 12.76
</TABLE>
- ------------------------
(1) The Federal Reserve Board may require us to maintain a leverage ratio of up
to 200 basis points above the required minimum.
(2) The FDIC may require Main Street Bank to maintain a leverage ratio of up to
200 basis points above the required minimum.
91
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain consolidated quarterly financial
information of Main Street Banks. This information is derived from unaudited
consolidated financial statements which include, in the opinion of management,
all normal recurring adjustments which management considers necessary for a fair
presentation of the results for such periods. The results for any quarter are
not necessarily indicative of results for any future period. This information
should be read in conjunction with Main Street Banks' consolidated financial
statements and the notes thereto included elsewhere in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
1999 QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income........................................... $8,834 $9,309 $9,895 $10,403
Interest expense.......................................... 3,272 3,275 3,575 3,881
Net interest income....................................... 5,562 6,034 6,320 6,522
Provision for loan losses................................. 225 310 200 200
Securities gains.......................................... -- -- 14 --
Earnings before income taxes.............................. 2,435 2,186 3,047 3,243
Net income................................................ 1,638 1,514 2,019 2,063
Net income per share, basic and diluted................... $ 0.19 $ 0.17 $ 0.23 $ 0.23
</TABLE>
<TABLE>
<CAPTION>
1998 QARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income............................................ $8,732 $8,839 $9,042 $9,175
Interest expense........................................... 3,266 3,272 3,374 3,354
Net interest income........................................ 5,466 5,567 5,668 5,821
Provision for loan losses.................................. 450 220 50 145
Securities gains........................................... 11 2 4 1
Earnings before income taxes............................... 2,012 2,151 2,603 2,839
Net income................................................. 1,416 1,462 1,726 1,911
Net income per share, basic and diluted.................... $ 0.16 $ 0.17 $ 0.20 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
1997 QARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income............................................ $7,639 $8,397 $8,809 $8,802
Interest expense........................................... 3,014 3,348 3,365 3,316
Net interest income........................................ 4,625 5,049 5,444 5,486
Provision for loan losses.................................. 300 315 345 445
Securities gains........................................... 6 11 1 3
Earnings before income taxes............................... 1,631 1,755 2,453 2,149
Net income................................................. 1,152 1,198 1,668 1,472
Net income per share, basic and diluted.................... $ 0.13 $ 0.14 $ 0.19 $ 0.17
</TABLE>
92
<PAGE>
DIRECTORS OF MAIN STREET BANKS
COMMITTEES
Main Street Banks' board of directors has established the following
committees:
EXECUTIVE/MANAGEMENT COMMITTEE. The executive/management committee meets as
needed, and with certain exceptions, has the same power and authority as the
board of directors in the management of the business affairs of Main Street
Banks between meetings of the board. In addition, the committee reviews
financial reports, personnel and staffing, asset/liability management,
investments, and audit reports of Main Street Banks. The committee is composed
of Robert R. Fowler, III, chairman, Joseph K. Strickland, Samuel B. Hay, III,
and advisory member Frank B. Turner.
POLICY COMMITTEE. The policy committee meets as needed, to review and
approve proposed compensation increases to senior officers and directors of Main
Street Banks. This committee also periodically reviews and approves general
policies and procedures relating to compensation and benefits for officers and
directors, reviews employee compensation plans and benefits, and periodically
reports to the board of directors. The committee also reviews policies
concerning officer and employee retirement, termination and resignation. Members
of this committee are Robert R. Fowler, III, chairman, Frank B. Turner, vice
chairman, C. Candler Hunt, and Joseph E. Patrick, Jr.
EXECUTIVE OFFICER COMPENSATION COMMITTEE. A sub-committee of the policy
committee is the executive officer compensation committee. This committee
determines and sets executive officer salaries annually. It also reviews and
recommends to the policy committee the points at which various percentage awards
will be made under the cash incentive bonus plan for executive officers. Members
of the executive officer compensation committee are C. Candler Hunt, Joseph E.
Patrick, Jr., and Frank B. Turner.
AUDIT COMMITTEE. The audit committee meets with Main Street Banks' internal
audit staff on a quarterly basis to review and discuss specifics of the audit
function and to review any problems known to the audit department. Members of
this committee are C. Candler Hunt, chairman, Frank B. Turner, vice chairman,
and Louly F. Hay.
ASSET LIABILITY MANAGEMENT & INVESTMENT COMMITTEE. This committee, which
generally meets on a monthly basis, or as needed, manages our assets and
liabilities, reviews procedures and practices relating to the investment
activities of all subsidiaries, reviews examinations and audits of the loan
portfolios, examines delinquencies, reviews financial transactions with
management, and periodically reports to the board of directors. Members of this
committee are Samuel B. Hay, III, chairman, Robert R. Fowler, III, Joseph K.
Strickland, Jr., James R. Turner and Ronald H. Cook, Jr.
SENIOR LOAN COMMITTEE. The senior loan committee meets weekly and reviews
applications for loans of $250,000 or more and all loans of customers with a
total debt of $250,000 or more. The committee also performs credit reviews on
loan customers with total debts of $250,000 or more. Further, the committee
reviews procedures and practices related to lending activities, analyzes
examinations and audits of loan portfolios, and examines delinquencies. The
voting members of the senior loan committee are Joseph K. Strickland, Jr.,
chairman, Hal W. Dally, vice chairman, Robert R. Fowler, III, John R. Chesnut,
Jr., Ronald E. Carter, James A. Fletcher, Samuel B. Hay, III, Guy M. Dabbs, III,
William F. Parker, Jr., M. Jay Staines, Rob M. Watts, Charles O. Summerour,
Kerry W. Lipscomb, Lee A. Northcutt, Webster G. Samples, and advisory member
Frank B. Turner.
Main Street Banks' board of directors maintains several committees to assist
in the supervision and management of Main Street Banks. The committees perform
functions typically associated with committees of financial institutions.
Upon consummation of the merger, Robert R. Fowler III, Sam B. Hay, C.
Candler Hunt and Frank B. Turner, each a director of Main Street Bank, will each
become a director of First Sterling.
93
<PAGE>
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
March 1, 2000; (c) the year he was first elected as a director of Main Street
Banks; and (d) his positions with Main Street Banks and his other business
experience for the past five (5) years.
<TABLE>
<CAPTION>
NAME, YEAR FIRST
ELECTED TO BOARD OF
MAIN STREET BANKS POSITION WITH MAIN STREET BANKS AND PRINCIPAL
AND CLASS AGE OCCUPATION DURING THE PAST FIVE YEARS
- --------------------------------------------- -------- ------------------------------------------------
<S> <C> <C>
Robert R. Fowler, III........................ 61 Mr. Fowler serves as chairman of the board,
(1988) president and chief executive officer of Main
Class I Street Banks. Mr. Fowler has been chairman and
chief executive officer of Main Street Banks
since its organization in 1988. He served as
chairman of the board of Main Street Bank from
1985 to 1996, and was elected vice chairman in
1996. He has been employed by Main Street Bank
since 1967. Mr. Fowler also has served on the
board of directors of The Bankers Bank since
1996.
Sam B. Hay, III.............................. 37 Mr. Hay serves as executive vice president and
(1992) chief financial officer of Main Street Banks.
Class I Mr. Hay has served on the board of Main Street
Banks since 1992, and was elected executive vice
president and chief financial officer in 1994.
Mr. Hay was elected chairman and chief executive
officer of Main Street Bank in December 1996. He
has been employed by Main Street Bank since
1990.
C. Candler Hunt.............................. 53 Mr. Hunt serves as a director of Main Street
(1989) Banks. Mr. Hunt has been an executive of
Class I Godfrey's Warehouse, a manufacturer of livestock
feed located in Madison, Georgia, since 1971. He
was elected as a director of Main Street Banks
in 1989 and is a director of Main Street Bank.
Frank B. Turner.............................. 60 Mr. Turner serves as vice chairman of the board
(1990) of Main Street Banks. Mr. Turner has served as
Class II vice chairman of Main Street Banks since 1990.
He has been city manager of Covington, Georgia
since 1970. Mr. Turner is a director of Main
Street Bank.
</TABLE>
- ------------------------
Messrs. Fowler and Turner are first cousins. Mr. Hay is Mr. Fowler's nephew.
DIRECTOR COMPENSATION
All directors of Main Street Banks receive a fee of $300 per board meeting
attended. Those who are not also officers receive a fee of $300 per committee
meeting attended. The vice chairman of the board receives an additional $300 per
month for his services as vice chairman.
94
<PAGE>
MAIN STREET BANKS' EXECUTIVE COMPENSATION
The table below shows information concerning the compensation paid to the
chief executive officer and its two other most highly compensated executive
officers for services to Main Street Banks in all capacities for the years ended
1999, 1998 and 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------------
RESTRICTED STOCK
AWARDS(1)
NAME AND ANNUAL ---------------------
PRINCIPAL COMPENSATION
POSITION ---------------------- AWARDS NUMBER OF ALL OTHER
WITH COMPANY YEAR SALARY ($) BONUS ($) VALUE ($) SHARES COMPENSATION ($)(2)
- -------------------------------------- -------- ---------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Fowler, III................. 1999 153,740 38,435 180,000 18,000 31,468(3)
chairman, president and chief 1998 142,753 45,683 0 0 35,070(3)
executive officer 1997 139,763 55,933 120,000 24,000 9,721(3)
Samuel B. Hay, III.................... 1999 120,339 30,085 180,000 18,000 6,424
executive vice president and chief 1998 104,641 33,485 0 0 9,148
financial officer 1997 90,988 35,971 60,000 12,000 8,779
Joseph K. Strickland.................. 1999 129,662 32,415 240,000 24,000 6,779
executive vice president and chief 1998 119,076 38,104 0 0 9,279
credit officer 1997 112,259 50,064 60,000 12,000 7,405
</TABLE>
- ------------------------
(1) Prior to this transaction, there has been no public trading market for the
shares of Main Street Banks' common stock. As a result, we determined the
value of the restricted stock awards listed above based on the per share
sales price of Main Street Banks' common stock in the transaction known to
management to have occurred nearest to the grant date. All awards granted in
1996 were granted on November 22, 1996 and all awards granted in 1998 were
granted on November 22, 1998. The nearest known transaction to November 22,
1996 occurred on September 26, 1996 and the per share sales price was $5.00,
as adjusted for Main Street Banks' September 1, 1998 four-for-one stock
split. The nearest known transaction to November 22, 1998 occurred on
December 7, 1998 and the per share sales price was $10.00. All of the
restricted stock awards vest at a rate of 20% per year beginning on the
first anniversary of the grant date.
The number and aggregate value of the restricted stock holdings as of
December 31, 1998 are as listed below. The aggregate value is based on the
per share sales price of the transaction known to management to have
occurred nearest to December 31, 1998. This transaction occurred on
December 14, 1998 and the per share sales price was $12.00.
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE VALUE
---------------- ---------------
<S> <C> <C>
Mr. Fowler............................................. 162,000 $1,944,000
Mr. Hay................................................ 102,000 1,244,000
Mr. Strickland......................................... 96,000 1,152,000
</TABLE>
- ------------------------
(2) In all cases except for Mr. Fowler, the amounts shown represent matching and
other contributions that Main Street Banks has paid to the indicated
person's Savings Plan account. In Mr. Fowler's case, the amounts also
include the payments described in note (3) below.
95
<PAGE>
(3) The amounts shown include matching and other contributions to Mr. Fowler's
Savings Plan account and the value of life insurance premiums paid on
Mr. Fowler's behalf under a split-dollar life insurance policy as follows:
<TABLE>
<CAPTION>
CONTRIBUTIONS TO PREMIUMS ON SPLIT-DOLLAR
SAVINGS PLAN ACCOUNT LIFE INSURANCE
-------------------- ------------------------
<S> <C> <C>
1999......................................... 4,794 26,674
1998......................................... 9,480 25,590
1997......................................... 9,721 0
</TABLE>
RESTRICTED STOCK AWARD PLAN
The Main Street Banks restricted stock award plan provides for the grant of
restricted stock awards as an incentive to key employees. Main Street Banks
reserved a total of 720,000 shares to be issued under the Restricted Stock Award
Plan. All of these shares of restricted stock are currently outstanding. These
shares of restricted stock vest at a rate of 20% per year beginning on the first
anniversary of the grant date. See "Long-term incentive plan" below for the
amount of vested and unvested shares as of December 31, 1999.
LONG-TERM INCENTIVE PLAN
Main Street Banks has reserved 240,000 shares of common stock under its
long-term incentive plan, which was adopted in April 1997. Under this plan, the
board of directors may grant options, restricted stock, or other stock-based
compensation to employees equal to the fair market value of the stock on the
date of the grant. As of December 31, 1999, 765,960 shares of restricted stock
had been issued under this plan. These shares of restricted stock vest at a rate
of 20% per year beginning on the first anniversary of the grant date. As of
December 31, 1999, of the 765,960 shares issued under the restricted stock award
plan and the long-term incentive plan, 567,560 shares were vested and 198,400
were unvested.
SAVINGS PLAN
Effective January 1, 1988, Main Street Banks' qualified profit sharing plan
was converted to a Section 401(k) employee savings plan. The Savings Plan covers
all of our employees who have one year's credited service and includes a vesting
schedule for employer's matching contributions of 20% vesting after three years
and 20% vesting after each additional year's crediting service thereafter.
Matching contributions become fully vested after seven years.
CASH INCENTIVE BONUS PLAN
The board of directors established the cash incentive bonus plan as a means
of compensating Main Street Banks' officers through a cash bonus program tied to
specific performance standards achieved by Main Street Banks, as a whole, as
well as by each individual officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons serve as members of the executive officer compensation
committee, which is a sub-committee of the policy committee: C. Candler Hunt,
Joseph E. Patrick, Jr. and Frank B. Turner. Mr. Turner is not an employee of
Main Street Banks, but serves as vice chairman of the board of directors.
96
<PAGE>
PROPOSAL TO AMEND FIRST STERLING'S ARTICLES OF INCORPORATION
The merger is contingent upon the adoption by the First Sterling
shareholders of the First Sterling restated articles of incorporation. The
restated articles of incorporation amends First Sterling's present articles of
incorporation as follows:
- It increases the number of authorized shares from 10,000,000 shares of
common stock to 50,000,000 shares; and
- It provides that a director must be elected by a majority vote of the
outstanding shares of First Sterling common stock
REASONS FOR THE AMENDMENTS. It is necessary to increase the number of
authorized shares to 50,000,000 so that there will be sufficient shares to issue
to the Main Street Banks' shareholders after the merger. After the merger, the
total number of First Sterling shares issued will be approximately 13,799,639
shares. As First Sterling's articles of incorporation do not currently state
what shareholders vote is needed to elect a director, Georgia corporate law
provides that a plurality of the vote of the shares present at the shareholders'
meeting at which a quorum is present is sufficient. This means that a director
who receives the most votes is elected even if he or she does not receive a vote
of greater than 50 percent of the vote. The proposed amendment would require
that a director receive greater than fifty percent of the outstanding shares.
The First Sterling board of directors believes that this larger vote requirement
for director election is in the company's best interest. Mr. Robert Fowler will
have voting power over 28.17% of First Sterling stock after the merger. If the
articles are not amended his vote alone may be all that is needed to elect a
director in many cases. The amendment will require more votes to elect a
director and will give more shareholders a voice in electing directors.
THE FIRST STERLING BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT OF FIRST STERLING'S ARTICLES OF INCORPORATION.
PROPOSAL TO ELECT THREE CLASS III DIRECTORS OF FIRST STERLING
At the First Sterling meeting three (3) Class III directors shall be elected
each to serve for a three-year term of office or until his successor is duly
elected and qualified.
First Sterling's articles of incorporation divides the board of directors of
First Sterling into three classes, Class I, Class II and Class III, each of
which is as nearly equal in number as possible. The directors in each class will
hold office for staggered terms of three (3) years each, after the initial terms
of one (1) year, two (2) years and three (3) years respectively. The term of the
Class III directors expires at the 2003 annual meeting. The board of directors
has set the number of the Class III directors at three (3). The board of
directors has nominated the following persons for Class III membership on the
board, and unanimously recommends a vote "FOR" the election of these persons: P.
Harris Hines, Harry L. Hudson, Jr. and Edward C. Milligan.
All shares of common stock represented by valid proxies received pursuant to
this solicitation and not revoked before they are exercised, will be voted in
the manner specified therein. If no specification is made, the proxies will be
voted for the election of the three (3) Class III nominees listed above. In the
event that any nominee is unable to serve, the persons designated as proxies
will cast votes for such other persons as they may select. The affirmative vote
of the holders of a plurality of the shares of common stock represented at the
First Sterling annual meeting at which a quorum is present is required for the
election of the nominees listed above.
THE FIRST STERLING BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ELECTION OF THE THREE (3) NOMINEES LISTED ABOVE.
97
<PAGE>
PROPOSAL TO ADOPT THE 1999 DIRECTORS STOCK OPTION PLAN
At the First Sterling meeting, the shareholders shall vote on approval of
the First Sterling Banks, Inc. 1999 directors stock option plan. The stock
option plan was adopted on June 22, 1999 by the First Sterling board subject to
shareholder approval. The stock option plan provides for granting options to
purchase shares of First Sterling stock to voting members of the board of
directors of First Sterling, Community Bank, Eastside or Westside. Options to
purchase First Sterling common stock may also be granted under the stock option
plan to a former voting member of the board of directors of First Sterling,
Community, Eastside or Westside who has been designated by any of these boards
of directors as an emeritus non-voting advisory member of any of these boards.
The stock option plan is attached to this joint proxy statement/prospectus as
APPENDIX B. The stock option plan was effective June 22, 1999 subject to the
approval of the shareholders of First Sterling at the 2000 annual meeting. The
stock option plan is intended to encourage the directors and emeritus directors
of First Sterling, Community Bank, Eastside and Westside to remain with and
devote their best efforts to their respective bank or First Sterling.
The stock option plan is administered by the compensation committee
appointed by First Sterling's board of directors. The number of shares of common
stock available under the stock option plan will be subject to adjustment upon
the occurrence of certain events, pursuant to the terms of the stock option
plan. The total number of shares of common stock that may be purchased pursuant
to options under the stock option plan will not exceed 100,000 shares of First
Sterling common stock subject to adjustment upon the occurrence of certain
events such as a stock split or payment of a stock dividend on the common stock.
The period during which each option may be exercised shall be ten years from
the date the option is granted. The price at which shares of stock may be
purchased under an option granted pursuant to the stock option plan will be
determined by the board on the date that the option is granted. Any stock option
granted under the stock option plan must be granted on or before June 21, 2009.
The options granted under the stock option plan are nontransferable except by
will or by the laws of descent and distribution. All unexercised options under
the stock option plan will terminate immediately upon their lapse by their
terms.
If a director terminates board membership other than by death or disability,
the options will terminate on the date that is 12 months from the date on which
the director ceases to be a director. However, if he or she is immediately
appointed an emeritus director, the options will terminate on the date that is
12 months from the date on which the director ceases to be an emeritus director.
The board of directors may, in its discretion extend either of these dates for
an additional 12 months. At the later of the time that a director ceases to be a
director or an emeritus director other than by his or her death or disability,
all options held by him or her at the time of the termination will be
exercisable by the director but only:
- if and to the extent the same were exercisable at the time the director
ceases to be a director or emeritus director, and
- prior to the earlier of
- the expiration dates of the options or
- that date that is 12 months from the date the director ceases to be a
director or an emeritus director, the 12-month period to include the
date on which the termination occurs, provided that the board may in
its discretion extend the date for an additional 12 months.
Options will terminate on the date which is two years from the date that the
director ceases to be a director or an emeritus director by reason of his or her
death or disability. If a director ceases to be a director or an emeritus
director as a result of such directors death or disability then all options held
98
<PAGE>
by the director on the date of the termination will be exercisable in full,
whether or not exercisable on the date of the termination, but only at any time
prior to the earlier of (a) the expiration dates of the options or (b) that date
that is two years from the date the director ceases to be a director or emeritus
director. If the director dies, his or her options will be exercisable, except
as otherwise noted, by the executor or personal representative of the director's
estate or by any person who acquired the right to exercise the options by
bequest under the director's will or by inheritance.
Upon exercise, the exercise price may be paid in cash or in shares of First
Sterling's common stock previously held by the director or a combination of
both. Shares surrendered in payment of the option price will be valued at the
fair market value as of the date of exercise.
Under present federal tax law there will be no federal income tax
consequences to First Sterling and to the director upon the grant of an option
under the stock option plan. However, there may be federal income tax
consequences to the director upon the exercise of an option. The difference
between the exercise price and the value of First Sterling's stock subject to
the option being exercised will be taxed to the director as compensation income
in the taxable year that the option is exercised.
The stock option plan may be amended or terminated by First Sterling's board
of directors at any time. However, generally no amendments will be made in the
1999 Plan without the approval of First Sterling's shareholders which:
- increase the total number of shares for which options may be granted under
the stock option plan;
- change the minimum purchase price for the optioned shares;
- affect any outstanding option or any unexercised right thereunder;
- extend the option period; or
- extend the termination date of the plan.
On June 22, 1999, First Sterling's board of directors and the compensation
committee granted options to the following individuals who were members of the
board of directors of Community Bank subject to the approval of the stock option
plan by the First Sterling shareholders:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Eugene L. Argo.............................................. 5,645
James L. Armstrong.......................................... 5,645
Dean T. Teusaw.............................................. 5,645
Hugh Norton................................................. 5,645
Thomas M. Carnes............................................ 3,000
Larry N. Reed............................................... 3,000
Robert C. Pittard........................................... 3,000
Ted A. Murphy............................................... 22,000
------
TOTAL................................................. 53,580
</TABLE>
The term of these options is ten years and the option exercise price is
$11.50 per share which is the closing price of the stock at the end of the day
on June 21, 1999.
The affirmative vote of the holders of a majority of the shares of First
Sterling's common stock represented at the annual meeting is necessary to
approve and adopt the 1999 Plan.
THE FIRST STERLING BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE FIRST STERLING BANKS, INC. 1999
DIRECTORS STOCK OPTION PLAN.
99
<PAGE>
DESCRIPTION OF FIRST STERLING STOCK
The authorized capital stock of First Sterling consists of 10,000,000 shares
of common stock, no par value. Subject to the approval of the shareholders of
First Sterling, First Sterling will amend and restate its articles of
incorporation to increase the authorized capital stock of First Sterling to
50,000,000 shares of common stock, no par value. As of March 1, 2000, there were
4,882,349 shares of First Sterling stock outstanding. There are no other shares
of capital stock of First Sterling authorized 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, Community and
Main Street to pay dividends to First Sterling, see "Supervision and
regulation--Payment of dividends" at page 68.
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
- 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;
- 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;
- 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
- 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 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 or 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).
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ANTI-TAKEOVER PROVISIONS
The following is a description of the anti-takeover provisions that are in
the First Sterling articles of incorporation and bylaws.
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. 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 nine and after the
consummation of the merger it will be set at eight.
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. The articles of
incorporation define "cause" for this purpose 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 contrary 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.
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 was 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 these 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.
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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 (which will be article 12 if the First Sterling shareholders
approve the restated articles of incorporation) 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 more
than 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 interest 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.
You should recognize 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 Sterling. However,
of the eight persons who will be directors of First Sterling at the effective
date of the merger, only three will be employed by First Sterling or one of its
subsidiary banks in full-time management positions.
EVALUATION OF AN ACQUISITION PROPOSAL
Article 14 (which will be article 13 if the First Sterling shareholders
approve the restated articles of incorporation) 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 in this
prospectus, an acquisition proposal refers to any offer of another party:
- to make a tender offer or exchange offer for any equity security of First
Sterling;
- to merge or consolidate First Sterling with another corporation; or
- to purchase or otherwise acquire all or substantially all of the assets
owned by First Sterling.
Article 14 (restated article 13) charges the board, in evaluating an
acquisition proposal, to consider all relevant factors, including:
- 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 and its subsidiaries;
- the expected social and economic effects on the communities within which
First Sterling and its subsidiaries operate; and
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- the consideration being offered by the other corporation in relation:
- to the then current value of First Sterling as determined by a freely
negotiated transaction; and
- 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.
First Sterling included this article in its 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 acquirer 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 acquirer 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.
Article 14 (restated article 13) would not make an acquisition proposal
regarded by the board as being in the best interest of First Sterling more
difficult to accomplish. It would, however, permit the board to determine that
an acquisition proposal was not in the best interest 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 ANTI-TAKEOVER 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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CONTROL ACQUISITION
The Federal Change in Bank Control Act of 1978 prohibits a person or group
of persons from acquiring "control" of a bank holding company unless the Federal
Reserve Board receives 60 days' prior written notice of the proposed acquisition
and the Federal Reserve Board has not issued within that time period a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued. An acquisition may be made
prior to the expiration of the disapproval period if the Federal Reserve Board
issues written notice of its intent not to disapprove the action. The Federal
Reserve Board presumes that the acquisition of more than 10% of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act constitutes the acquisition of control.
This presumption can, under certain circumstances, be challenged.
COMPARISON OF THE RIGHTS OF HOLDERS OF MAIN STREET BANKS STOCK AND FIRST
STERLING STOCK
GENERAL
Upon consummation of the merger, shareholders of Main Street Banks will
automatically become shareholders of First Sterling. Certain legal distinctions
exist between owning First Sterling stock and Main Street Banks stock. The
shareholders of First Sterling will be governed by and subject to the restated
articles of incorporation (if approved) and bylaws of First Sterling rather than
the articles of incorporation and bylaws of Main Street Banks.
First Sterling and Main Street Banks are both Georgia corporations organized
and existing under the Georgia Business Corporation Code and the Georgia
Financial Institutions Code. The following is a summary of the material
differences in the rights of holders of First Sterling and Main Street Banks
common stock. The summary is necessarily general and it is not intended to be a
complete statement of all differences affecting the rights of shareholders and
respective entities, and is qualified in its entirety by reference to the
Georgia Business Corporation Code, the Georgia Financial Institutions Code, as
well as to the articles of incorporation and bylaws of each corporation.
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.
AUTHORIZED CAPITAL STOCK
FIRST STERLING
First Sterling's articles of incorporation authorize the issuance of up to
10,000,000 shares of no par value common stock (50,000,000 if the First Sterling
shareholders approve the restated articles of incorporation), and there are
4,882,349 shares outstanding. Because the exchange of shares by virtue of the
merger is to be effected at the rate of 1.01 shares of First Sterling stock for
each share of Main Street Banks stock, First Sterling will have approximately
13,799,639 shares of stock outstanding after consummation of the merger.
MAIN STREET BANKS
Main Street Banks' articles of incorporation authorizes the issuance of up
to 30,000,000 shares of common stock, par value $1.00 per share, and there are
currently 8,829,000 shares outstanding.
AMENDMENT OF ARTICLES OF INCORPORATION
FIRST STERLING
With respect to amending or repealing (1) the class structure of the board,
(2) indemnification of directors, (3) the change of control supermajority voting
requirements, and (4) the factors the board of directors is to consider for
change of control proposals, the affirmative vote of two-thirds of First
Sterling's directors is necessary. If two-thirds of the directors approve such
an amendment then the amendment will only need the approval of a majority of the
shareholder votes entitled to be cast on
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the amendment. However, if two-thirds of the directors do not vote for such an
amendment, the amendment may still pass if two-thirds of the outstanding shares
of First Sterling vote to approve such an amendment.
As to the remaining provisions in First Sterling's articles of
incorporation, under Georgia law, the First Sterling board of directors may
amend its articles of incorporation without shareholder action if the amendment
relates to certain procedural matters as set forth in Section14-2-1002 of the
Georgia Business Corporation Code. For all other amendments, First Sterling's
board of directors must propose amendments to the articles of incorporation for
submission to the shareholders. The amendment must then be submitted to a vote
and be approved by a majority of the shareholders entitled to vote on the
amendment.
MAIN STREET BANKS
The affirmative vote of two-thirds of the shareholders is required to amend
the limitation of the director liability provision in Main Street Banks'
articles of incorporation. As to the remainder of Main Street Banks' articles of
incorporation, under Georgia law, Main Street Banks' board of directors may
amend its articles of incorporation without shareholder action if the amendment
relates to certain procedural matters as set forth in Section14-2-1002 of the
Georgia Business Corporation Code. For all other amendments, Main Street Banks'
board of directors must propose amendments to the articles of incorporation for
submission to the shareholders. The amendment must then be submitted to a vote
and be approved by a majority of the shareholders entitled to vote on the
amendment.
NOTICE OF MEETINGS OF SHAREHOLDERS
FIRST STERLING
The First Sterling bylaws provide that First Sterling must notify the
shareholders between 10 and 60 days before any annual or special meeting of the
date, time and place of the meeting, and, for special meetings, the purpose for
which the meeting is called.
MAIN STREET BANKS
The Main Street Banks' bylaws provide that Main Street Banks must notify
shareholders between 10 and 50 days before any annual or special meeting of the
date, time and place of the meeting, and, for special meetings, the purpose for
which the meeting is called.
SPECIAL MEETINGS
FIRST STERLING
A special meeting of the shareholders of First Sterling may be called by the
board of directors, the president, or by written request of at least two-thirds
of the shareholders of First Sterling.
MAIN STREET BANKS
A special meeting of the shareholders of Main Street Banks may be called by
the chairman of the board of directors, the president, a majority of the members
of the board of directors, or by written request of at least two-thirds of the
shareholders of Main Street Banks.
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RECORD DATE
FIRST STERLING
The board of directors may fix a record date in order to determine who the
shareholders of the corporation are for purposes of determining such things as
the receipt of dividends or voting rights. This record date must not be more
than 70 days before a meeting or action requiring a determination of
shareholders.
MAIN STREET BANKS
The board of directors may fix a record date in order to determine who the
shareholders of the corporation are for purposes of determining such things as
the receipt of dividends or voting rights. This record date must be not more
than 50 days before a meeting or action requiring a determination of
shareholders.
REMOVAL OF DIRECTORS
FIRST STERLING
A director of First Sterling may be removed, at a meeting with respect to
which notice of such purpose has been given, without cause upon a two-thirds
vote of the outstanding shares of First Sterling. A director may be removed, at
a meeting with respect to which notice of such purpose has been given, with
cause by the affirmative vote of a majority of outstanding shares, or upon the
affirmative vote of the directors then in office.
MAIN STREET BANKS
A director of Main Street Banks may be removed, at a meeting with respect to
which notice of such purpose has been given, with or without cause by a
two-thirds vote of the shares entitled to vote at an election of directors.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
FIRST STERLING
Qualified shareholders have the right to inspect and copy certain records of
First Sterling if their demand is in good faith and for a proper purpose. The
shareholder must give First Sterling at least 5 business days written notice of
the demand, describing with reasonable particularity the purpose and the
requested records. The records must be directly connected with the shareholder's
purpose. Additionally, the rights of inspection and copying are limited to
shareholders who either have been shareholders for at least six months or hold
at least five percent of the outstanding shares of First Sterling.
The First Sterling bylaws provide that First Sterling must prepare an
alphabetical list of all shareholders showing the addresses and share holdings
of each shareholder and must make such list available continuously throughout
each shareholder meeting.
MAIN STREET BANKS
The Georgia Business Corporation Code provides Main Street Banks'
shareholders with inspection rights substantially similar to those of First
Sterling's shareholders, but does not, however, restrict these rights to
shareholders who have been shareholders for at least six months or who hold at
least five percent of the outstanding shares of a class of stock. Further, the
Georgia Business Corporation Code provides that after fixing a record date for a
meeting, Main Street must prepare a list of all shareholders entitled to vote at
a shareholders meeting and make a list available for inspection by any
shareholder, his agent, or his attorney at the time and place of the meeting.
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VOTING RIGHTS
FIRST STERLING
Each holder of 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 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 First Sterling.
MAIN STREET BANKS
Main Street Banks' articles of incorporation reflect the same voting rights
for shareholders as First Sterling's.
DIRECTORS
FIRST STERLING
The bylaws of First Sterling provide that the board of directors of First
Sterling shall have from five to twenty-five members, and the board of directors
of First Sterling currently has nine members. 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. If the shareholders of First Sterling approve the restated articles
of incorporation of First Sterling, article 7 will provide that "[a] director
shall be elected by a majority of the votes entitled to be cast in the election
at a meeting at which a quorum is present." The board of directors of First
Sterling may fill vacancies arising in its directorship.
MAIN STREET BANKS
The bylaws of Main Street Banks provides that the board of directors of Main
Street Banks shall have five members, and the board of directors of Main Street
Banks currently has five members. Main Street Banks does not have a staggered
board of directors. Main Street Banks' articles of incorporation does not
address the required votes to elect a director. Where articles of incorporation
do not address the required votes to elect a director, the Georgia Business
Corporation Code provides that it takes a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Main Street Banks directors are elected annually for a term of one year
and the board of directors of Main Street Banks may fill a vacancy arising in
their directorship.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
FIRST STERLING
The Georgia Business Corporation Code requires that a director discharge his
or her duties as director subject to several general standards of care. Each
director must act in a manner he or she believes in good faith to be in the best
interest of the corporation. Additionally, a director must exercise the care of
an ordinarily prudent person in a like position and in similar circumstances.
First Sterling's articles of incorporation provide that, to the extent permitted
by law, no director will be liable to First Sterling or its shareholders for
monetary damages for breach of his or her duty of care or other duty as a
director.
Consistent with the Georgia Business Corporation Code, First Sterling's
bylaws provide that First Sterling may indemnify or obligate itself to indemnify
an individual made a party to a proceeding because he or she is or was a
director, officer, employee, or agent of First Sterling. First Sterling may
indemnify these individuals for reasonable expenses, judgments, fines, penalties
and amounts paid in
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settlement that are incurred in connection with the proceeding if the individual
acted in a manner that he or she believed in good faith to be in or not opposed
to the best interests of First Sterling and, in the case of any criminal
proceeding, if he or she had no reasonable cause to believe his or her conduct
was unlawful. To the extent that a director, officer, employee or agent of First
Sterling has been successful, on the merits or otherwise, in defending any
proceeding to which he or she was a party, or in defending any claim, issue or
matter in the proceeding, because he or she is or was a director, officer,
employee or agent of First Sterling, First Sterling will indemnify the director,
officer, employee, or agent against reasonable expenses he or she incurred in
connection with the proceeding. Nonetheless, Federal law prohibits First
Sterling from paying any indemnification with respect to any liability or legal
expenses 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 foregoing 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.
MAIN STREET BANKS
Main Street Banks' articles of incorporation and bylaws contain limitations
on directors liability to the same extent as the First Sterling articles of
incorporation and bylaws.
DISSENTERS' APPRAISAL RIGHTS
FIRST STERLING
Georgia law generally provides dissenters' rights for mergers and certain
share exchanges that would require shareholder approval, sales of all or
substantially all of the assets, certain amendments to the articles of
incorporation and any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors entitle shareholders to dissent. However, Georgia law does not
provide dissenters' rights for Georgia corporations which have over 2,000 record
holders or whose voting stock is listed on a national securities exchange. As
First Sterling's stock is listed on a national securities exchange, the
shareholders of First Sterling will not be entitled to dissent from this
transaction.
MAIN STREET BANKS
Main Street Banks does not have 2,000 shareholders and its common stock is
not listed on a national securities exchange. Therefore, holders of Main Street
Banks' common stock do have dissenters' rights. See "The merger-Statutory
provisions for dissenting shareholders" on page 40.
ANTI-TAKEOVER PROVISIONS; RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
FIRST STERLING
First Sterling's articles of incorporation and bylaws have restrictions
which discourage attempts to acquire control of First Sterling in non-negotiated
transactions. These anti-takeover provisions are more fully described in
"Description of First Sterling Stock--Anti-takeover provisions."
The Georgia Business Corporation Code provides for voting rules and fair
price requirements in connection with business combinations with "interested
shareholders." These requirements are not applicable to any corporation unless
they are specifically incorporated in the bylaws of the corporation. First
Sterling has not adopted implementing bylaw provisions, and is not subject to
the fair price requirements in the Georgia Business Corporation Code.
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MAIN STREET BANKS
The articles of incorporation and bylaws of Main Street Banks do not contain
specific anti-takeover provisions. However, the Georgia Business Corporation
Code provides for voting rules and fair price requirements in connection with
business combinations with "interested shareholders." These requirements are not
applicable to any corporation unless they are specifically incorporated in the
bylaws of the corporation. Main Street Banks has not adopted implementing bylaw
provisions, and is not subject to the fair price requirements in the Georgia
Business Corporation Code.
AMENDMENT OF BYLAWS
FIRST STERLING
First Sterling bylaws may be altered or amended by either the shareholders
or board of directors; provided, however, that, if such action is to be taken at
a meeting of the shareholders, notice of the general nature of the proposed
change in the bylaws shall be given in the notice of meeting. First Sterling's
shareholders may also provide that any bylaws altered or amended by the
shareholders may not be altered or amended by the board of directors. Generally,
any action with respect to First Sterling's bylaws shall require either an
affirmative vote of a majority of all shares entitled to elect directors or an
affirmative vote of a majority of all directors then holding office.
MAIN STREET BANKS
The power of the board of directors and shareholders to amend or alter Main
Street Banks' bylaws is generally the same as First Sterling's.
DIVIDENDS AND OTHER DISTRIBUTIONS
FIRST STERLING
Neither the First Sterling articles of incorporation nor the bylaws set
forth any restriction on the ability of First Sterling to issue dividends to its
shareholders. The Georgia Business Corporation Code, though, forbids any
distribution which, after being given effect, would leave First Sterling unable
to pay its debts as they become due in the usual course of business.
Additionally, the Georgia Business Corporation Code provides that no
distribution shall be made if, after giving it effect, the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed to satisfy any preferential dissolution rights.
MAIN STREET BANKS
Main Street Banks' bylaws do set forth several restrictions on its ability
to pay dividends to its shareholders. The board of directors may declare
dividends from either the unreserved and unrestricted earned surplus of Main
Street Banks or out of the unreserved and unrestricted net earnings of the
current fiscal year. However, before any dividends are declared, the board of
directors shall set aside out of either earned surplus or current net earnings a
sum, to be determined in the board's sole discretion, a reserve fund to meet
contingencies or other obligations of Main Street Bank. Additionally, the
restrictions of the Georgia Business Corporation Code set forth above also apply
to Main Street Banks.
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, 1275 Peachtree Street, N.E., Suite 700, Atlanta, Georgia
30309.
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Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street, 40th
Floor, Atlanta, Georgia 30309-3424, has acted as counsel to Main Street Banks in
connection with certain legal matters relating to the merger.
EXPERTS
The consolidated financial statements of First Sterling as of December 31,
1999 and for each of the years in the two-year period ended December 31, 1999,
have been incorporated by reference in this joint proxy statement/prospectus 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. In rendering its report Mauldin & Jenkins relied on the
report of Porter Keadle Moore, LLP dated February 3, 1999 as to the financial
statements of Georgia BancShares, Inc. for its year ended December 31, 1998.
Ernst & Young LLP, independent auditors, have audited Main Street Banks'
consolidated financial statements at December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, as set forth in their
report. Main Street Banks included the financial statements in the prospectus
and elsewhere in the registration statement in reliance on their report, given
on their authority as experts in accounting and auditing.
MISCELLANEOUS INFORMATION REGARDING FIRST STERLING'S ANNUAL MEETING
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Mauldin & Jenkins, LLC served as the independent accountants for First
Sterling the year ended December 31, 1999, and performed an audit of the
company's 1999 financial statements which are included in the 1999 Annual Report
to Shareholders on Form 10-KSB which accompanies this joint proxy
statement/prospectus. First Sterling has not selected its independent
accountants for the 2000 fiscal year. It intends to wait to select its
independent accountants until after consummation of the merger to allow its new
board of directors to make this selection for the 2000 fiscal year.
Representatives of Mauldin & Jenkins are expected to be present at the
annual meeting and will have an opportunity to make a statement if they so
desire. The representatives shall be available to respond to questions from the
shareholders.
SOLICITATION OF PROXIES
The cost of soliciting proxies for the First Sterling annual meeting will be
paid by First Sterling. First Sterling has not engaged any outside organizations
or agents to assist in the solicitation of proxies.
2001 ANNUAL MEETING OF FIRST STERLING- SHAREHOLDER PROPOSALS
Proposals of shareholders of First Sterling intended to be presented at the
2001 annual meeting must be received by First Sterling on or before
to be included in First Sterling's proxy statement or form of proxy for the 2001
annual meeting of shareholders.
OTHER MATTERS
We do not know of any other matters to be presented for action at the
shareholders' meetings other than those described in this joint proxy
statement/prospectus. 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.
110
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
First Sterling files annual, quarterly and special reports, proxy statements
and other information with the SEC. The reports, proxy statements and other
information filed by First Sterling 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. The reports, proxy statements and other
information concerning First Sterling can be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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 Main
Street Banks 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 Main Street
Banks 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 has previously filed with the SEC:
- Annual Report on Form 10-KSB for the year ended December 31, 1999 for
First Sterling
- Current Report on Form 8-K filed for First Sterling
All documents filed by First Sterling 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 WITHOUT
CHARGE, EXCLUDING ALL EXHIBITS, UNLESS WE HAVE SPECIFICALLY INCORPORATED BY
REFERENCE AN EXHIBIT IN THIS JOINT PROXY STATEMENT/ PROSPECTUS. FIRST STERLING
OR MAIN STREET BANKS SHAREHOLDERS MAY OBTAIN DOCUMENTS INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR BY
TELEPHONE FROM MS. BARBARA J. BOND, FIRST STERLING BANKS, INC., P. O. BOX 2147,
MARIETTA, GEORGIA 30061, (770-422-2888). IF YOU WOULD LIKE TO REQUEST DOCUMENTS,
PLEASE DO SO BY , 2000 TO RECEIVE THEM BEFORE THE SHAREHOLDERS'
MEETINGS.
A copy of First Sterling's annual report on Form 10-KSB for the year ended
December 31, 1999 accompanies this joint proxy statement/prospectus.
111
<PAGE>
All information concerning First Sterling and its subsidiaries has been
furnished by First Sterling, and all information concerning Main Street Banks
has been furnished by Main Street Banks.
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 , 2000. 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 Main Street Banks since the
date hereof or that the information herein is correct as of any time subsequent
to its date.
112
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Main Street Banks Incorporated
We have audited the accompanying consolidated balance sheets of Main Street
Banks Incorporated and subsidiary as of December 31, 1999 and 1998, and the
related statements of income, changes in shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Main Street Banks Incorporated and subsidiary as of December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 21, 2000
F-1
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
ASSETS ------------ ------------
<S> <C> <C>
Cash and due from banks..................................... $ 22,345,169 $ 21,231,287
Interest-bearing deposits in banks.......................... 508,941 143,111
Federal funds sold.......................................... 15,420,000 --
Investment securities held to maturity (fair value of
$15,182,297, and $13,044,485 at December 31, 1999 and
1998, respectively)....................................... 15,541,492 12,497,146
Investment securities available for sale.................... 46,280,461 48,242,546
Other investments........................................... 2,391,756 1,375,579
Mortgage loans held for sale................................ 1,356,664 4,282,914
Loans, net of unearned income............................... 381,408,075 324,616,860
Allowance for loan losses................................... (6,244,282) (5,849,997)
------------ ------------
Loans, net.................................................. 375,163,793 318,766,863
Premises and equipment, net................................. 15,851,239 16,328,067
Other real estate........................................... 685,000 832,023
Accrued interest receivable................................. 3,526,663 2,739,057
Goodwill and other intangible assets........................ 1,384,300 1,823,067
Other assets................................................ 3,059,322 2,988,761
------------ ------------
Total assets................................................ $503,514,800 $431,250,421
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand.................................. $ 79,467,415 $ 76,762,889
Interest-bearing demand and money market.................... 99,740,938 83,520,903
Savings..................................................... 23,994,326 24,157,812
Time deposits of $100,000 or more........................... 47,234,068 43,373,125
Other time deposits......................................... 152,159,042 138,081,728
------------ ------------
Total deposits.............................................. 402,595,789 365,896,457
Accrued interest payable.................................... 1,662,742 1,372,846
Federal Home Loan Bank advances............................. 42,000,000 17,000,000
Federal funds purchased..................................... 10,000,000 2,800,000
Other liabilities........................................... 785,516 1,234,796
------------ ------------
Total liabilities........................................... 457,044,047 388,304,099
Shareholders' equity
Common stock--$1 par value per share; authorized 30,000,000
shares; issued and outstanding 8,829,000, shares in 1999
and 8,827,600 in 1998..................................... 8,829,000 8,827,600
Additional paid-in-capital.................................. 791,088 783,488
Retained earnings........................................... 37,682,632 33,274,134
Accumulated other comprehensive income (loss)............... (831,967) 61,100
------------ ------------
Total shareholders' equity.................................. 46,470,753 42,946,322
------------ ------------
Total liabilities and shareholders' equity.................. $503,514,800 $431,250,421
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees............................. $34,592,219 $31,598,633 $28,414,337
Interest on investment securities:
Taxable....................................... 2,939,337 3,178,151 3,731,234
Non-taxable................................... 628,301 688,448 784,261
Federal funds sold................................ 266,646 314,158 707,009
Interest-bearing deposits in banks................ 14,713 8,912 9,797
----------- ----------- -----------
Total interest income................................. 38,441,216 35,788,302 33,646,638
Interest expense:
Interest-bearing demand and money market.......... 2,047,065 1,992,775 1,833,960
Savings........................................... 449,304 479,459 465,560
Time deposits of $100,000 or more................. 2,471,451 2,435,359 2,261,132
Other time deposits............................... 7,245,154 7,691,218 8,355,983
Federal Funds purchased........................... 162,390 62,871 4,314
Federal Home Loan Bank advances................... 1,605,471 586,113 105,661
Other............................................. 21,978 18,494 16,044
----------- ----------- -----------
Total interest expense................................ 14,002,813 13,266,289 13,042,654
Net interest income................................... 24,438,403 22,522,013 20,603,984
Provision for loan losses............................. 935,000 865,000 1,405,000
----------- ----------- -----------
Net interest income after provision for loan losses... 23,503,403 21,657,013 19,198,984
Noninterest income:
Service charges on deposit accounts............... 3,466,992 3,098,573 2,897,612
Investment securities gains....................... 13,950 17,533 20,958
Gain (loss) on sales of premises and equipment.... 547,758 55,284 (150,059)
Gains on sales of mortgage loans.................. 309,316 296,845 --
Gains on sales of other loans..................... 11,600 40,587 99,266
Other income...................................... 2,477,442 2,286,219 1,480,375
----------- ----------- -----------
Total noninterest income.............................. 6,827,058 5,795,041 4,348,152
Noninterest expense:
Salaries and other compensation................... 8,813,197 $ 8,594,292 $ 7,291,916
Employee benefits................................. 1,514,645 1,339,640 1,357,062
Net occupancy and equipment expense............... 2,919,204 2,729,816 2,338,049
Professional services............................. 867,660 315,015 308,854
Regulatory agency assessments..................... 156,621 161,351 107,622
Amortization of intangible assets................. 438,767 438,767 438,767
Other expense..................................... 4,709,803 4,268,097 3,717,315
----------- ----------- -----------
Total noninterest expense............................. 19,419,897 17,846,978 15,559,585
Income before income taxes............................ 10,910,564 9,605,076 7,987,551
Income tax expense.................................... 3,676,898 3,089,701 2,497,768
----------- ----------- -----------
Net income............................................ $ 7,233,666 $ 6,515,375 $ 5,489,783
=========== =========== ===========
Earnings per share-basic and diluted.................. $ .82 $ .75 $ .63
=========== =========== ===========
Weighted average common shares outstanding............ 8,828,081 8,710,970 8,657,180
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
--------- ---------- ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,1997.................... 2,163,740 $2,163,740 $6,635,913 $25,966,273 $(244,486) $34,521,440
Comprehensive income, net of tax:
Net income............................... 5,489,783 5,489,783
Other comprehensive income:
Net unrealized gains on investment
securities held for sale arising in
the current year..................... 340,683 340,683
Less reclassification adjustment for
net gains included in net income..... (13,832) (13,832)
-----------
Comprehensive income....................... 5,816,634
Cash dividends declared per share ($.27 per
share)................................... (2,360,290) (2,360,290)
Stock issued under restricted stock award
plan..................................... 9,700 9,700 135,800 145,500
Stock forfeited under restricted stock
award plan............................... (1,040) (1,040) (13,025) (14,065)
--------- ---------- ---------- ----------- --------- -----------
Balance at December 31, 1997................. 2,172,400 2,172,400 6,758,688 29,095,766 82,365 38,109,219
Comprehensive income, net of tax:
Net income............................... 6,515,375 6,515,375
Other comprehensive income:
Net unrealized losses on investment
securities held for sale arising in
the current year..................... (32,837) (32,837)
Less reclassification adjustment for
net gains included in net income..... 11,572 11,572
-----------
Comprehensive income....................... 6,494,110
Cash dividends declared per share ($.27 per
share)................................... (2,337,007) (2,337,007)
Stock issued under restricted stock award
plan..................................... 132,000 132,000 548,000 680,000
Common stock split (4 for 1), effected in
the form of a dividend................... 6,523,200 6,523,200 (6,523,200)
--------- ---------- ---------- ----------- --------- -----------
Balance at December 31, 1998................. 8,827,600 $8,827,600 $ 783,488 $33,274,134 $ 61,100 $42,946,322
Comprehensive income, net of tax:
Net income............................... 7,233,666 7,233,666
Other comprehensive income:
Net unrealized losses on investment
securities held for sale arising in
the current year..................... (902,274) (902,274)
Less reclassification adjustment for
net gains included in net income..... 9,207 9,207
-----------
Comprehensive income....................... 6,340,599
Cash dividends declared per share ($.32 per
share)................................... (2,825,168) (2,825,168)
Stock issued under restricted stock award
plan..................................... 4,000 4,000 16,000 20,000
Stock forfeited under restricted stock
award plan............................... (2,600) (2,600) (8,400) (11,000)
--------- ---------- ---------- ----------- --------- -----------
Balance at December 31, 1999................. 8,829,000 $8,829,000 $ 791,088 $37,682,632 $(831,967) $46,470,753
========= ========== ========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 7,233,666 $ 6,515,375 $ 5,489,783
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses............................... 935,000 865,000 1,405,000
Depreciation and amortization of premises and
equipment............................................. 1,328,274 1,090,001 913,918
Amortization of intangible assets....................... 438,767 438,767 438,767
Net (gain) loss on sales of OREO........................ (25,590) (79,018) 10,677
Investment securities gains............................. (13,950) (17,553) (20,958)
Net accretion of investment securities.................. (45,225) (33,502) (10,022)
Net accretion of loans purchased........................ (109,828) (69,695) (126,214)
(Gain) loss on sales of premises and equipment.......... (547,758) (55,284) 150,059
Net decrease (increase) in mortgage loans held for
sale.................................................. 2,926,250 (4,282,914) --
Gains on sales of mortgage loans........................ (309,316) (296,845) --
Gain on sales of other loans............................ (11,600) (40,587) (99,266)
Deferred income tax expense (benefit)................... 151,553 95,955 (216,840)
Deferred net loan fees.................................. 100,270 100,120 50,135
Vesting in restricted stock award plan.................. 443,832 493,000 335,700
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable.... (787,606) 245,179 (468,856)
Increase in accrued interest payable.................. 289,896 3,902 165,487
Other................................................. (480,638) (961,883) 213,962
----------- ----------- -----------
Net cash provided by operating activities................... 11,515,997 4,010,018 8,231,332
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity......... (4,272,280) (3,764,460) (1,015,000)
Purchases of investment securities available for sale....... (18,794,996) (25,389,492) (41,813,157)
Purchases of other investments.............................. (1,016,177) (14,000) (54,300)
Maturities of investment securities held to maturity........ 1,237,790 3,368,790 2,363,022
Maturities and calls of investment securities available for
sale...................................................... 19,394,149 31,951,576 31,541,825
Proceeds from sales of investment securities available for
sale...................................................... -- -- 3,106,435
Net increase in loans funded................................ (57,554,248) (27,319,593) (40,668,075)
Purchases of premises and equipment......................... (1,252,761) (3,764,652) (1,367,513)
Proceeds from sales of premises and equipment............... 1,367,599 491,506 572,198
Proceeds from sales of OREO................................. 200,473 796,165 889,343
----------- ----------- -----------
Net cash used by investing activities....................... (60,690,451) (23,644,160) (46,445,222)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings accounts................. 18,761,075 18,553,345 14,767,417
Increase (decrease) in time deposits........................ 17,938,257 (8,603,660) 13,922,667
Increase in federal funds purchased......................... 7,200,000 1,300,000 1,500,000
Increase in Federal Home Loan Bank advances................. 25,000,000 15,000,000 2,000,000
Dividends paid.............................................. (2,825,168) (2,173,900) (1,817,190)
----------- ----------- -----------
Net cash provided by financing activities................... 66,074,166 24,075,785 30,372,894
Net increase (decrease) in cash and cash equivalents........ 16,899,712 4,441,643 (7,840,996)
Cash and cash equivalents at beginning of year.............. 21,374,398 16,932,755 24,773,751
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $38,274,110 $21,374,398 $16,932,755
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................... $13,712,917 $13,262,387 $12,877,167
=========== =========== ===========
Income taxes, net........................................... $ 4,075,000 $ 2,764,270 $ 2,725,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Loans transferred to real estate acquired through
foreclosure............................................... $ 478,576 $ 550,168 $ 496,750
=========== =========== ===========
Bank owned premises transferred to other real estate........ -- $ 685,000 --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Main Street Banks Incorporated is a one-bank holding company which conducts
business primarily in Barrow, Clarke, Gwinnett, Newton, Rockdale and Walton
counties through its wholly owned subsidiary, Main Street Bank. Main Street Bank
provides a full range of traditional banking, mortgage banking, and investment
and insurance services to individual and corporate customers through its
thirteen locations.
The consolidated financial statements of Main Street Banks Incorporated and
subsidiary (collectively the "Company") are prepared in accordance with
generally accepted accounting principles and practices within the financial
services industry, which requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses and the valuation of other real estate acquired in connection with
foreclosures or in satisfaction of loans. Management believes that the allowance
for loan losses is adequate and the valuation of other real estate is
appropriate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Main Street
Banks Incorporated ("Parent") and its wholly owned subsidiary, Main Street Bank.
All significant intercompany transactions and balances have been eliminated in
consolidation. Management has determined that the Company operates in a single
business segment, community banking and related services.
INVESTMENT SECURITIES
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Investment securities are classified as held-to-maturity
when the Company has the positive intent and the ability to hold the securities
to maturity. Held to maturity securities are stated at amortized cost.
Investment securities not classified as held-to-maturity are classified as
available for sale. Available for sale securities are stated at fair value with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Other investments are stated at amortized cost.
Realized gains and losses, and declines in value determined to be other than
temporary are included in net securities gains (losses). The cost of securities
sold is based on the specific identification method.
The amortized cost of investment securities classified as held-to-maturity
or available for sale is adjusted for amortization of premiums and accretion of
discounts to expected maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments.
F-6
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are reported at the gross amount outstanding reduced by purchase
discount, deferred net loan fees, and unearned income. Interest income on loans
is generally recognized over the terms of the loans based on the unpaid daily
principal amount outstanding. If the collectibility of interest appears
doubtful, the accrual thereof is discontinued. When accrual of interest is
discontinued, all unpaid interest is reversed. Interest income on such loans is
subsequently recognized only to the extent cash payments are received, the full
recovery of principal is anticipated, or after full principal has been recovered
when collection of principal is in question. Gains on sales of loans are
recognized at the time of sale, as determined by the difference between the net
sales proceeds and the book value of the loans sold. Loan origination fees, net
of direct loan origination costs, are deferred and recognized as income over the
life of the related loan on a level-yield basis.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held-for-sale are recorded at the lower of cost or market on
an individual loan basis. Market value is determined based on outstanding
commitments from investors and prevailing market conditions. Gains and losses on
sales of loans are recognized at settlement date. Gains and losses are
determined as the difference between the net sales proceeds and carrying value
of the loans sold.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb inherent losses on the
existing loan portfolio. Management's judgment in determining the adequacy of
the allowance is based on evaluations of the collectibility of loans and taking
into consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality and review of specific problem loans. Periodic
revisions are made to the allowance when circumstances which necessitate such
revisions become known. Recognized losses are charged to the allowance for loan
losses, while subsequent recoveries are added to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using primarily
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the
improvements or the term of the related lease.
OTHER REAL ESTATE
Other real estate represents property acquired through foreclosure or in
settlement of loans and is recorded at the lower of cost or fair value less
estimated selling expenses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan losses at the time of
foreclosure. Subsequent writedowns of other real estate are charged to current
operations.
F-7
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Substantially all costs in excess of net assets of entities acquired are
being amortized using the straight-line method over periods ranging from 10 to
15 years. Other intangibles related to entities acquired are being amortized
over periods ranging from 5 to 10 years using the straight-line method.
Intangible assets related to capital lease rights are being amortized over the
term of the related lease using the straight-line method. Accumulated
amortization was $3,289,700, $2,850,933 and $2,412,166 at December 31, 1999,
1998, and 1997 respectively. Amortization expense totaled $438,767 for the
periods ended December 31, 1999, 1998 and 1997.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
EARNINGS PER SHARE AND COMMON STOCK SPLIT
The Company has adopted the provisions of Financial Accounting Standards
Board No. 128, "Earnings Per Share" ("Statement 128"). All earnings per share
amounts for all periods presented have been restated to conform to the
requirements of Statement 128. All per share amounts have been adjusted for a 4
for 1 common stock split, effected in the form of a 300% stock dividend, to
shareholders of record on September 1, 1998.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or when related fees are incurred
or received.
CASH AND CASH EQUIVALENTS
For purposes of presentation in the statement of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, interest-bearing
deposits in banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
RECLASSIFICATION
Certain previously reported amounts have been reclassified to conform to
current presentation.
F-8
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 establishes new
accounting and reporting standards for derivatives. This statement requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities in the statement of financial condition. Accounting for the changes
in fair value of a derivative depends on the intended use of the derivative and
the resulting designation. In June 1999, the Financial Accounting Standards
Board elected to defer the effective date of this statement for one year.
Adoption of this statement is required for the Company's financial statements
for the year ending December 31, 2001. Adoption is not expected to result in a
material financial impact based on the Company's limited use of derivatives.
2. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the
Federal Reserve Bank, on deposit with national banks, or in cash. The average
reserve requirements at December 31, 1999 and 1998 were approximately $9,561,000
and $8,588,000 respectively. The Company maintained cash balances and reserves
which were adequate to meet these requirements.
F-9
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES
States and political subdivisions............ $15,541,492 -- $ (359,195) $15,182,297
=========== ======= =========== ===========
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities..................... $ 3,992,001 $ 1,166 $ (51,117) $ 3,942,050
U.S. Government agencies and corporations.... 21,007,781 -- (507,701) 20,500,080
Mortgage-backed securities................... 22,541,234 40,072 (742,975) 21,838,331
----------- ------- ----------- -----------
$47,541,016 $41,238 $(1,301,793) $46,280,461
=========== ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES
States and political subdivisions............. $12,497,146 $547,339 -- $13,044,485
=========== ======== ========= ===========
AVAILABLE FOR SALE SECURITIES
U.S. Treasury securities...................... $ 3,991,421 $ 49,529 -- $ 4,040,950
U.S. Government agencies and corporations..... 14,495,177 108,438 -- 14,603,615
Mortgage-backed securities.................... 29,663,372 59,314 $(124,705) 29,597,981
----------- -------- --------- -----------
$48,149,970 $217,281 $(124,705) $48,242,546
=========== ======== ========= ===========
</TABLE>
F-10
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT SECURITIES (CONTINUED)
Other investments are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Federal Home Loan Bank stock......................... $2,100,000 $1,231,800
Southeast Bankcard Association stock................. 40,000 40,000
Community Financial Services, Inc. stock............. 100,000 100,000
North Georgia Bank Stock............................. 150,000 --
Other................................................ 1,756 3,779
---------- ----------
$2,391,756 $1,375,579
========== ==========
</TABLE>
The amortized cost and estimated fair value of investment securities held to
maturity and available for sale at December 31, 1999, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or repay obligations without call or
prepayment penalties. Mortgage-backed securities have been allocated based on
expected maturity dates after considering assumed prepayment patterns.
<TABLE>
<CAPTION>
INVESTMENT
SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less................... $ 1,666,596 $ 1,674,320 $ 2,064,659 $ 2,030,167
Due after one year through five years..... 6,014,190 5,933,710 28,207,664 27,460,104
Due after five years through ten years.... 5,294,497 5,204,872 3,420,724 3,371,853
Due after ten years....................... 2,566,209 2,369,395 13,847,969 13,418,337
----------- ----------- ----------- -----------
$15,541,492 $15,182,297 $47,541,016 $46,280,461
=========== =========== =========== ===========
</TABLE>
There were no sales of investments securities available for sale during 1999
and 1998. During 1997, proceeds from sales of investment securities available
for sale were $3,106,435 with gross gains of $21,908 and gross losses of $5,617
realized on those sales. During 1999, 1998 and 1997, net gains of $13,950,
$17,533 and $4,667, respectively, were realized on investment securities called
prior to contractual maturity.
The related income tax expense on sale of securities for periods ended
December 31, 1999, 1998 and 1997 was $4,743, $5,961 and $6,707, respectively.
Securities with a carrying value of approximately $48,298,835 and
$51,551,503 and estimated fair values of $47,063,077 and $51,883,915 at
December 31, 1999 and 1998, respectively, were pledged to secure public deposits
as provided by law.
F-11
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Consumer Loans.............................................. $ 43,168,318 $ 35,180,907
Residential Mortgage Loans.................................. 102,104,723 97,563,512
Construction Loans.......................................... 63,360,523 48,331,252
Business Loans.............................................. 106,553,891 89,264,517
Real Estate Loans--Other.................................... 67,563,792 55,591,396
------------ ------------
Total loans................................................. 382,751,247 325,931,584
Less:
Purchase discount......................................... (289,594) (399,422)
Deferred net loan fees.................................... (620,264) (499,785)
Unearned income........................................... (433,314) (415,517)
Allowance for loan losses................................. (6,244,282) (5,849,997)
------------ ------------
Loans, net.................................................. $375,163,793 $318,766,863
============ ============
</TABLE>
Loans in nonaccrual status amounted to $1,474,078, $1,442,259 and $754,290
at December 31, 1999, 1998 and 1997, respectively. The allowance for loan losses
related to these impaired loans was $221,112, $216,339 and $65,510 at
December 31, 1999, 1998 and 1997, respectively. The average recorded investment
in impaired loans was $1,553,722, $826,254 and $436,742 during the years ended
December 31, 1999, 1998 and 1997, respectively. If such loans had been on an
accrual basis, interest income would have been approximately $172,402, $82,407
and $27,993 higher for the periods ended December 31, 1999, 1998 and 1997,
respectively.
An analysis of activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year............................. $5,849,997 $5,091,653 $4,508,378
Provision charged to expense............................. 935,000 865,000 1,405,000
Loans charged off........................................ (850,543) (507,555) (1,076,946)
Recoveries of loans previously charged off............... 309,828 400,899 255,221
---------- ---------- ----------
Balance at end of year................................... $6,244,282 $5,849,997 $5,091,653
========== ========== ==========
</TABLE>
A substantial portion of the Company's loans are secured by real estate in
northeast Georgia communities, primarily in Barrow, Clarke, Gwinnett, Newton,
Rockdale, and Walton counties. In addition, a substantial portion of real estate
acquired through foreclosure consists of single-family residential properties
and land located in these same markets. The ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate are susceptible to
changes in market conditions in northeast Georgia.
F-12
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 3,571,410 $ 3,462,623
Buildings and leasehold improvements........................ 9,827,886 9,421,350
Furniture, fixtures and equipment........................... 8,410,872 7,553,580
Construction in process..................................... 283,474 917,897
----------- -----------
22,093,642 21,355,450
Less accumulated depreciation and amortization.............. (6,242,403) (5,027,383)
----------- -----------
$15,851,239 $16,328,067
=========== ===========
</TABLE>
Depreciation and amortization expense totaled $1,328,274, $1,090,001, and
$913,918 for the periods ended December 31, 1999, 1998 and 1997, respectively.
The Company leases certain buildings and various equipment under operating
leases. Minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms in excess of one year as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 186,221
2001........................................................ 197,117
2002........................................................ 190,277
2003........................................................ 197,956
2004........................................................ 204,881
Thereafter.................................................. 759,105
----------
Total minimum lease payments................................ $1,735,557
==========
</TABLE>
Rental expense for all operating leases was $229,832, $200,933 and $154,915,
in 1999, 1998 and 1997, respectively. Rental income of $1,950, $29,582 and
$20,880 for the periods ended December 31, 1999, 1998 and 1997, respectively, is
included as a reduction of net occupancy and equipment expense in the
consolidated statements of income.
6. INTEREST BEARING DEPOSITS
A summary of time deposits by year of maturity at December 31, 1999 is as
follows:
<TABLE>
<S> <C>
2000........................................................ $159,285,494
2001........................................................ 35,192,791
2002........................................................ 1,936,542
2003........................................................ 1,531,251
2004 and after.............................................. 1,447,032
------------
Total time deposits......................................... $199,393,110
============
</TABLE>
F-13
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTEREST BEARING DEPOSITS (CONTINUED)
The Company had $47,234,068 and $43,373,125 in time deposits over $100,000
at December 31, 1999 and 1998, respectively.
Interest expense on these deposits was $2,471,451, $2,435,359 and $2,261,132
for the periods ended December 31, 1999, 1998 and 1997, respectively.
7. BORROWINGS
At December 31, 1999 and 1998 the Company had advances borrowed from the
Federal Home Loan Bank totaling $42,000,000 and $17,000,000, respectively.
Interest payments and principal payments are due at various maturity dates
through 2008 with rates ranging from 5.40% to 6.13%. The Company has pledged all
of its eligible residential mortgage loans secured by first mortgages on
one-to-four family dwellings as collateral. The Company is allowed to borrow up
to 75% of the balance of the eligible loans pledged as collateral. At
December 31, 1999 and 1998 the available balance under the Company's line with
the Federal Home Loan Bank was approximately $55,700,000 and $55,300,000
respectively.. The Company's weighted average interest rate on borrowings for
the periods ended, December 31, 1999, 1998 and 1997 was 5.75%, 5.72 and 5.99%,
respectively. Of the $42,000,000 balance outstanding at December 31, 1999,
$17,000,000 matures in 2000, $5,000,000 matures in 2001, $5,000,000 matures in
2002, $5,000,000 matures in 2003 and $10,000,000 matures in 2008.
8. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current income tax provision............................. $3,525,345 $2,993,746 $2,714,248
Deferred income tax expense (benefit).................... 151,553 95,955 (216,480)
---------- ---------- ----------
$3,676,898 $3,089,701 $2,497,768
========== ========== ==========
</TABLE>
A reconciliation of income tax computed at statutory rates to total income
tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Pretax income........................................... $10,910,564 $9,605,076 $7,987,551
=========== ========== ==========
Income tax computed at statutory rate................... $ 3,709,592 $3,265,726 $2,715,768
Increase (decrease) resulting from:
Tax-exempt interest................................... (313,559) (299,866) (325,452)
Nondeductible interest on tax-exempt investments...... 65,866 27,505 34,064
Amortization of goodwill.............................. 35,790 35,790 35,790
Other, net............................................ 179,209 60,546 37,598
----------- ---------- ----------
$ 3,676,898 $3,089,701 $2,497,768
=========== ========== ==========
</TABLE>
F-14
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The following summarizes the significant components of the Company's
deferred tax assets and (liabilities):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Reserve for loan losses..................................... $1,789,063 $1,691,102
Premises and equipment...................................... (378,697) (274,128)
Core deposit intangible..................................... 47,038 (15,594)
Deferred net loan fees...................................... 210,890 169,927
Net unrealized losses (gains) on investment securities
available for sale........................................ 428,589 (31,476)
Other, net.................................................. (225,351) (279,917)
---------- ----------
Net deferred tax asset...................................... $1,871,532 $1,259,914
========== ==========
</TABLE>
9. EMPLOYEE BENEFITS
The Company sponsors a 401(k) Employee Savings Plan that permits employees
to defer annual cash compensation as specified under the plan. The Board of
Directors determines the annual Company contribution, which was $172,313,
$195,434 and $278,272 in 1999, 1998 and 1997, respectively.
The Company has a Management Incentive Bonus Plan for key executives that
provides annual cash awards, if approved, based on eligible compensation and
achieving earnings goals. The Company also has a General Bonus Plan that
provides for annual cash awards to eligible employees as established by the
Board of Directors. The total expense under these plans was $587,871, $465,669
and $474,109 in 1999, 1998 and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
Directors, executive officers, and their related interests were customers of
the Company and had other transactions with the Company in the ordinary course
of business. Loans outstanding to certain directors, executive officers, and
their related interests at December 31, 1999 and 1998 were $2,034,754 and
$2,378,145, respectively. For the periods ended December 31, 1999 and 1998,
$97,269 and $744,424, respectively, of such loans were made and loan repayments
totaled $218,190 and $426,756 for the respective periods. It is the policy of
the Company that such transactions be made on substantially the same terms as
those prevailing at the time for comparable loans to other persons. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Company.
The Company has operating leases for bank premises that are owned by related
parties. These related parties consist of an individual who is a primary
shareholder, member of the Board of Directors, and an Executive Officer of the
Company, and also members of this individual's family. Terms for these related
party leases are substantially the same as those that would be expected to
prevail in the market place. During 1999, 1998 and 1997, total lease payments
under these related party leases totaled approximately $130,000, $111,000, and
$95,000, respectively.
F-15
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. SHAREHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid to the
Parent without prior approval of the applicable regulatory agency. At
December 31, 1999, under current state banking laws, the approval of the Georgia
Department of Banking and Finance will be required if the total of all dividends
declared by the Bank in the calendar year exceeds 50 percent of the net profits
for the previous calendar year and the ratio of equity capital to adjusted total
assets is less than 6 percent.
The Parent has adopted a nonqualified Restricted Stock Award Plan and a
Long-term Incentive Plan, which grant restricted stock and other stock based
compensation to key executives and officers of the Bank. In the case of
restricted stock, Bank executives and officers designated as an "eligible
executive" will vest in the number of shares of common stock awarded under the
plan based on service over the next five years. A total of 960,000 shares are
authorized to be issued under the plans, with 765,960 and 764,560 shares of
restricted stock issued as of December 31, 1999 and 1998, respectively. A total
of 567,560 and 491,280 shares were vested with 198,400 and 273,280 shares issued
and unvested as of December 31, 1999 and 1998, respectively.
12. REGULATORY MATTERS
The Company and its banking subsidiary are subject to various regulatory
capital requirements administered by federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. The
regulations require the Company and its banking subsidiary to meet specific
capital adequacy guidelines that involve quantitative measures of the Company's
and its banking subsidiary's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company and its
banking subsidiary's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tier 1 capital (as defined in the regulations) to total average assets
(as defined), and minimum ratios of Tier 1 and total capital (as defined) to
risk-weighted assets (as defined). To be considered adequately capitalized (as
defined) under the regulatory framework for prompt corrective action, the Bank
must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based
ratios as set forth in the table. The Bank's actual capital amounts and ratios
are also presented in the table. As of its most recent regulatory notification,
the Bank was considered well capitalized under current regulatory guidelines.
There are no conditions or events since that notification that management
believes have changed the institution's category.
F-16
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
12. REGULATORY MATTERS (CONTINUED)
The following is a summary of the Company's and its banking subsidiary's
capital ratios at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY ACTION
AMOUNT RATIO PURPOSES RATIO PROVISIONS RATIO
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Company only
As of December 31, 1999
Total Capital (to Risk Weighted Assets)......... $50,875,000 13.42% $30,327,920 8.00% $37,909,900 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 46,118,000 12.17% 15,163,960 4.00% 22,745,940 6.00%
Tier 1 Capital (to Average Assets).............. 46,118,000 9.27% 19,917,920 4.00% 24,897,400 5.00%
As of December 31, 1998
Total Capital (to Risk Weighted Assets)......... $45,713,000 14.00% $26,121,000 8.00% $32,651,000 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 41,610,000 12.74% 13,061,000 4.00% 19,591,000 6.00%
Tier 1 Capital (to Average Assets).............. 41,610,000 9.67% 17,213,000 4.00% 21,516,000 5.00%
As of December 31, 1997
Total Capital (to Risk Weighted Assets)......... $40,642,000 13.66% $23,805,000 8.00% $29,756,000 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 36,906,000 12.40% 11,903,000 4.00% 17,854,000 6.00%
Tier 1 Capital (to Average Assets).............. 36,906,000 9.00% 16,403,000 4.00% 20,504,000 5.00%
Banking subsidiary only
As of December 31, 1999
Total Capital (to Risk Weighted Assets)......... $48,615,000 12.76% $30,483,000 8.00% $38,103,000 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 43,834,000 11.50% 15,241,000 4.00% 22,862,000 6.00%
Tier 1 Capital (to Average Assets).............. 43,834,000 8.81% 19,909,000 4.00% 24,887,000 5.00%
As of December 31, 1998
Total Capital (to Risk Weighted Assets)......... $43,056,000 13.17% $26,154,000 8.00% $32,692,000 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 38,969,000 11.92% 13,077,000 4.00% 19,615,000 6.00%
Tier 1 Capital (to Average Assets).............. 38,969,000 9.08% 17,172,000 4.00% 21,465,000 5.00%
As of December 31, 1997
Total Capital (to Risk Weighted Assets)......... $37,293,000 12.89% $23,142,560 8.00% $28,928,200 10.00%
Tier 1 Capital (to Risk Weighted Assets)........ 33,659,000 11.64% 11,571,289 4.00% 17,356,920 6.00%
Tier 1 Capital (to Average Assets).............. 33,659,000 8.26% 16,292,250 4.00% 20,365,650 5.00%
</TABLE>
13. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. The contract amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
customer to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as are used for on-balance-sheet instruments.
F-17
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
13. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at
December 31, 1999 and 1998 include $21,371,000 and $9,719,000, respectively, in
undisbursed credit lines and $33,708,000 and $29,711,000, respectively, in
unfunded construction and development loans. The Company's experience has been
that approximately 80 percent of loan commitments are ultimately drawn upon by
customers.
The Company issues standby letters of credit, which are conditional
commitments issued to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company had $630,000 and $668,000 in irrevocable standby letters of credit
outstanding at December 31, 1999 and 1998, respectively. The Company was not
required to perform under any standby letters of credit during 1999 or 1998.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
borrower. Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, residential real estate, and income-producing
commercial properties on those commitments for which collateral is deemed
necessary.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair
values of financial instruments:
Cash and cash equivalents--The carrying amount of cash and cash equivalents
approximates fair value.
Interest-bearing deposits--The carrying amount of interest-bearing deposits
approximates fair value.
Investment securities--The fair value of investment securities held to
maturity and available for sale is estimated based on published bid prices
or bid quotations received from securities dealers. The carrying amount of
other investments approximates fair value.
Loans--For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
For all other loans, fair values are calculated by discounting the
contractual cash flows using estimated market rates which reflect the credit
and interest rate risk inherent in the loan, or by using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Mortgage loans held for sale--The carrying amount of mortgage loans held for
sale approximates fair value.
F-18
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposits--The fair value of deposits with no stated maturity, such as
demand, NOW and MMDA, and savings accounts, is equal to the amount payable
on demand. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered
for deposits of similar remaining maturities.
Accrued interest--The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments--Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the borrowers' credit standing.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1999 1998
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks................. $22,345,169 $22,345,169 $21,231,287 $21,231,287
Interest-bearing deposits............... 508,941 508,941 143,111 143,111
Investment securities held to
maturity.............................. 15,541,492 15,182,297 12,497,146 13,044,485
Investment securities available for
sale.................................. 46,280,461 46,280,461 48,242,546 48,242,546
Other investments....................... 2,391,756 2,391,756 1,371,800 1,371,800
Loans (net of unearned income).......... 381,408,075 377,999,050 324,616,860 324,115,263
Mortgage loans held for sale............ 1,356,664 1,356,664 4,282,914 4,282,914
Accrued interest receivable............. 3,526,663 3,526,663 2,739,057 2,739,057
Financial liabilities:
Noncontractual deposits................. 203,202,679 206,642,846 184,441,604 184,281,858
Contractual deposits.................... 199,393,110 199,195,298 181,454,853 183,573,873
Accrued interest payable................ 1,662,742 1,662,742 1,372,846 1,372,846
Off-balance-sheet instruments:
Undisbursed credit lines................ 21,371,000 194,991 9,719,000 88,676
Unfunded construction and development
loans................................. 33,708,000 307,555 29,711,000 271,087
Standby letters of credit............... 630,000 5,748 668,000 6,095
</TABLE>
F-19
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet of Main
Street Banks Incorporated at December 31, 1999 and 1998, and the statements of
income and cash flows for the years ended December 31, 1999, 1998 and 1997:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1,920,430 $ 2,064,537
Investment in subsidiary.................................... 44,537,099 40,852,625
Other assets................................................ 657,018 658,831
----------- -----------
Total assets................................................ $47,114,547 $43,575,993
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities........................................... $ 643,793 $ 629,671
Shareholders' equity........................................ 46,470,754 42,946,322
----------- -----------
Total liabilities and shareholders' equity.................. $47,114,547 $43,575,993
=========== ===========
</TABLE>
F-20
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiary.............. $2,827,136 $2,878,106 $1,821,328
Other income........................... -- -- --
---------- ---------- ----------
2,827,136 2,878,106 1,821,328
---------- ---------- ----------
Expenses:
Salaries and employee benefits......... 11,700 10,500 10,500
Legal and professional................. 482 -- --
Other expenses......................... 6,015 10,695 10,867
---------- ---------- ----------
Total expenses........................... 18,197 21,195 21,367
---------- ---------- ----------
Income before income tax benefits and
equity in undistributed income of
subsidiaries........................... 2,808,939 2,856,911 1,799,961
Benefit for income taxes................. 6,187 7,206 7,265
---------- ---------- ----------
Income before equity in undistributed
income of subsidiary................... 2,815,126 2,864,117 1,807,226
Equity in undistributed income of
subsidiary............................. 4,418,540 3,651,258 3,682,557
---------- ---------- ----------
Net income............................... $7,233,666 $6,515,375 $5,489,783
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................... $7,233,666 $6,515,375 $5,489,783
Adjustments to reconcile net income to
net cash provided by operating
activities:
Undistributed income of subsidiary....... (4,418,540) (3,651,258) (3,682,557)
Other.................................... (134,065) (721,990) 4,536
---------- ---------- ----------
Net cash provided by operating
activities............................. 2,681,061 2,142,127 1,811,762
FINANCING ACTIVITIES
Dividends paid........................... (2,825,168) (2,173,900) (1,817,190)
---------- ---------- ----------
Net cash used in financing activities.... (2,825,168) (2,173,900) (1,817,190)
Net decrease in cash..................... (144,107) (31,773) (5,428)
Cash at beginning of period.............. 2,064,537 2,096,310 2,101,738
---------- ---------- ----------
Cash at end of period.................... $1,920,430 $2,064,537 $2,096,310
========== ========== ==========
</TABLE>
F-21
<PAGE>
MAIN STREET BANKS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
16. SUBSEQUENT EVENTS
During December, 1999, the Company entered into a Definitive Agreement with
First Sterling Banks Incorporated ("First Sterling") in which Main Street Banks
Incorporated will be merged into First Sterling and First Sterling will be the
surviving company. As a result of the merger, First Sterling will become the
holding company for Main Street Bank. First Sterling is a $350 million total
asset bank holding company with three subsidiary banks, the Westside Bank &
Trust Company, the Eastside Bank & Trust Company and Community Bank of Georgia.
Under the proposed agreement, Main Street Bank, Eastside, Westside and Community
Bank will continue to operate as separate subsidiaries of First Sterling.
If the merger is completed, each share of Main Street Banks common stock
will be exchanged for 1.01 shares of First Sterling common stock. The exchange
in the merger of Main Street Banks stock for First Sterling stock will not give
rise to taxable gain or loss to shareholders of Main Street Banks nor will the
Company recognize taxable gain or loss as a consequence of the merger. The
transaction is expected to be accounted for as pooling of interests.
The Company expects to complete the merger during the second quarter of 2000
and is in the process of obtaining approval from the Federal Reserve Bank and
the Georgia Department of Banking and Finance.
17. YEAR 2000 (UNAUDITED)
The company completed all Year 2000 readiness work during 1999 and has not
experienced any significant operating problems during 2000. Total Year 2000
readiness expenses incurred in the years ended December 31, 1999 and 1998 were
$82,085 and $63,401, respectively. There were no Year 2000 readiness expenses
incurred during 1997. The Company does not have significant continued exposure
to the Year 2000 issue, did not have customers who were significantly impacted,
and does not anticipate material expenditures in the future.
F-22
<PAGE>
APPENDIX A TO JOINT
PROXY STATEMENT/PROSPECTUS
MERGER AGREEMENT BETWEEN FIRST STERLING BANKS, INC.
AND MAIN STREET BANKS INCORPORATED DECEMBER 1, 1999
<PAGE>
MERGER AGREEMENT
BETWEEN
FIRST STERLING BANKS, INC.
AND
MAIN STREET BANKS INCORPORATED
DATED
DECEMBER 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
1. MERGER............................................................ 2
1.1 MAIN STREET MERGER INTO FSLB................................ 2
1.2 EFFECTIVE DATE OF THE MERGER................................ 2
1.3 MANAGEMENT OF THE RESULTING CORPORATION..................... 2
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK.................... 2
2.1 CONVERSION OF SHARES........................................ 2
2.2 OPTIONS..................................................... 3
2.3 SHARES HELD BY FSLB OR MAIN STREET.......................... 3
2.4 FRACTIONAL SHARES........................................... 3
2.5 SURRENDER OF STOCK CERTIFICATE.............................. 3
2.6 NO INTEREST................................................. 4
3. OTHER ACKNOWLEDGEMENTS, AGREEMENTS, ETC........................... 4
3.1 MATERIAL.................................................... 4
3.2 MATERIAL ADVERSE EFFECT OR CHANGE........................... 4
3.3 ACCESS, INFORMATION AND DOCUMENTS........................... 5
3.4 REGISTRATION STATEMENT; SHAREHOLDERS' MEETINGS.............. 5
3.5 CONFIDENTIAL INFORMATION.................................... 5
3.6 FULL COOPERATION............................................ 6
3.7 APPLICATIONS................................................ 6
3.8 PUBLIC ANNOUNCEMENTS AND DISCLOSURES........................ 6
3.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.................... 6
3.10 AGREEMENT AS TO EFFORTS TO CONSUMMATE....................... 6
3.11 ACCOUNTING AND TAX TREATMENT................................ 6
3.12 KNOWLEDGE................................................... 6
4. REPRESENTATIONS AND WARRANTIES OF FSLB............................ 6
4.1 FSLB SCHEDULE............................................... 6
4.2 CORPORATE ORGANIZATION...................................... 7
4.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES...................... 7
4.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED......... 7
4.5 AUTHORIZATION............................................... 7
4.6 NON-CONTRAVENTION........................................... 7
4.7 FINANCIAL STATEMENTS........................................ 7
4.8 NOTES AND OBLIGATIONS....................................... 8
4.9 LIABILITIES................................................. 8
4.10 INVESTMENTS................................................. 8
4.11 TAXES....................................................... 8
4.12 LITIGATION.................................................. 9
4.13 REGULATORY FILINGS.......................................... 9
4.14 GENERAL LEGAL COMPLIANCE.................................... 9
4.15 PROPERTIES; ENVIRONMENTAL................................... 9
4.16 INSURANCE................................................... 10
4.17 BROKER...................................................... 10
4.18 TRADEMARKS.................................................. 10
4.19 SOLE AGREEMENT TO MERGE AND SELL............................ 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
4.20 INSIDER CONTRACTS........................................... 11
4.21 EMPLOYEE BENEFIT PLANS...................................... 11
4.22 ARTICLES AND BYLAWS......................................... 13
4.23 BOOKS AND RECORDS........................................... 13
4.24 ABSENCE OF CHANGES.......................................... 13
5. REPRESENTATIONS AND WARRANTIES OF Main Street..................... 14
5.1 MAIN STREET SCHEDULE........................................ 14
5.2 CORPORATE ORGANIZATION...................................... 15
5.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES...................... 15
5.4 QUALIFICATION AS A FOREIGN CORPORATION NOT REQUIRED......... 15
5.5 AUTHORIZATION............................................... 15
5.6 NON-CONTRAVENTION........................................... 15
5.7 FINANCIAL STATEMENTS........................................ 15
5.8 NOTES AND OBLIGATIONS....................................... 16
5.9 LIABILITIES................................................. 16
5.10 INVESTMENTS................................................. 16
5.11 TAXES....................................................... 16
5.12 LITIGATION.................................................. 17
5.13 REGULATORY FILINGS.......................................... 17
5.14 GENERAL LEGAL COMPLIANCE.................................... 17
5.15 PROPERTIES; ENVIRONMENTAL................................... 17
5.16 INSURANCE................................................... 18
5.17 BROKER...................................................... 18
5.18 TRADEMARKS.................................................. 18
5.19 SOLE AGREEMENT TO MERGE OR SELL............................. 18
5.20 INSIDER CONTRACTS........................................... 18
5.21 EMPLOYEE BENEFIT PLANS...................................... 19
5.22 ARTICLES AND BYLAWS......................................... 21
5.23 BOOKS AND RECORDS........................................... 21
5.24 ABSENCE OF CHANGES.......................................... 21
6. COVENANTS OF FSLB................................................. 22
6.1 CONDUCT OF BUSINESS......................................... 22
6.2 CAPITAL STOCK, ARTICLES AND BYLAWS.......................... 23
6.3 APPROVAL OF FSLB SHAREHOLDERS............................... 23
6.4 PROXY MATERIALS............................................. 23
6.5 NOTICE OF BREACH............................................ 24
6.6 SOLE AGREEMENT TO MERGE OR SELL............................. 24
6.7 REPORTS..................................................... 24
6.8 INDEMNITY................................................... 24
6.9 AFFILIATES.................................................. 25
6.10 EMPLOYEE BENEFITS........................................... 25
7. COVENANTS OF MAIN STREET.......................................... 25
7.1 CONDUCT OF BUSINESS......................................... 25
7.2 CAPITAL STOCK, ARTICLES AND BYLAWS.......................... 26
7.3 APPROVAL OF Main Street SHAREHOLDERS........................ 26
7.4 PROXY MATERIALS............................................. 27
7.5 NOTICE OF BREACH............................................ 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <C> <S> <C>
7.6 SOLE AGREEMENT TO MERGE OR SELL............................. 27
7.7 REPORTS..................................................... 27
7.8 AFFILIATES.................................................. 27
8. CONDITIONS TO OBLIGATIONS OF FSLB................................. 28
8.1 REPRESENTATIONS AND COVENANTS COMPLIANCE.................... 28
8.2 NO CHANGE IN CONDITION...................................... 28
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS..................... 28
8.3 LEGAL OPINION............................................... 28
8.5 NO LEGAL ACTION............................................. 28
8.6 FAIRNESS OPINION............................................ 28
9. CONDITIONS TO OBLIGATIONS OF MAIN STREET.......................... 28
9.1 REPRESENTATIONS AND COVENANTS COMPLIANCE.................... 28
9.2 NO CHANGE IN CONDITION...................................... 28
9.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS..................... 28
9.4 LEGAL OPINION............................................... 28
9.5 NO LEGAL ACTION............................................. 28
9.5 FAIRNESS OPINION............................................ 28
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES......................... 29
10.1 GOVERNMENT APPROVAL......................................... 29
10.2 SHAREHOLDER APPROVAL........................................ 29
10.3 REGISTRATION STATEMENT...................................... 29
10.4 DISSENTING SHARES........................................... 29
10.5 POOLING LETTERS............................................. 29
10.6 TAX MATTERS................................................. 29
11. ACQUISITION OF DISSENTERS' STOCK.................................. 29
11.1 DISSENTING SHAREHOLDERS..................................... 29
11.2 NOTICE OF DISSENT........................................... 30
11.3 PURCHASER OF DISSENTERS' STOCK.............................. 30
12. CLOSING........................................................... 30
12.1 CLOSING..................................................... 30
12.2 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS............... 30
13. TERMINATION....................................................... 30
13.1 TERMINATION................................................. 30
13.2 PROCEDURE AND EFFECT OF TERMINATION; EXPENSES............... 30
14. MISCELLANEOUS..................................................... 31
14.1 AMENDMENT................................................... 31
14.2 WAIVER...................................................... 31
14.3 ENTIRE AGREEMENT............................................ 31
14.4 NOTICES..................................................... 31
14.5 ASSIGNMENT.................................................. 32
14.6 SEVERABILITY................................................ 32
14.7 COUNTERPARTS................................................ 32
14.8 HEADINGS.................................................... 32
14.9 GOVERNING LAW............................................... 32
</TABLE>
iii
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "AGREEMENT") is made and entered into effective
as of the 1st day of December, 1999 by and between FIRST STERLING BANKS, INC.
("FSLB"), a corporation organized under the laws of the State of Georgia, and
MAIN STREET BANKS, INCORPORATED ("MAIN STREET"), a corporation organized under
the laws of the State of Georgia (Main Street 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 4,882,349 shares are
issued and outstanding;
WHEREAS, The Westside Bank & Trust Company ("WESTSIDE"), The Eastside
Bank & Trust Company ("EASTSIDE") and Community Bank of Georgia ("COMMUNITY"),
each banking corporations organized under the laws of the State of Georgia, are
wholly-owned subsidiaries of FSLB;
WHEREAS, the authorized capital stock of Main Street consists of 30,000,000
shares of common stock, $1.00 par value ("MAIN STREET STOCK"), of which
8,829,000 shares are issued and outstanding;
WHEREAS, Main Street Bank ("MAIN STREET BANK"), a banking corporation
organized under the laws of the State of Georgia, is a wholly-owned subsidiary
of Main Street;
WHEREAS, the Boards of Directors of the Parties deem it advisable and in the
best interests of each Party and its respective shareholders that Main Street
and FSLB merge on the basis set forth in this Agreement (the "MERGER"), with
FSLB being the surviving and resulting corporation arising from such merger,
under the name "First Sterling Banks, Inc." (FSLB, as the resulting corporation,
is occasionally referred to herein as the "RESULTING CORPORATION"), and by the
Main Street shareholders exchanging and converting their stock into FSLB Stock
in the manner and basis hereinafter set out;
WHEREAS, the Board of Directors of Main Street and FSLB have approved and
adopted this Agreement and directed that it be submitted to their respective
shareholders for approval;
WHEREAS, it is the intention of the Parties to this Agreement that the
Merger of Main Street 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
Main Street Stock into FSLB Stock, as hereinafter provided, and such other
provisions relating to the merger as the Parties deem necessary or desirable,
the Parties hereto agree as follows:
1. MERGER
1.1 MAIN STREET 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, Main Street shall be
merged with and into FSLB. FSLB shall be the survivor of this Merger. The name
of the Resulting Corporation shall be "First Sterling Banks, Inc.", and the
Articles of Incorporation of FSLB shall be amended and restated substantially as
set forth in Exhibit A hereto. The Bylaws of the Resulting Corporation shall
also be amended to reflect the changes required by this Agreement.
A-1
<PAGE>
1.2 EFFECTIVE DATE OF THE MERGER. Subject to compliance with the various
conditions and requirements of this Agreement, 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.
1.3 MANAGEMENT OF THE RESULTING CORPORATION.
1.3.1 BOARD OF DIRECTORS. On the Effective Date after the closing of
the Merger, the Board of Directors of the Resulting Corporation shall
consist of eight (8) directors divided into three classes, with terms of
three years each; provided that there shall be three members in the first
class, with a term expiring in 2001; two members in the second class, with a
term expiring in 2002, and three members in the third class, with a term
expiring in 2003. Subject to the foregoing, at each annual meeting of
shareholders, the successors to the class of directors whose term is then
expiring shall be elected to hold office for a term expiring at the third
succeeding annual meeting and until their successors have been elected and
qualified. The initial members of the Board of Directors of the Resulting
Corporation, and the classes in which they will serve, are as follows:
First Class, with a term expiring in 2001: Robert R. Fowler, III; Sam
B. Hay, III and C. Candler Hunt;
Second Class, with a term expiring in 2002: Frank B. Turner and
Eugene L. Argo;
Third Class, with a term expiring in 2003; Edward C. Milligan, P.
Harris Hines and Harry L. Hudson.
In the event an individual named above is unable or unwilling to
serve on the initial Board of Directors of the Resulting Corporation
on and as of the Effective Date, the Boards of Directors of Main
Street and FSLB shall consult on their replacements, but if they are
unable to agree, the Board of Directors of Main Street shall choose
the replacements for Messrs. Fowler, Hay, Hunt and Turner, and the
Board of Directors of FSLB shall choose the replacement for
Messrs. Milligan, Argo, Hines and Hudson.
1.3.2 SUPPORT FOR REELECTION OF CERTAIN DIRECTORS. Robert R. Fowler,
III contemporaneously with the execution of this Agreement, has executed a
non-binding letter indicating his current intent that when
Messrs. Milligan, Argo, Hines and Hudson are presented to the shareholders
of the Resulting Corporation for re-election to the Board of Directors in
2002 and 2003, appropriately, he intends to vote shares of the Resulting
Corporation over which he has voting control in favor of such re-election.
1.3.3 CERTAIN OFFICERS. The Chairman of the Resulting Corporation shall
be Robert R. Fowler, III; the President and Chief Executive Officer of the
Resulting Corporation shall be Edward C. Milligan; the Executive Vice
President and Chief Operating Officer shall be Sam B. Hay, III, and the
Vice-Chairman will be P. Harris Hines. Messrs. Fowler, Milligan, and Hay
shall have employment contracts on terms as set forth in Exhibit B hereto.
2. MANNER AND BASIS OF CONVERTING SHARES OF STOCK
2.1 CONVERSION OF SHARES. Subject to the provisions of this Section 2, at
the time the Merger is consummated (the "Effective Time"), by virtue of the
Merger and without any action on the part of FSLB or Main Street or the
shareholders of either of the foregoing, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of FSLB Stock issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding from and after the
Effective Time.
(b) Each share of Main Street Stock issued and outstanding immediately
prior to the Effective Time, excluding shares held by FSLB or Main Street or
any wholly-owned subsidiary of either
A-2
<PAGE>
of them, in each case other than in a fiduciary capacity or as a result of
debts previously contracted and shares held by shareholders who have
protected dissenters' rights of appraisal under the applicable provisions of
the Corporation Code (the "DISSENTERS' PROVISIONS"), shall cease to be
outstanding and shall be converted into and exchanged for 1.01 share(s) of
FSLB Stock
2.2 OPTIONS. Properly authorized and issued options to acquire shares of
FSLB Stock shall remain issued and outstanding, unaffected by the Merger, and
shall remain subject to the agreements and plans under which they were issued.
2.3 SHARES HELD BY FSLB OR MAIN STREET. Each of the shares of Main Street
Common Stock held by Main Street or FSLB, or any wholly-owned subsidiary of
either of them, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
2.4 FRACTIONAL SHARES Notwithstanding any other provision of this
Agreement, each holder of shares of Main Street Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of a
share of FSLB Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of FSLB Common Stock multiplied
by the market value of one share of FSLB Common Stock at the Effective Time. The
market value of one share of FSLB Common Stock at the Effective Time shall be
the average of the last sale prices of such common stock on Nasdaq (as reported
by any other authoritative source reasonably selected by FSLB and reasonably
acceptable to Main Street) on the ten trading days immediately preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares that would
otherwise be issued pursuant to the Merger.
2.5 SURRENDER OF STOCK CERTIFICATE.
2.5.1 LETTER OF TRANSMITTAL. As soon as practicable after the Effective
Date, a letter of transmittal shall be mailed by FSLB, as Exchange Agent (or
some other Exchange Agent reasonably acceptable to FSLB and Main Street (in
either event, the "EXCHANGE AGENT"), to each shareholder of Main Street 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 Main Street 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 for stock certificates which have been destroyed, stolen or
lost may be obtained according to the usual procedures of Main Street, as
applicable, in order to permit the surrender of such replacement
certificates.
2.5.2 RIGHTS OF FORMER SHAREHOLDERS. As of the Effective Date, each
certificate theretofore representing one or more outstanding shares of Main
Street 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.
2.5.3 FAILURE TO SURRENDER STOCK CERTIFICATES. Until a former Main
Street 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 Main Street 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 Main Street 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 Main
Street 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
A-3
<PAGE>
such Main Street Stock certificate. Nothing contained herein shall affect
the rights of holders of Main Street to dividends and distributions with
respect to shares of Main Street Stock prior to the Effective Time.
2.6 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 Main Street 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 be determined in light of the facts and
circumstances of the matter in question in the context of the size, historical
performance and market location of the Party or any of its subsidiary banks.
3.2 MATERIAL ADVERSE EFFECT OR CHANGE. "Material adverse" effect or change
shall mean any event, change or occurrence, which individually or together with
any other event, change or occurrence, has a material adverse impact on (i) the
financial position, business, or results of operations of the Party and its
subsidiaries, taken as a whole, or (ii) the ability of Party or its shareholders
to perform their respective obligations under this Agreement or to consummate
the Merger or the other transactions contemplated by this Agreement, provided
that a material adverse effect or change shall not be deemed to include the
impact of (a) changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, (c) actions and
omissions of either FSLB or Main Street (or any of their respective
subsidiaries) or the shareholders taken with the prior informed written consent
of the other Party in contemplation of the transactions contemplated hereby, and
(d) the direct effects of compliance with this Agreement on the operating
performance of either FSLB or Main Street, including expenses incurred by them
in consummating the transactions contemplated by this Agreement. With the
exception of the foregoing exclusions, and without limiting the generality of
the foregoing the following shall constitute material adverse effects or changes
for the purposes of this Agreement:
3.2.1 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, $200,000 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, $200,000 in the aggregate; or
3.2.2 SUPERVISORY ACTION. Any cease and desist order, 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 the entering into of any memorandum of understanding,
supervisory agreement between or among the Party or any of its subsidiary
banks by the FDIC, Georgia Department or Federal Reserve; or
3.2.3 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
$200,000, 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.
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3.3 ACCESS, INFORMATION AND DOCUMENTS.
3.3.1 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.
3.3.2 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.
3.4 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. Main Street 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 "MAIN
STREET 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, following consultation with its legal
advisers) 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, following consultation with its legal advisers).
3.5 CONFIDENTIAL INFORMATION. In addition to the Parties' respective
obligations under the Confidentiality Agreement, which is hereby reaffirmed and
re-adopted, and incorporated by reference herein, each Party shall, and shall
cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its and
its subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If 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 such
confidential information received from the other, as
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well as all copies and work papers containing such confidential information, or
shall certify the destruction thereof.
3.6 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.
3.7 APPLICATIONS. FSLB shall promptly prepare and file, and Main Street
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.
3.8 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.
3.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Whenever any financial
report, determination, adjustment, warranty, representation or covenant relates
to any financial matter hereunder, it shall, 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 4.7 and 5.7.
3.10 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, 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.
3.11 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.
3.12 KNOWLEDGE As used in this Agreement, references "to the knowledge of"
or "known by" a Party shall mean the Board of Directors, Chairman, President and
any officer of the Party (or any person holding such position in any of its
subsidiaries that are banks) having a title of Senior Vice President or above.
4. REPRESENTATIONS AND WARRANTIES OF FSLB
As an inducement to Main Street to enter into this Agreement, FSLB hereby
represents and warrants to Main Street as follows:
4.1 FSLB SCHEDULE. Prior to the date hereof, FSLB has delivered to Main
Street 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
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Agreement to constitute part of the representations and warranties contained in
this Section. The information contained in the FSLB Schedule shall be deemed to
be part of and qualify all representations and warranties contained in this
Section; provided, however, that in order to be part of or modify a
representation or warranty, the FSLB Schedule must reference the particular
warranty or representation by Section. FSLB shall promptly provide Main Street
with written notification of any event, occurrence or other information that
would be required to be included on the FSLB Schedule were the FSLB Schedule to
be prepared as of the date of such event, occurrence or information.
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. Each of Eastside, Westside and Community are
banking corporations organized under the laws of the State of Georgia, with all
requisite power and authority, and with all licenses, permits and authorizations
necessary to own its properties, to engage in the business of banking within the
State of Georgia and to 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 4,882,349 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, Eastside, Westside or Community of any shares of its common stock or
securities convertible into such stock.
4.3.2 FSLB owns all of the outstanding stock of Eastside, Westside and
Community. Except as set forth in the FSLB Schedule, FSLB has no other
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.
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, 1998, 1997 and 1996, 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, 1999 and the
related unaudited statement of income for the periods then ended and the notes
thereto (the audited financial statements at December 31, 1998, 1997 and 1996
and for the years
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then ended and the notes thereto being referred to as the "ANNUAL FSLB
FINANCIALS," and the unaudited financial statements at September 30, 1999 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 except to the extent
such matters are adequately 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 The loss reserves established by FSLB on the Annual and Interim
FSLB Financials were, as of the dates thereof 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, 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 that would constitute a material adverse effect with
respect to FSLB except (i) those reflected, accrued or reserved against on the
Annual and Interim FSLB Financials, (ii) liabilities incurred in the ordinary
course of business since December 31, 1998, and (iii) as set forth in the FSLB
Schedule.
4.10 INVESTMENTS. Except for pledges to secure public and trust deposits or
as set forth in the FSLB Schedule, 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
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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 FSLB) 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 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 "Environmental Laws" as defined below. FSLB and its
subsidiaries have not been notified nor are otherwise aware that they are
liable, potentially liable, or are considered potentially liable, under or
are in violation or potential violation of any Environmental Law. There are
no actions, suits, regulatory investigations, requests for information or
other proceedings pending or, to the knowledge of FSLB, threatened against
FSLB or any of its subsidiaries relating to any Environmental Laws, nor does
FSLB have any reason to believe any such actions, suits, investigations,
requests or 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 Materials" as defined below 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.
All above-ground and underground storage tanks located on any of the
facilities or properties of FSLB or any of its subsidiaries have been identified
in The FSLB Schedule, together with a description of the materials stored
therein and a statement as to whether such tanks and separators are currently
used by FSLB or any of its subsidiaries. To the best knowledge of FSLB, none of
such tanks and
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separators, and no above-ground and underground storage tanks located on any
properties held as collateral for any loans held by FSLB or any of its
subsidiaries, is leaking or has leaked. Except as identified on the FSLB
Schedule, none of the facilities or properties of FSLB or any of its
subsidiaries contain any asbestos-containing materials, and to the best
knowledge of FSLB, none of such materials, and no asbestos-containing materials
at any properties held as collateral for any loans held by FSLB or any of its
subsidiaries, require removal, remediation, or encapsulation. To the best of
FSLB's knowledge, except as identified on the FSLB Schedule, no environmental
audit or other investigation has been conducted at the facilities or properties
of FSLB or any of its subsidiaries, and any such audit or other investigation
report has been provided to Main Street.
For purposes of this Agreement, the terms "ENVIRONMENTAL LAW" or
"ENVIRONMENTAL LAWS" shall mean any and all statutes, codes, laws (including,
without limitation, common law), ordinances, agency rules, regulations, and
guidance, and reporting or licensing requirements relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata), including, without
limitation (i) the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. SectionSection9601 ET SEQ. ("CERCLA"); (ii) the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. SectionSection6901 ET SEQ., ("RCRA"); (iii) the Emergency Planning and
Community Right to Know Act (42 U.S.C. SectionSection11001 ET SEQ.); (iv) the
Clean Air Act (42 U.S.C. SectionSection 7401 ET SEQ.); (v) the Clean Water Act
(33 U.S.C. I 1251 ET SEQ.); (vi) any state, county, municipal or local statutes,
laws or ordinances similar or analogous to the federal statutes listed in parts
(i)--(v) of this subparagraph, (vii) any amendments to the statutes, laws or
ordinances listed in parts (i)--(vi) of this subparagraph, (viii) any rules,
regulations, guidelines, directives, orders or the like adopted pursuant to or
implementing the statutes, laws, ordinances and amendments listed in parts
(i)--(vii) of this subparagraph; and (ix) any other law, statute, ordinance,
amendment, rule, regulation, guideline, directive, order or the like relating to
environmental protection or to employee health and safety.
For purposes of this Agreement, the terms "HAZARDOUS MATERIAL" or "HAZARDOUS
MATERIALS" shall mean any and all chemicals, substances, wastes, materials,
pollutants, contaminants, equipment or fixtures defined as or deemed hazardous
or toxic or otherwise regulated under any Environmental Law, including, without
limitation, RCRA hazardous wastes, CERCLA hazardous substances, pesticides and
other agricultural chemicals, oil and petroleum products or byproducts and any
constituents thereof, asbestos-containing materials, and polychlorinated
biphenyls ("PCBS").
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. Except with respect to a fee to be paid Brown Burke Capital
Partners, Inc., 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. Except as set forth on the FSLB Schedule, 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
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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 written 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 under any written or oral agreement or understanding.
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 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, any current insurance contract relating to such FSLB
Plan and such other documents and information as Main Street may reasonably
request. 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.
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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, the Code and the plan itself. 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.
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.
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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.
4.21.16: There are no restrictions on the right of FSLB to terminate
any FSLB Plan without incurring any liability to a participant or
beneficiary of such plan or any other party, other than the liability to
satisfy claims for benefits incurred or accrued prior to such termination.
4.21.17: No representative or employee of FSLB has made any
representation to any individual regarding his or her eligibility for an
FSLB Plan, or the benefits provided under an FSLB Plan, that is not
consistent with the terms of such Plan.
4.22 ARTICLES AND BYLAWS. FSLB has previously delivered to Main Street 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,
1999:
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;
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;
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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 $50,000 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 MAIN STREET
As an inducement to FSLB to enter into this Agreement, Main Street hereby
represents and warrants to FSLB as follows:
5.1 MAIN STREET SCHEDULE. Prior to the date hereof, Main Street has
delivered to FSLB a schedule (the "MAIN STREET SCHEDULE") containing certain
information regarding Main Street as indicated at various places in this
Agreement. All information set forth in the Main Street Schedule or in documents
incorporated by reference in the Main Street 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 of Main
Street. The information contained in the Main Street Schedule shall be deemed to
be part of
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and qualify all representations and warranties contained in this Section,
provided, however, that in order to be part of or modify a representation or
warranty, the Main Street Schedule must reference the particular warranty or
representation by Section. Main Street shall promptly provide FSLB with written
notification of any event, occurrence or other information that would be
required to be included on the Main Street Schedule were the FSLB Schedule to be
prepared as of the date of such event, occurrence or information.
5.2 CORPORATE ORGANIZATION. Main Street 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. Main Street Bank is a banking corporation
organized under the laws of the State of Georgia, with all requisite power and
authority, and with all licenses, permits and authorizations necessary to own
its properties, to engage in the business of banking within the State of Georgia
and to conduct its business as presently conducted.
5.3 AUTHORIZED CAPITAL STOCK; SUBSIDIARIES.
5.3.1 The authorized capital stock of Main Street consists of
30,000,000 shares of common stock, $1.00 par value (previously defined as
Main Street Stock), of which 8,829,000 shares are issued and outstanding.
All of the outstanding shares of Main Street 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 Main Street.
Except as set forth on the Main Street Schedule, there are no
outstanding options, agreements, contracts, calls or commitments of any
character that would require the issuance by Main Street or Main Street Bank
of any shares of its common stock or securities convertible into such stock.
5.3.2 Main Street owns all of the capital stock of Main Street Bank.
Except as set forth in the Main Street Schedule, Main Street 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. Main Street 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 Main Street or other persons designated by the Board of Directors
of Main Street have been duly authorized, approved and ratified by the Board of
Directors of Main Street 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 Main Street.
5.6 NON-CONTRAVENTION. The execution and delivery of this Agreement by Main
Street 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
Main Street at December 31, 1998, 1997 and 1996, 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, 1999
and the related unaudited statement of income for the periods then ended and the
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notes thereto (the audited financial statements at December 31, 1998. 1997 and
1996 and for the years then ended and the notes thereto being referred to as the
"ANNUAL MAIN STREET FINANCIALS," and the unaudited financial statements at
September 30, 1999 and for the periods then ended and the notes thereto being
referred to as the "INTERIM MAIN STREET FINANCIALS") fairly present assets,
liabilities, financial condition and results of operations of Main Street 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.
5.8.1 Except as set forth in the Main Street Schedule or except to the
extent such matters are adequately provided for in the loss reserve
described in subsection 5.8.2 below, all notes receivable or other
obligations owned by Main Street or Main Street Bank or due to them shown in
the Annual and Interim Main Street 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 Main Street 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 Main Street or Main Street Bank 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 Main Street or
Main Street Bank.
5.8.2 The loss reserves established by Main Street on the Annual and
Interim Main Street Financials were, as of the dates thereof, 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 Main Street or Main Street Bank 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. Main Street and Main Street Bank have no debt, liability
or obligation of any kind whether or not required to be shown pursuant to GAAP
on the balance sheet of Main Street that would constitute a material adverse
effect with respect to Main Street except (i) those reflected on the Annual and
Interim Main Street Financials, (ii) liabilities incurred in the ordinary course
of business since December 31, 1998, and (iii) as set forth in the Main Street
Schedule.
5.10 INVESTMENTS. Except for pledges to secure public and trust deposits or
as set forth in the Main Street Schedule, none of the investments reflected in
the Annual Main Street Financials and none of the investments made since the
date of the Annual Main Street 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 Main Street books and records accurately reflect the nature, terms and
characteristics of such investments. No such investments are derivative
investments except as described on the Main Street Schedule.
5.11 TAXES. Main Street and Main Street Bank 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. Main Street 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.
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To the knowledge of Main Street, there are no tax examinations or proceedings
pending or threatened for any period and Main Street 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
Main Street or Main Street Bank, except for liens for state and local property
taxes which are not yet due. Except as disclosed on the Main Street Schedule,
the federal income tax returns of Main Street have not been examined by the
Internal Revenue Service for any period, and Main Street 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 Main Street Schedule, there are
no causes of action pending or (to the knowledge of Main Street) threatened
against Main Street or Main Street Bank or regulatory orders, memoranda of
understanding or similar documents involving Main Street or Main Street Bank.
Except as set forth in the Main Street Schedule, there are no causes of action
pending against Main Street or Main Street Bank with respect to the transactions
contemplated by this Agreement, and there are no actions, suits, claims, demands
or proceedings pending or threatened against Main Street or Main Street Bank
which, if adversely decided, could have a material adverse effect on the
business, prospects, financial condition or results of operations of Main Street
or Main Street Bank.
5.13 REGULATORY FILINGS. Since January 1, 1994, Main Street and Main Street
Bank 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 Main Street
Schedule, to the best knowledge of Main Street with respect to the conduct of
its business, Main Street and Main Street Bank 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. Main Street is not aware of the
existence of any facts which would support the assessment of civil money
penalties against Main Street or Main Street Bank, their directors, officers or
employees.
5.15 PROPERTIES; ENVIRONMENTAL.
5.15.1 Main Street and Main Street Bank own good title to or hold a
valid leasehold estate in all of their properties and assets reflected in
the Annual Main Street 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 Main Street or Main Street
Bank or the marketability of their properties.
5.15.2 To the best knowledge of Main Street, Main Street and Main
Street Bank are in compliance with all Environmental Laws. Main Street and
Main Street Bank have not been notified nor are otherwise aware that they
are liable, potentially liable, or are considered potentially liable, under
any Environmental Laws. There are no actions, suits, regulatory
investigations, requests for information or other proceedings pending or, to
the knowledge of Main Street, threatened against Main Street or Main Street
Bank relating to environmental protection, nor does Main Street have any
reason to believe any such actions, suits, investigations, requests or
proceedings may be brought against it or Main Street Bank. To the best
knowledge of Main Street, no disposal, release, storage or discharge of any
Hazardous Materials has occurred on, in, at or about any of the facilities
or properties of Main Street or Main Street Bank, or on any properties held
as collateral for any loans held by Main Street Bank.
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All above-ground and underground storage tanks located on any of the
facilities or properties of Main Street or any of its subsidiaries have been
identified in the Main Street Schedule, together with a description of the
materials stored therein and a statement as to whether such tanks and separators
are currently used by Main Street or any of its subsidiaries. To the best
knowledge of Main Street, none of such tanks and separators, and no above-ground
and underground storage tanks located on any properties held as collateral for
any loans held by Main Street or any of its subsidiaries, is leaking or has
leaked. Except as identified on the Main Street Schedule, none of the facilities
or properties of Main Street or any of its subsidiaries contain any
asbestos-containing materials, and to the best knowledge of Main Street, none of
such materials, and no asbestos-containing materials at any properties held as
collateral for any loans held by Main Street or any of its subsidiaries, require
removal, remediation, or encapsulation. To the best of Main Street's knowledge,
except as identified on the Main Street Schedule, no environmental audit or
other investigation has been conducted at the facilities or properties of Main
Street or any of its subsidiaries, and any such audit or other investigation
report has been provided to Main Street.
5.16 INSURANCE.
5.16.1 Main Street and Main Street Bank 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 Main
Street or Main Street Bank; nor has Main Street or Main Street Bank failed
to give any notice or present any claim thereunder in a due and timely
fashion.
5.16.2 The Main Street Schedule describes each of Main Street's and
Main Street Bank's insurance policies, including carrier, amount of coverage
and annual premium.
5.17 BROKER. Except with respect to a fee to be paid to The Carson Medlin
Company, Main Street 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.
5.18 TRADEMARKS. Except as set forth on the Main Street Schedule, Main
Street or Main Street Bank 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. Main Street and Main Street Bank 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 Main
Street's knowledge. No proceedings have been instituted, or (to the knowledge of
Main Street) threatened, nor has any claim been made, against Main Street or
Main Street Bank alleging any such infringement or violation.
5.19 SOLE AGREEMENT TO MERGE OR SELL. Main Street 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 Main Street Schedule,
(a) Main Street and Main Street Bank 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) Main Street or Main Street Bank are not parties to any
written agreement or understanding with any officer or director of Main Street,
its affiliates or the immediate family members of any such officers and
directors (collectively, the "Main Street Insiders") which calls for the payment
of money by Main Street or Main Street Bank and (c) the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any act or event, or
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with the lapse of time or both) result in any payment (severance or other)
becoming due from Main Street or Main Street Bank or the successor thereof to
any Main Street Insider under any written or oral agreement or understanding.
5.21 EMPLOYEE BENEFIT PLANS. As of the date hereof as well as the Effective
Date:
5.21.1 The Main Street Schedule contains a true and complete list of
all the following types of agreements or plans established, maintained or
contributed to by Main Street and Main Street Bank and each other employer,
which together with Main Street are treated as a single employer within the
meaning of Section 414 of the Code (hereinafter collectively referred to as
the "MAIN STREET 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 Main Street Group maintains or to which any
member of the Main Street 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 Main Street Group are herein collectively referred to
as the "MAIN STREET PLANS").
For each Main Street Plan, Main Street will deliver to FSLB true and
complete copies of all documents as they may have been amended to the date
hereof which establish the Main Street 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 Main Street Plan and such other documents and
information as FSLB may reasonably request. No member of the Main Street 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 Main Street Group itself.
5.21.2 Each of the Main Street Plans maintained, or previously
maintained, by any member of the Main Street Group has at all times been
operated in material compliance with ERISA, the Code and the terms of the
Plan itself. Each Main Street 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
"MAIN STREET 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 Main
Street Schedule, no such Main Street Qualified Plan has been amended since
the issuance of the most recent favorable determination letter. The Main
Street 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 Main Street 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.
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5.21.4 Except as set forth in the Main Street Schedule, no member of
the Main Street Group currently maintains an "employee pension benefit plan"
as defined in ERISA Section 3(2). No assets of the Main Street Group are,
and Main Street 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
Main Street Group have been provided as security to any Main Street Plan
pursuant to Code Section 401(a)(29).
5.21.5 No termination or partial termination of any Main Street
Qualified Plan has occurred nor has a notice of intent to terminate any Main
Street Qualified Plan been issued by a member of the Main Street Group.
5.21.6 No member of the Main Street 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 Main Street Group and
their respective officers and employees, with respect to the Main Street
Plans, have complied in all material respects with the requirements of ERISA
Section 404.
5.21.7 To the best knowledge of Main Street, each member of the Main
Street 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 Main Street Plans or any fiduciary of any of the Main Street Plans or
against the assets of any of the Main Street Plans.
5.21.9 Except as provided in the Main Street Schedule, each member of
the Main Street 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 Main Street Plan to be paid by the Main Street Group.
5.21.10 No member of the Main Street Group has an obligation to any
retired or former employee, or any current employee upon retirement, under
any Main Street Plan, and any Main Street Plan can be terminated without
resulting in any liability to Main Street for any additional penalties,
premiums, fees, or any other charges.
5.21.11 Except as provided in the Main Street Schedule, no member of the
Main Street Group has any outstanding, present or future obligation to make
payments to an insurer for premiums, reserves or other liability relating to
a Main Street Plan under any arrangement with an insurer.
5.21.12 No member of the Main Street 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 Main Street 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 Main Street 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 Main Street Group
shall amend any Main Street 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 Main Street Plan,
or adopt any new plan, program, policy, or arrangement which, if it existed
as of the Effective Date, would constitute a Main Street Plan.
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5.21.15 The consummation of the transactions contemplated hereby will
not accelerate or increase any liability under any Main Street Plan because
of an acceleration or increase of any of the rights or benefits to which
employees may be entitled thereunder.
5.21.16 There are no restrictions on the right of Main Street to
terminate any Main Street Plan without incurring any liability to a
participant or beneficiary of such plan or any other party, other than the
liability to satisfy claims for benefits incurred or accrued prior to such
termination.
5.21.17 No representative or employee of Main Street has made any
representation to any individual regarding his or her eligibility for a Main
Street Plan, or the benefits provided under a Main Street Plan, that is not
consistent with the terms of such Plan.
5.22 ARTICLES AND BYLAWS. Main Street has previously delivered to FSLB true
and correct copies of the Articles of Incorporation and Bylaws of Main Street
and Main Street Bank.
5.23 BOOKS AND RECORDS. The books of account and other financial records of
Main Street and Main Street Bank are, in all material respects, complete and
correct, maintained in accordance with good business practice, and are fairly
reflected in the Annual and Interim Main Street Financials. The minute books of
Main Street and Main Street Bank accurately reflect all material corporate
action of the shareholders and the Board of Directors (including any Executive
Committee thereof) of Main Street and Main Street Bank.
5.24 ABSENCE OF CHANGES. Except as specifically provided for in this
Agreement or specifically set forth in the Main Street Schedule, since
September 30, 1999:
5.24.1 There has been no change in the business, assets, liabilities,
results of operations or financial condition of Main Street and Main Street
Bank, 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 Main Street
and Main Street Bank 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 Main Street and Main Street Bank, whether or not
covered by insurance, which has had or which management of Main Street and
Main Street Bank believe may have a material adverse effect thereon;
5.24.3 The businesses of Main Street and Main Street Bank have been
operated in the ordinary course and not otherwise;
5.24.4 The properties and assets of Main Street and Main Street Bank
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 Main Street and Main Street
Bank 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 Main
Street;
5.24.7 Except as set forth in the Main Street Schedule, there has been
no increase in the compensation or in the rate of compensation or
commissions payable or to become payable by Main Street and Main Street Bank
to any director or executive officer, or any employee earning $50,000 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;
5.24.8 There has been no change in the Articles of Incorporation or
Bylaws of Main Street and Main Street Bank;
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5.24.9 There has been no labor dispute, unfair labor practice charge or
employment discrimination charge, nor, to the knowledge of management of
Main Street, any organizational effort by any union, or institution or (to
the knowledge of Main Street) threatened institution, of any organizational
effort, complaint or other proceeding in connection therewith, involving
Main Street or Main Street Bank or affecting their operations;
5.24.10 Except as set forth in the Main Street Schedule, there has been
no issuance, sale, repurchase, acquisition, or redemption by Main Street 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 Main Street or Main Street
Bank 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 Main Street
or Main Street Bank whether or not it would be required to be reflected on a
balance sheet of Main Street or Main Street Bank 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 Main Street or Main Street Bank
has been discharged or satisfied, other than in the ordinary course of
business;
5.24.14 Except as set forth in the Main Street Schedule, there has been
no sale, transfer or other disposition of any asset or assets of Main Street
or Main Street Bank, 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 Main Street or Main Street Bank 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 Main Street, 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 Main Street to attend (i) all
meetings of the Board of Directors of FSLB and its subsidiaries and
(ii) 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;
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(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 $200,000 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 Main Street, FSLB will not (a) issue or agree to issue any shares of
capital stock or any rights or options with respect thereto, or issue or agree
to issue any shares of capital stock with respect to any of its subsidiaries or
rights or options with respect thereto, except as set forth in the FSLB Schedule
(which Schedule shall only permit the issuance of shares pursuant to the
exercise of properly issued options outstanding on the date hereof, and shall
set forth the number of shares subject to such options, the holder and the
exercise price thereof); (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; (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 Main Street for the purpose of considering the approval of
the Merger and adoption of this Agreement. FSLB shall deliver to Main Street
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
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FSLB or any of its subsidiaries, 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 FSLB and its
shareholders, not misleading.
6.5 NOTICE OF BREACH. FSLB shall promptly give written notice to Main Street
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 Main Street
relating to any recapitalization, merger, consolidation, acquisition or purchase
of all or substantially all of the assets of, or any equity interest in, FSLB or
any of its subsidiaries 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, 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 FSLB (as determined in good faith
after consultation with counsel to FSLB) FSLB shall promptly notify Main Street
of any unsolicited proposal or offer FSLB receives with respect to the
foregoing.
6.7 REPORTS. FSLB shall file, and shall promptly provide Main Street with a
copy of, all of the reports required to be filed by it or any of its
subsidiaries with any regulatory agencies (including without limitation, the
SEC, the FDIC, the Georgia Department and the Federal Reserve) for periods
ending on and after December 31, 1998, and shall, to the extent permitted by
law, promptly provide to Main Street 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 Main Street, each as in effect as of the date
hereof, each director, officer, and employee of Main Street 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 Main Street'
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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6.9 AFFILIATES. At least thirty (30) days prior to the Effective Date of the
Merger, FSLB shall deliver to Main Street a letter identifying all persons who
are, at the time this Agreement is submitted for approval to the shareholders of
FSLB, "affiliates" of FSLB for purposes of Rule 145 under the Securities Act of
1933. FSLB shall use all reasonable efforts to cause each person who is
identified as an "Affiliate" in the letter referred to above to deliver to Main
Street 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 FSLB 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 such FSLB Stock except in compliance
with applicable provisions of the Securities Act of 1933, and the rules and
regulations thereunder. If the Merger will qualify for pooling-of-interests
accounting treatment, the FSLB Stock held by such person shall not be
transferable until such time as the financial results covering at least thirty
(30) days of combined operations of FSLB and Main Street have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies.
6.10 EMPLOYEE BENEFITS. For purposes of calculating an employee's accrual of
sick time, vacation time, eligibility for and vesting under any FSLB Benefit
Plan, but not for purposes of calculating benefit accrual under any FSLB Benefit
Plan that is also a defined benefit plan within the meaning of Section 3(35) of
ERISA, each employee of Main Street shall be credited with his period of
employment with Main Street or any predecessor of Main Street. The amount of
such accruals, however, shall be based on the terms of such FSLB Benefit Plan or
other benefit program, without regard to the accrual schedules under any
corresponding Main Street Benefit Plan.
Immediately after the Effective Date and for at least one year thereafter,
FSLB shall allow Main Street employees who continue in employment on and after
the Effective Date to participate in employee benefit plans and policies that
are at least as favorable as those provided to employees of FSLB in comparable
positions.
FSLB shall waive, under its medical plan, any pre-existing condition
exclusion for any Main Street employee who continues in employment after the
Effective Date and becomes covered under such medical plan, to the extent that
such pre-existing condition would have been covered under the comparable Main
Street Benefit Plan and the individual with the pre-existing condition was
covered under such Plan.
7. COVENANTS OF MAIN STREET
Except with the prior written approval of FSLB, Main Street 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 Main Street and Main Street Bank:
(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 (i) all meetings of
the Board of Directors of Main Street and Main Street Bank and (ii) 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;
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(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 Main Street Schedule;
(f) Will make no changes to any of the Main Street 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 Main Street Insider;
(h) Will not make any commitments or enter into any contracts which,
individually or in the aggregate, call for the payment of $200,000 or more
by Main Street or Main Street Bank, (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 Main Street's or "Main
Street Bank'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 Main
Street 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, Main Street will not (a) issue or agree to issue any shares of
capital stock or any rights or options with respect thereto, or issue or agree
to issue any shares of capital stock with respect to any of its subsidiaries or
rights or options with respect thereto, except as set forth in the Main Street
Schedule (which Schedule shall only permit the issuance of shares pursuant to
the exercise of properly issued options outstanding on the date hereof, and
shall set forth the number of shares subject to such options, the holder and the
exercise price thereof); (b) declare, set aside or pay any dividends or make any
other distributions with respect to its capital stock, except that Main Street
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 Main Street 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.
7.3 APPROVAL OF MAIN STREET SHAREHOLDERS. Main Street shall cause a meeting
of its shareholders (the "MAIN STREET 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. Main Street shall deliver
to FSLB promptly at the conclusion of the Main Street 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.
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7.4 PROXY MATERIALS. To the best knowledge of Main Street, neither the proxy
materials nor any other materials (or amendments thereof or supplements thereto)
to be furnished by Main Street to its shareholders in connection with the
transactions contemplated by this Agreement will, at the times such documents
are distributed to Main Street shareholders through the Effective Date, contain
with respect to Main Street or Main Street Bank 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
Main Street and Main Street Bank, not misleading.
7.5 NOTICE OF BREACH. Main Street 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 it in this Agreement and shall use its respective best efforts
to prevent or promptly remedy the same.
7.6 SOLE AGREEMENT TO MERGE OR SELL. During the term of this Agreement, Main
Street 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, Main
Street or Main Street Bank if the effect of such proposed transaction would be
to impair or delay the ability of Main Street to consummate the transactions
contemplated by this Agreement. Main Street shall immediately cease and cause to
be terminated all such contacts or negotiations with third parties, if any. Main
Street 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 Main Street (as determined
in good faith after consultation with counsel to Main Street). Main Street shall
promptly notify FSLB of any unsolicited proposal or offer Main Street receives
with respect to the foregoing.
7.7 REPORTS. Main Street shall file, and shall promptly provide FSLB with a
copy of, all of the reports required to be filed by it or Main Street Bank with
regulatory agencies for periods ending on and after December 31, 1998, 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, Main Street shall deliver to FSLB a letter identifying all persons who
are, at the time this Agreement is submitted for approval to the shareholders of
Main Street, "affiliates" of Main Street for purposes of Rule 145 under the
Securities Act of 1933. Main Street 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 Main Street 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
with applicable provisions of the Securities Act of 1933, and the rules and
regulations thereunder. If the Merger will qualify for pooling-of-interests
accounting treatment, the FSLB Stock issued to such Affiliates of Main Street in
exchange for the Main Street Stock shall not be transferable until such time as
the financial results covering at least thirty (30) days of combined operations
of FSLB and Main Street 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 Main Street Stock by such persons.
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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 Main Street contained in Section 5, shall be true and correct 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. Main Street shall have performed and complied in
all material respects 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 Main Street from that presented in the
Interim Main Street Financials.
8.3 CLOSING CERTIFICATE AND OTHER DOCUMENTS. FSLB shall have received a
certificate signed by the President and Chief Financial Officer of Main Street,
dated the Effective Date, to the effect that the requirements of Sections 8.1
and 8.2 above have been satisfied and that the other conditions set forth in
this Section 8 have been complied with and satisfied as of the Effective Date.
8.4. LEGAL OPINION FSLB shall have received a favorable legal opinion from
counsel to Main Street that is 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 Brown Burke Capital
Partners, Inc. or such other firm as shall be acceptable to 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 Main Street Stock is fair to the FSLB shareholders
from a financial point of view.
9. CONDITIONS TO OBLIGATIONS OF MAIN STREET
The obligations of Main Street hereunder are, at the option of Main Street,
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 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 in all
material respects with all of its covenants made in Section 6.
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. Main Street shall have received
certificates signed by the respective President and Chief Financial Officer of
FSLB, dated the Effective Date, to the effect that requirements of Sections 8.1
and 8.2 above have been satisfied and that the other conditions set forth in
this Section 9 have been complied with and satisfied as of the Effective Date.
9.4 LEGAL OPINION. Main Street shall have received a favorable legal opinion
from counsel to FSLB in form and substance satisfactory to FSLB'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 FAIRNESS OPINION. Main Street shall have received from The Carson Medlin
Company, or such other firm as may be selected by it, a letter, dated not more
than five (5) business days prior to
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the date of the Main Street Proxy Statement, reconfirming the fairness opinion
received by Main Street 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
Main Street 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 Main Street 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
Main Street 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
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 ("Exchange Act") relating to the
issuance or trading of the shares of FSLB Stock issuable pursuant to the Merger
shall have been received. Further, FSLB shall have received approval from Nasdaq
to list all additional shares to be issued to Main Street's Shareholders
pursuant to this Agreement.
10.4 DISSENTING SHARES. The aggregate number of shares of Main Street Stock,
dissenting to the Merger shall not exceed an amount which would cause the
transaction not to be accounted for as a pooling-of-interests.
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 Ernst & Young, LLP and Mauldin & Jenkins to the effect that the
Merger will qualify for pooling-of-interests accounting treatment.
10.6 TAX MATTERS. Main Street and FSLB shall have received a written opinion
of counsel for FSLB in form reasonably satisfactory to Main Street 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 Main Street Stock for FSLB Stock
will not give rise to gain or loss to the stockholders of Main Street with
respect to such exchange (except to the extent of any cash received), and
(iii) neither Main Street 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 Main Street and FSLB reasonably satisfactory in form and substance
to such counsel.
11. ACQUISITION OF DISSENTERS' STOCK
11.1 DISSENTING SHAREHOLDERS. Any shareholder of Main Street who fully
complies with the applicable Dissenters' Provisions shall be entitled to dissent
from the Merger (a "DISSENTING SHAREHOLDER") and seek appraisal remedies under
the Dissenters' Provisions, provided that such shareholder has not voted, either
in person or by proxy, in favor of such Merger.
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11.2 NOTICE OF DISSENT. Main Street 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 Main Street but only after the value shall have been agreed upon or finally
determined pursuant to the applicable Dissenters' Provisions. Immediately upon
the purchase by Main Street of any shares of Main Street Stock from the
Dissenting Shareholder pursuant to the Dissenters' Provisions, FSLB shall
purchase such shares from Main Street for the same price as shall have been paid
by Main Street to the Dissenting Shareholder. The shares of Main Street Stock so
purchased by FSLB shall be cancelled.
12. CLOSING
12.1 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 Main Street 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 at such
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.
12.2 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Closing except this Section 12.2, Sections 1 and
2, and Section 6.8.
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 June 30, 2000, 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 (i) breaches its representations,
warranties or covenants hereunder in any material respect and such breach
remains uncured for a period of thirty days after notice of such breach is
given to such Party, (ii) an event or circumstance arises which, in the
reasonable opinion of the Board of Directors of the Party, the other Party
will be unable to satisfy the conditions set forth in Sections 8 or 9, as
appropriate, or (iii) if, at the Closing, 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 be responsible for the
costs, expenses and fees which have been incurred by such Party in attempting to
accomplish the transactions contemplated herein, including the expenses
associated with its fairness opinion and any attorneys and consultants
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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 this
Section 13, and except that nothing herein will relieve any Party from liability
for any willful breach of this Agreement or any warranty, representation or
covenant contained herein.
14. MISCELLANEOUS
14.1 AMENDMENT. At any time before or after approval and adoption hereof by
the shareholders of Main Street 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 Main Street 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.
14.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements with respect hereto, and no representations or agreement not included
or incorporated 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, send by
courier, hand delivered or faxed, as follows:
If to Main Street:
Robert R. Fowler, III, President and CEO
Main Street Banks Incorporated
1121 Floyd Street
Covington, GA
Fax: 770-786-9789
with a copy to:
John L. Douglas
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Fax: 404-881-4777
If to FSLB:
Mr. Edward C. Milligan, President and CEO
First Sterling Banks, Inc.
1200 Barrett Parkway
Kennesaw, Georgia 30144 Fax: 770-422-9855
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with a copy to:
T. Kennerly Carroll, Jr., Esq.
Miller & Martin LLP
100 Galleria Parkway, N.W.
Suite 1200
Atlanta, Georgia 30339-3122
Fax: 404-962-6300
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.
[SIGNATURES ON FOLLOWING PAGE]
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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.
MAIN STREET BANKS, INCORPORATED
[SEAL]
<TABLE>
<S> <C>
By: /s/ ROBERT R. FOWLER III
------------------------------------------
Name and Title: Robert R. Fowler, III
President and CEO
Attest:
By: /s/ SAM B. HAY III
----------------------------------------
Name and Title: Sam B. Hay III, Secretary
FIRST STERLING BANKS, INC.
[SEAL]
By: /s/ EDWARD C. MILLIGAN
------------------------------------------
Name and Title: Edward C. Milligan
President and CEO
Attest:
By: /s/ BARBARA J. BOND
----------------------------------------
Name and Title: Barbara J. Bond, Secretary
</TABLE>
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<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF RESULTING CORPORATION
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<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
FIRST STERLING BANKS, INC.
1.
The name of the Corporation is: "First Sterling Banks, Inc."
2.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
3.
The object of the Corporation is pecuniary gain and profit, and the
Corporation is formed for the purpose of becoming and operating as a bank
holding company and engaging in such related and permissible activities in
connection therewith as the Board of Directors may from time to time specify by
resolution.
4.
The Corporation shall have authority to issue Fifty Million (50,000,000)
shares of common stock (the "Common Stock").
5.
The initial registered office of the Corporation shall be at 1200 Barrett
Parkway, Kennesaw, Georgia 30144. The initial registered agent of the
Corporation at such address shall be Edward C. Milligan.
6.
The mailing address of the initial principal office of the Corporation is
1200 Barrett Parkway, Kennesaw, Georgia 30144.
7.
(a) The Board of Directors shall be divided into three (3) classes,
Class I, Class II and Class III which shall be as nearly equal in number as
possible. Following the merger of Main Street Banks, Incorporated into the
Corporation, each director in Class I shall be elected to an initial term of one
(1) year, each director in Class II shall be elected to an initial term of two
(2) years, each director in Class III shall be elected to an initial term of
three (3) years, and each director shall serve until the election and
qualification of his or her successor or until his or her earlier resignation,
death or removal from office. Upon the expiration of the initial terms of office
for each Class of directors, the directors of each Class shall be elected for
terms of three (3) years, to serve until the election and qualification of their
successors or until their earlier resignation, death or removal from office. A
director shall be elected by a majority of the votes entitled to be cast in the
election at a meeting at which a quorum is present.
(b) Unless two-thirds (2/3rds) of the directors then in office shall approve
the proposed change, this Article 7 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3rds) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
8.
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(a) Except as provided in paragraph (b) of this Article 8, the Board of
Directors shall have the right to adopt, amend or repeal the bylaws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding paragraph (a) of this Article 8, any amendment of the
bylaws of the Corporation changing the number of directors shall require the
affirmative vote of two-thirds (2/3rds) of the issued and outstanding shares of
the Corporation entitled to vote in an election of directors, at any regular or
special meeting of the shareholders, and notice of the proposed change must be
contained in the notice of the meeting.
9.
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed without cause only by the affirmative vote of the holders of at
least two-thirds (2/3rds) of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
(b) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed with cause by the affirmative vote of the holders of at least a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors; and the Board of Directors may remove a
director for cause by the affirmative vote of a majority of all the directors
then in office.
(c) For purposes of this Article 9, a director of the Corporation may be
removed for cause if: (i) the director has been convicted of a felony; (ii) any
bank regulatory authority having jurisdiction over the Corporation requests or
demands the removal; (iii) he is adjudicated an incompetent by a court; (iv) at
least two-thirds (2/3rds) of the directors of the Corporation then in office,
excluding the director to be removed, determine that the director's conduct has
been inimical to the best interest of the Corporation; or (v) he was an employee
or duly elected officer of the Corporation or any of its subsidiaries and was
discharged or resigned at the request of the Board of Directors of the
Corporation or any of its subsidiaries for reasons relating to the performance
of his duties as an employee or officer of the Corporation or any of its
subsidiaries.
(d) Unless two-thirds (2/3rds) of the directors then in office shall approve
the proposed change, this Article 9 may be amended or rescinded only by the
affirmative vote of the holder of at least two-thirds (2/3rds) of the issued and
outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
10.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages, for breach of any duty as
a director, except for liability for:
(i) any appropriation, in violation of his or her duties, of any
business opportunity of the Corporation;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the Georgia
Business Corporation Code dealing with unlawful distributions of
corporate assets to shareholders; or
(iv) any transaction from which the director derived an improper
material tangible personal benefit.
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(b) Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
(c) Unless two-thirds (2/3rds) of the directors then in office shall approve
the proposed change, this Article 10 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3rds) of the issued
and outstanding shares of the Corporation entitled to vote thereon, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
11.
Any action required by law or by the Bylaws of the Corporation to be taken
at a meeting of the shareholders of the Corporation, and any action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
written consent, setting forth the action so taken, shall be signed by persons
entitled to vote at a meeting those shares having sufficient voting power to
cast not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
were present and voted. Notice of such action without a meeting by less than
unanimous written consent shall be given within ten (10) days after taking such
action to those shareholders of record on the date when the written consent is
first executed and whose shares were not represented on the written consent.
12.
(a) Except as set forth in subparagraph (b) of this Article, the affirmative
vote of the holders of at least two-thirds (2/3rds) of the issued and
outstanding shares of the Corporation entitled to vote thereon shall be required
to approve:
(i) any merger or share exchange of the Corporation with or into any
other corporation; or
(ii) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to any other
corporation, person or other entity.
(b) The provisions of this Article shall not apply to any merger, share
exchange or sale, lease, exchange or other disposition of all or substantially
all of the assets of the Corporation if more than two-thirds (2/3rds) of the
directors of the Corporation then in office have approved any such transaction.
(c) Unless two-thirds (2/3rds) of the directors then in office shall approve
the proposed change, this Article 12 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3rds) of the issued
and outstanding shares of the Corporation entitled to vote thereon at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
13.
(a) The Board of Directors, when evaluating any offer of another party
(i) to make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate any other corporation with the
Corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the assets of the Corporation, shall, in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (A) the short-term and long-term
social and economic effects on the employees, customers, shareholders and other
constituents of the Corporation and its subsidiaries, and on the communities
within which the Corporation and its subsidiaries operate (it being understood
that any subsidiary bank of the Corporation is charged with providing support to
and being involved in the communities it serves); and (B) the consideration
being offered by the other party in relation to the then-current value of the
Corporation
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in a freely negotiated transaction and in relation to the Board of Directors'
then-estimate of the future value of the Corporation as an independent entity.
(b) Unless two-thirds (2/3rds) of the directors then in office shall approve
the proposed change, this Article 13 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3rds) of the issued
and outstanding shares of the Corporation entitled to vote therein, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
14.
Should any provision of these Articles of Incorporation, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of these Articles of Incorporation shall
remain valid and fully enforceable.
15.
The name and address of the incorporator of the Corporation is:
Edward C. Milligan
1200 Barrett Parkway
Kennesaw, Georgia 30144
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Incorporation to be executed, this day of December, 1999.
---------------------------------------------------------------------------
Edward C. Milligan
President and Chief Executive Officer
MILLER & MARTIN LLP
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
404/962-6100
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<PAGE>
EXHIBIT B
TERMS OF EMPLOYMENT CONTRACTS
A-39
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
day of , 2000 by and among First Sterling Banks, Inc., a
Georgia corporation (hereinafter, the "Company"), and Robert R. Fowler III
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive currently serves as the Chairman of the Board of Directors,
President and Chief Executive Officer of Main Street Banks Incorporated ("Main
Street") and as Vice Chairman of the Board of Directors of Main Street Bank
("MSB"). The Company and Main Street have entered into that certain Merger
Agreement, dated as of December 1, 1999 (the "Merger Agreement"), pursuant to
which Main Street will merge with and into the Company (the "Merger"). The
Company desires to retain Executive as the Chairman of the Board of Directors of
the Company and Vice Chairman of the Board of Directors of MSB for two years
after the Merger and thereafter, though June 30, 2008, in the capacity of
Chairman Emeritus of the Company and Vice Chairman of the Board of Directors of
MSB, in accordance with the terms of this Agreement. Executive is willing to
serve as such in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. EMPLOYMENT. Executive is hereby employed on the Effective Date as the
Chairman of the Board of Directors of the Company and Vice Chairman of the Board
of Directors of MSB. In such capacity, Executive shall attend and serve as
chairman of meetings of the Board of Directors of the Company and shall have
such other responsibilities commensurate with such positions as set forth in the
bylaws of the Company and MSB and as shall be assigned to him by the respective
Boards of Directors of the Company and MSB. Executive will report directly to
the Board of Directors of the Company. On the second anniversary of the
Effective Date, Executive will resign as Chairman of the Board of Directors of
the Company and take on the position of Chairman Emeritus of the Company and
retain his position and duties as Vice Chairman of the Board of Directors of MSB
for the remainder of the Term. In his capacity as Chairman Emeritus of the
Company, Executive shall be an active participant in strategic planning,
business development, and development and maintenance of corporate, shareholder
and community relations for the Company and shall advise the Board of Directors
with respect to proposed mergers and acquisitions.
3. TERM. Unless earlier terminated herein in accordance with Section 6
hereof, this Agreement shall be for the period beginning on the Effective Date
and ending on June 30, 2008 (the "Term").
4. EXTENT OF SERVICE. During the Term, and excluding any periods of
vacation to which Executive is entitled, Executive agrees to devote reasonable
business time and attention to the performance of his duties hereunder and shall
faithfully attend meetings of the Board of Directors of the Company. It shall
not be a violation of this Agreement for Executive to (i) devote reasonable
periods of time to charitable and community activities and, with the approval of
the Company, industry or professional activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to date of this
Agreement, the continued conduct of such activities (or the conduct of
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activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of Executive's
responsibilities hereunder.
5. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During each year of the Term, the Company will pay to
Executive annual base salary in the amount equal to U.S. $200,000 ("Base
Salary"), less normal withholdings, payable in equal monthly or more
frequent installments as are customary under the Company's payroll practices
from time to time. The Compensation Committee of the Board of Directors of
the Company shall review Executive's Base Salary annually and in its sole
discretion, subject to approval of the Board of Directors of the Company,
may increase Executive's Base Salary from year to year; provided that annual
increases of at least 3%, intended to approximate cost of living increases,
shall be automatic. The annual review of Executive's salary by the Board
will consider, among other things, Executive's own performance and the
Company's performance, as well as any recommendations of an outside
consulting firm that may be engaged by the Company, from time to time, to
evaluate management compensation.
(b) SAVINGS AND RETIREMENT PLANS. During the Term, Executive shall be
entitled to participate in all savings and retirement plans, practices,
policies and programs applicable generally to senior executive officers of
the Company ("Peer Executives"), and on the same basis as such Peer
Executives, with full credit given for Executive's total accumulated years
of service at Main Street for purposes of determining vesting and
eligibility.
(c) WELFARE BENEFIT PLANS. During the Term, Executive and Executive's
family shall be eligible for participation in, and shall receive all
benefits under, the welfare benefit plans, practices, policies and programs
provided by the Company (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) ("Welfare Plans") to
the extent applicable generally to Peer Executives, with full credit given
for Executive's total accumulated years of service at Main Street for
purposes of determining vesting and eligibility. In the event that
participation in any such Welfare Plan is barred for any reason, the Company
shall arrange to provide Executive and his family with insurance benefits
substantially similar to those to which they would have been entitled to
receive under the Welfare Plans from which Executive's continued
participation is barred. Without limiting the foregoing, the Company shall
cause MSB to continue with its obligations under that certain Split-Dollar
Agreement, dated as of June 27, 1997, by and among MSB, Executive and the
Fowler Family Trust, with respect that certain $2,000,000 face amount life
insurance policy on Executive's life.
(d) EXPENSES. During the Term, Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by Executive in
accordance with the policies, practices and procedures of the Company to the
extent applicable generally to Peer Executives.
(e) FRINGE BENEFITS. During the Term, Executive shall be entitled to
fringe benefits in accordance with the plans, practices, programs and
policies of the Company in effect for Peer Executives. Without limiting the
foregoing, during the Term, Executive shall be provided a car allowance of
not less than $4,200 per year.
(f) PAST SERVICE CREDIT. Executive shall be given full credit for
Executive's years of service with Main Street and its predecessors for all
purposes (other than for benefit accrual purposes) under the plans,
programs, policies, agreements and practices covering Executive pursuant to
this Section 5. The Company shall cause the Welfare Plans to (i) waive, with
respect to Executive, any waiting period and restrictions and limitations
for preexisting conditions or insurability, and (ii) credit Executive with
any deductible, co-payment, co-insurance, or maximum out-of-pocket
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payments made by Executive under the Welfare Plans so as to reduce the
amount of any deductible, co-payment, co-insurance or maximum out-of-pocket
payments payable by Executive under the Welfare Plans.
6. TERMINATION OF AGREEMENT.
(a) DEATH. This Agreement shall be terminated automatically upon
Executive's death during the Term.
(b) TERMINATION BY THE COMPANY. The Company may terminate Executive's
service during the Term with or without Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable
efforts, to meet performance expectations), after a written demand for
substantial performance is delivered to Executive by the President or the
Board of Directors of the Company which specifically identifies the
manner in which such Board or the President believes that Executive has
not substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by Executive in good faith and in
the best interests of the Company. The cessation of Executive's service shall
not be deemed to be for Cause unless and until there shall have been delivered
to Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-fourths of the entire membership of the Board of the Company at
a meeting of such Board called and held for such purpose (after reasonable
notice is provided to Executive and Executive is given an opportunity, together
with counsel, to be heard before such Board), finding that, in the good faith
opinion of such Board, Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) TERMINATION BY EXECUTIVE. Executive's service may be terminated
by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the failure, for any reason, during the first two years of the Term,
of Executive to be re-elected to the Board of Directors of the Company;
(ii) without the written consent of Executive, the assignment to
Executive of any duties inconsistent in any material respect with
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as in effect on the
Effective Date, or any other action by the Company which results in a
diminution in such position or authority (other than Executive's change
in status from Chairman of the Board to Chairman Emeritus of the Company
in accordance with Section 3 of this Agreement and the resulting change
in duties and responsibilities commensurate therewith);
(iii) a reduction by the Company in Executive's Base Salary and benefits
as in effect on the Effective Date or as the same may be increased from
time to time;
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(iv) the Company's requiring Executive, without his consent, to be based
at any office or location other than in Covington, Georgia or to travel
on Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(v) the inability of Executive to perform his duties hereunder due to a
medically determinable physical or mental illness which has lasted (or
can reasonably be expected to last) for a period of six consecutive
months (as certified by two physicians mutually agreed upon by Executive,
or his personal representative, and the Company);
(vi) any failure by the Company to comply with and satisfy Section 14(c)
of this Agreement; or
(vii) the material breach of this Agreement by the Company.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with
Section 15(f) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) specifies the
termination date. If a dispute exists concerning the provisions of this
Agreement that apply to Executive's termination of employment, the
parties shall pursue the resolution of such dispute with reasonable
diligence. Within five (5) days of such a resolution, any party owing any
payments pursuant to the provisions of this Agreement shall make all such
payments together with interest accrued thereon at the rate provided in
Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended
(the "Code").
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Executive's service is terminated other than by reason of death, the date
of receipt of the Notice of Termination, or any later date specified
therein, or (ii) if Executive's service is terminated by reason of death,
the Date of Termination will be the date of death.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY THE
COMPANY OTHER THAN FOR CAUSE. If, during the Term, the Company shall
terminate Executive's service other than for Cause, or Executive shall
terminate employment for Good Reason, then:
(i) the Company shall pay to Executive in a lump sum in cash within
30 days after the Date of Termination the sum of (1) Executive's Base
Salary through the Date of Termination to the extent not theretofore
paid, and (2) unless Executive has elected a different payout date in a
prior deferral election, any compensation previously deferred by
Executive (together with any accrued interest or earnings thereon) to the
extent not theretofore paid (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
(ii) the Company shall continue to pay Executive his Base Salary for the
remainder of the Term as if his service had not been terminated; and
(iii) for the remainder of the Term, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to Executive and/or
Executive's family at least equal to those which would have been provided
to them in accordance with the Welfare Plans described in Section 5(c) of
this Agreement if Executive's service had not been terminated or, if more
favorable to Executive, as in effect generally at any time thereafter
with respect to other Peer Executives and their families,
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provided, however, that if Executive becomes re-employed with another
employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to Executive any other amounts or benefits required
to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the
Company (such other amounts and benefits shall be hereinafter referred to
as the "Other Benefits").
(b) DEATH. If Executive's service is terminated by reason of
Executive's death during the Term, this Agreement shall terminate without
further obligations to Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid
to Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as used in this
Section 7(b) shall include, without limitation, and Executive's estate
and/or beneficiaries shall be entitled to receive, benefits under such
plans, programs, practices and policies relating to death benefits, if
any, as are applicable to Executive on the date of his death.
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD
REASON. If Executive's service shall be terminated for Cause during the
Term, or if Executive voluntarily terminates service during the Term
without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations
and the timely payment or provision of Other Benefits.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company and for which Executive may qualify,
nor, subject to Section 15(d), shall anything herein limit or otherwise affect
such rights as Executive may have under any contract or agreement with the
Company. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and except as
set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a certified public accounting firm selected
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by Executive and reasonably acceptable to the Company as may be designated by
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that there has been a Payment, or such earlier
time as is reasonably requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
10. COSTS OF ENFORCEMENT. In any action taken in good faith relating to
the enforcement of this Agreement or any provision herein, Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
trial, bankruptcy or appellate proceedings.
11. REPRESENTATIONS AND WARRANTIES. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any person or entity, and Executive's
execution of this Agreement and performance of his obligations hereunder will
not violate the terms or conditions of any contract or obligation, written or
oral, between Executive and any other person or entity.
12. RESTRICTIONS ON CONDUCT OF EXECUTIVE.
(a) GENERAL. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect legitimate business
interests of the Company, as more fully described below, and is not intended to
eliminate Executive's post-service competition with the Company per se, nor is
it intended to impair or infringe upon Executive's right to work, earn a living,
or acquire and possess property from the fruits of his labor. Executive hereby
acknowledges that the post-service restrictions set forth in this Section 12 are
reasonable and that they do not, and will not, unduly impair his ability to earn
a living after the termination of this Agreement. Therefore, subject to the
limitations of reasonableness imposed by law, Executive shall be subject to the
restrictions set forth in this Section 12.
(b) DEFINITIONS. The following capitalized terms used in this Section 12
shall have the meanings assigned to them below, which definitions shall apply to
both the singular and the plural forms of such terms:
"COMPETITIVE POSITION" means any employment with a Competitor in which
Executive will use or is likely to use any Confidential Information or Trade
Secrets, or in which Executive has duties for such Competitor that relate to
Competitive Services and that are the same or similar to those services actually
performed by Executive for the Company;
"COMPETITIVE SERVICES" means the provision of banking products and services
similar in scope to those provided by the Company and its subsidiaries as of the
Effective Date.
"COMPETITOR" means any Person engaged, wholly or in part, in Competitive
Services.
"CONFIDENTIAL INFORMATION" means all information regarding the Company, its
activities, business or clients that is the subject of reasonable efforts by the
Company to maintain its confidentiality and
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that is not generally disclosed by practice or authority to persons not employed
by the Company, but that does not rise to the level of a Trade Secret.
"Confidential Information" shall include, but is not limited to, financial plans
and data concerning the Company; management planning information; business
plans; operational methods; market studies; marketing plans or strategies;
product development techniques or plans; customer lists; details of customer
contracts; current and anticipated customer requirements; past, current and
planned research and development; business acquisition plans; and new personnel
acquisition plans. "Confidential Information" shall not include information that
has become generally available to the public by the act of one who has the right
to disclose such information without violating any right or privilege of the
Company. This definition shall not limit any definition of "confidential
information" or any equivalent term under state or federal law.
"DETERMINATION DATE" means the date of termination of Executive's service
with the Company for any reason whatsoever or any earlier date (during the Term)
of an alleged breach of the Restrictive Covenants by Executive.
"PERSON" means any individual or any corporation, partnership, joint
venture, limited liability company, association or other entity or enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has sold its
products or services or solicited to sell its products or services during the
twelve (12) months prior to the Determination Date.
"PROTECTED EMPLOYEES" means employees of the Company who were employed by
the Company at any time within six (6) months prior to the Determination Date.
"RESTRICTED PERIOD" means the Term and a period extending two (2) years
from the termination of Executive's service with the Company.
"RESTRICTED TERRITORY" means the areas within a 25 mile radius of each
banking office of the Company or its subsidiaries immediately after the
Effective Date.
"RESTRICTIVE COVENANTS" means the restrictive covenants contained in
Section 12(c) hereof.
"TRADE SECRET" means all information, without regard to form, including,
but not limited to, technical or nontechnical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, distribution lists or a list of
actual or potential customers, advertisers or suppliers which is not commonly
known by or available to the public and which information: (A) derives economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (B) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Without limiting the
foregoing, Trade Secret means any item of confidential information that
constitutes a "trade secret(s)" under the common law or statutory law of the
State of Georgia.
(c) RESTRICTIVE COVENANTS.
(i) RESTRICTION ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION AND TRADE
SECRETS. Executive understands and agrees that the Confidential Information and
Trade Secrets constitute valuable assets of the Company and its affiliated
entities, and may not be converted to Executive's own use. Accordingly,
Executive hereby agrees that Executive shall not, directly or indirectly, at any
time during the Restricted Period reveal, divulge, or disclose to any Person not
expressly authorized by the Company any Confidential Information, and Executive
shall not, directly or indirectly, at any time during the
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Restricted Period use or make use of any Confidential Information in connection
with any business activity other than that of the Company. Throughout the term
of this Agreement and at all times after the date that this Agreement terminates
for any reason, Executive shall not directly or indirectly transmit or disclose
any Trade Secret of the Company to any Person, and shall not make use of any
such Trade Secret, directly or indirectly, for himself or for others, without
the prior written consent of the Company. The parties acknowledge and agree that
this Agreement is not intended to, and does not, alter either the Company's
rights or Executive's obligations under any state or federal statutory or common
law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Executive understands and
agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be converted
to Executive's own use. Accordingly, Executive hereby agrees that during the
Restricted Period Executive shall not directly or indirectly on Executive's own
behalf or as a Principal or Representative of any Person or otherwise solicit or
induce any Protected Employee to terminate his or her employment relationship
with the Company or to enter into employment with any other Person.
(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED CUSTOMERS. Executive
understands and agrees that the relationship between the Company and each of its
Protected Customers constitutes a valuable asset of the Company and may not be
converted to Executive's own use. Accordingly, Executive hereby agrees that,
during the Restricted Period, Executive shall not, without the prior written
consent of the Company, directly or indirectly, on Executive's own behalf or as
a Principal or Representative of any Person, solicit, divert, take away or
attempt to solicit, divert or take away a Protected Customer for the purpose of
providing or selling Competitive Services; PROVIDED, HOWEVER, that the
prohibition of this covenant shall apply only to Protected Customers with whom
Executive had Material Contact on the Company's behalf during the twelve
(12) months immediately preceding the termination of his service hereunder. For
purposes of this Agreement, Executive had "Material Contact" with a Protected
Customer if (a) he had business dealings with the Protected Customer on the
Company's behalf; (b) he was responsible for supervising or coordinating the
dealings between the Company and the Protected Customer; or (c) he obtained
Trade Secrets or Confidential Information about the customer as a result of his
association with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. The parties acknowledge: (A) that
Executive's services under this Agreement require special expertise and talent
in the provision of Competitive Services and that Executive will have
substantial contacts with customers of the Company; (B) that pursuant to this
Agreement, Executive will be placed in a position of trust and responsibility
and he will have access to a substantial amount of Confidential Information and
Trade Secrets and that the Company is placing him in such position and giving
him access to such information in reliance upon his agreement not to compete
with the Company during the Restricted Period; (C) that due to his management
duties, Executive will be the repository of a substantial portion of the
goodwill of the Company and would have an unfair advantage in competing with the
Company; (D) that due to Executive's special experience and talent, the loss of
Executive's services to the Company under this Agreement cannot reasonably or
adequately be compensated solely by damages in an action at law; (E) that
Executive is capable of competing with the Company; and (F) that Executive is
capable of obtaining gainful, lucrative and
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desirable employment that does not violate the restrictions contained in this
Agreement. In consideration of the compensation and benefits being paid and to
be paid by the Company to Executive hereunder, Executive hereby agrees that,
during the Restricted Period, Executive will not, without prior written consent
of the Company, directly or indirectly seek or obtain a Competitive Position in
the Restricted Territory with a Competitor; PROVIDED, HOWEVER, that the
provisions of this Agreement shall not be deemed to prohibit the ownership by
Executive of any securities of the Company or its affiliated entities or not
more than five percent (5%) of any class of securities of any corporation having
a class of securities registered pursuant to the Securities Exchange Act of
1934, as amended.
(d) CONSIDERATION FOR THE RESTRICTIVE COVENANTS. In consideration for the
Executive entering into the Restrictive Covenants, the Company shall pay to the
Executive the amount of $200,000 per year throughout the Term.
(e) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) RIGHTS AND REMEDIES UPON BREACH. In the event Executive breaches, or
threatens to commit a breach of, any of the provisions of the Restrictive
Covenants, the Company shall have the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company. Such right and remedy shall be in addition to, and not in lieu of,
any other rights and remedies available to the Company at law or in equity.
(ii) SEVERABILITY OF COVENANTS. Executive acknowledges and agrees that the
Restrictive Covenants are reasonable and valid in time and scope and in all
other respects. The covenants set forth in this Agreement shall be considered
and construed as separate and independent covenants. Should any part or
provision of any covenant be held invalid, void or unenforceable in any court of
competent jurisdiction, such invalidity, voidness or unenforceability shall not
render invalid, void or unenforceable any other part or provision of this
Agreement. If any portion of the foregoing provisions is found to be invalid or
unenforceable by a court of competent jurisdiction because its duration, the
territory, the definition of activities or the definition of information covered
is considered to be invalid or unreasonable in scope, the invalid or
unreasonable term shall be redefined, or a new enforceable term provided, such
that the intent of the Company and Executive in agreeing to the provisions of
this Agreement will not be impaired and the provision in question shall be
enforceable to the fullest extent of the applicable laws.
13. ARBITRATION. Any claim or dispute arising under this Agreement shall
be subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. Section1, ET. SEQ. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. Such an award shall be binding and conclusive upon the parties hereto,
subject to 9 U.S.C. Section10. Each party shall have the right to have the award
made the judgment of a court of competent jurisdiction.
14. ASSIGNMENT AND SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior written
consent of the Company shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
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(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
15. MISCELLANEOUS.
(a) WAIVER. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
(b) SEVERABILITY. If any provision or covenant, or any part thereof, of
this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
(d) ENTIRE AGREEMENT. Except as provided herein, this Agreement contains
the entire agreement between the Company and Executive with respect to the
subject matter hereof and, from and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of Georgia
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
<TABLE>
<S> <C>
To Company: First Sterling Banks, Inc. Edward C. Milligan, President and
CEO
1200 Barrett Parkway
Kennesaw, Georgia 30144
To Executive: Robert R. Fowler III
1121 Floyd Street
Covington, Georgia
</TABLE>
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
(h) CONSTRUCTION. Each party and his or its counsel have reviewed this
Agreement and have been provided the opportunity to revise this Agreement and
accordingly, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement. Instead, the language of all parts of this
Agreement shall be construed as a whole, and according to its fair meaning, and
not strictly for or against either party.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
FIRST STERLING BANKS, INC.
By:
----------------------------------------
Title: President and CEO
EXECUTIVE:
---------------------------------------------
Robert R. Fowler III
</TABLE>
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
day of , 2000 by and between First Sterling Banks, Inc., a
Georgia corporation (hereinafter, the "Company"), and Edward C. Milligan
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive is currently employed as the President and Chief Executive Officer
of the Company and The Westside Bank & Trust Company pursuant to that certain
Employment Agreement dated August 16, 1995 (the "Prior Employment Agreement").
The Company and Main Street Banks Incorporated ("MSBI") have entered into that
certain Merger Agreement, dated as of December 1, 1999 (the "Merger Agreement"),
pursuant to which MSBI will merge with and into the Company (the "Merger"). The
Company desires to retain Executive as the President and Chief Executive Officer
of the Company and, after two years, as the Chairman of the Board of Directors
of the Company, in accordance with the terms of this Agreement. Executive is
willing to serve as such in accordance with the terms and conditions of this
Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs, and on
such date the Prior Employment Agreement shall terminate.
2. EMPLOYMENT. Executive is hereby employed on the Effective Date as the
President and Chief Executive Officer of the Company. Beginning on the second
anniversary of the Merger, Executive shall become the Chairman of the Board of
Directors of the Company and shall continue as Chief Executive Officer in
addition to his other duties. In each such capacity, Executive shall have such
responsibilities commensurate with such positions as set forth in the bylaws of
the Company and as shall be assigned to him by the Board of Directors of the
Company. Executive will report directly to the Board of Directors of the
Company.
3. EMPLOYMENT PERIOD. Unless earlier terminated herein in accordance with
Section 6 hereof, Executive's employment shall be for a three year term (the
"Employment Period"), beginning on the Effective Date. Beginning on the third
anniversary of the Effective Date and on each anniversary of the Effective Date,
the Employment Period shall, without further action by Executive or the Company,
be extended by an additional one-year period; PROVIDED, HOWEVER, that either
party may, by notice to the other, cause the Employment Period to cease to
extend automatically. Upon such notice, the Employment Period shall terminate
upon the expiration of the then-current term, including any prior extensions.
4. EXTENT OF SERVICE. During the Employment Period, and excluding any
periods of vacation to which Executive is entitled, Executive agrees to devote
his business time, attention, skill and efforts exclusively to the faithful
performance of his duties hereunder; provided, however, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities and, with the approval of the
Company, industry or professional activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to date of this
Agreement, the continued conduct of such activities (or the conduct of
activities
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similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of Executive's
responsibilities hereunder.
5. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During each year of the Employment Period, the
Company will pay to Executive annual base salary in the amount equal to U.S.
$154,000 ("Base Salary"), less normal withholdings, payable in equal monthly
or more frequent installments as are customary under the Company's payroll
practices from time to time. The Compensation Committee of the Board of
Directors of the Company shall review Executive's Base Salary annually and
in its sole discretion, subject to approval of the Board of Directors of the
Company, may increase Executive's Base Salary from year to year; provided
that annual increases of at least 3%, intended to approximate cost of living
increases, shall be automatic. The annual review of Executive's salary by
the Board will consider, among other things, Executive's own performance and
the Company's performance, as well as any recommendations of an outside
consulting firm that may be engaged by the Company, from time to time, to
evaluate management compensation.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally
to senior executive officers of the Company ("Peer Executives"), and on the
same basis as such Peer Executives.
(c) WELFARE BENEFIT PLANS. During the Employment Period, Executive and
Executive's family shall be eligible for participation in, and shall receive
all benefits under, the welfare benefit plans, practices, policies and
programs provided by the Company (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) ("Welfare Plans") to
the extent applicable generally to Peer Executives.
(d) EXPENSES. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by Executive in accordance with the policies, practices and
procedures of the Company to the extent applicable generally to Peer
Executives.
(e) FRINGE BENEFITS. During the Employment Period, Executive shall be
entitled to fringe benefits in accordance with the plans, practices,
programs and policies of the Company in effect for Peer Executives. Without
limiting the foregoing, during the Employment Period, Executive shall be
provided a car allowance or a Company-owned car of a model appropriate to
his position, as determined by the Compensation Committee of the Board of
Directors of the Company.
6. TERMINATION OF AGREEMENT.
(a) DEATH, RETIREMENT OR DISABILITY. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan,
or if there is no such retirement plan, "Retirement" shall mean voluntary
termination after age 65 with ten years of service. If the Company
determines in good faith that the Disability of Executive has occurred
during the Employment Period (pursuant to the definition of Disability set
forth below), it may give to Executive written notice of its intention to
terminate Executive's employment. In such event, Executive's employment with
the Company shall terminate effective on the 30th day after receipt of such
written notice by Executive (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of
this Agreement, "Disability" shall mean the inability of Executive, as
determined by the Board, to substantially perform the essential functions of
his regular duties and responsibilities, with or without reasonable
accommodation, due to a medically determinable physical or mental illness
which has lasted (or can reasonably be
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expected to last) for a period of six consecutive months. At the request of
Executive or his personal representative, the Board's determination that the
Disability of Executive has occurred shall be certified by two physicians
mutually agreed upon by Executive, or his personal representative, and the
Company. Failing such independent certification (if so requested by
Executive), Executive's termination shall be deemed a termination by the
Company without Cause and not a termination by reason of his Disability.
(b) TERMINATION BY THE COMPANY. The Company may terminate Executive's
employment during the Employment Period with or without Cause. For purposes
of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable
efforts, to meet performance expectations), after a written demand for
substantial performance is delivered to Executive by the Board of
Directors of the Company which specifically identifies the manner in
which the Board believes that Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company;
or
(iii) a requirement by any state or federal authority regulating the
Company or its subsidiaries that Executive be removed from his office.
For purposes of this provision, no act or failure to act, on the part of
Executive shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company and its shareholders
and subsidiaries. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by Executive in good faith and in the best interests of the Company,
its shareholders and subsidiaries. The cessation of employment of Executive
under subparagraph (i) or (ii) above shall not be deemed to be for Cause unless
and until there shall have been delivered to Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
entire membership of the Board of Directors the Company at a meeting of such
Board called and held for such purpose (after reasonable notice is provided to
Executive and Executive is given an opportunity, together with counsel, to be
heard before such Board), finding that, in the good faith opinion of such Board,
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) TERMINATION BY EXECUTIVE. Executive's employment may be terminated
by Executive for Good Reason or no reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) without the written consent of Executive, a change in Executive's
status, title, position or responsibilities (including reporting
responsibilities) which, in Executive's reasonable judgment, represents
an adverse change from his status, title, position or responsibilities as
in effect at the Effective Date or, if greater, at any time thereafter;
the assignment to Executive of any duties or responsibilities which, in
Executive's reasonable judgment, are inconsistent with his status, title,
position or responsibilities as in effect at the Effective Date or, if
greater, at any time thereafter; or any other change in condition or
circumstances that in Executive's reasonable judgment makes it materially
more difficult for Executive to carry out the duties and responsibilities
of his then-existing office; provided that Good Reason under this
subparagraph (i) excludes an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by Executive;
(ii) a reduction, without the written consent of Executive, in
Executive's Base Salary as in effect on the Effective Date or as the same
may be increased from time to time, or any failure to pay Executive any
compensation or benefits to which he is entitled within five (5) days of
the date due;
(iii) the failure by the Company (a) to continue in effect (without
reduction in benefit level and/or reward opportunities) any compensation
or employee benefit plan in which Executive participated as of the
Effective Date, or at any time thereafter, that is material to
Executive's total compensation, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect
to such plan, or (b) to continue Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level
of Executive's participation therein relative to other participants; or
(iv) the Company's requiring Executive, without his consent, to be
based at any office or location other than in Cobb County, Georgia or to
travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(v) the failure, for any reason, of Executive to be re-elected to the
Board of Directors of the Company;
(vi) the insolvency or the filing by any party, including the Company
or any of its subsidiaries, of a petition for bankruptcy of the Company
or any such subsidiary, which petition is not dismissed within sixty
(60) days;
(vii) any failure by the Company to comply with and satisfy
Section 14(c) of this Agreement;
(viii) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(ix) the material breach by the Company of any provision of this
Agreement.
Good Reason shall not include Executive's death or Disability. Executive's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder. Any good faith
determination of Good Reason made by Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 15(f) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under
the provision so indicated and (iii) specifies the termination date. If a
dispute exists concerning the provisions of this Agreement that apply to
Executive's termination of employment, the parties shall pursue the
resolution of such dispute with reasonable diligence. Within five (5) days
of such a resolution, any party owing any payments pursuant to the
provisions of this Agreement shall make all such payments together with
interest accrued thereon at the rate provided in Section 1274(b)(2)(B) of
the Internal Revenue Code of 1986, as amended (the "Code").
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Executive's employment is terminated other than by reason of death or
Disability, the date of receipt of the Notice of
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Termination, or any later date specified therein, or (ii) if Executive's
employment is terminated by reason of death or Disability, the Date of
Termination will be the date of death or the Disability Effective Date, as
the case may be.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY THE
COMPANY OTHER THAN FOR CAUSE. If, during the Employment Period, the Company
shall terminate Executive's employment other than for Cause, or Executive
shall terminate employment for Good Reason, then:
(i) the Company shall pay to Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of
(x) Executive's target annual bonus for the year in which the Date of
Termination occurred (the "Target Annual Bonus") and (y) a fraction,
the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is
365, (3) any accrued vacation pay to the extent not theretofore paid,
and (4) unless Executive has elected a different payout date in a
prior deferral election, any compensation previously deferred by
Executive (together with any accrued interest or earnings thereon) to
the extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), (3) and (4) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to three times the sum of (1) Executive's
Base Salary in effect as of the Date of Termination, and (2) the
Target Annual Bonus; and
(ii) for three years after the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to Executive
and/or Executive's family at least equal to those which would have been
provided to them in accordance with the Welfare Plans described in
Section 5(c) of this Agreement if Executive's employment had not been
terminated or, if more favorable to Executive, as in effect generally at
any time thereafter with respect to other Peer Executives and their
families, provided, however, that if Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility; and
(iii) all of Executive's outstanding stock options and other incentive
awards from the Company in the nature of rights that may be exercised
shall become fully exercisable and all restrictions on Executive's
outstanding awards of restricted stock shall lapse; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of
the Company (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) DEATH; DISABILITY OR RETIREMENT. If Executive's employment is
terminated by reason of Executive's death, Disability or Retirement during
the Employment Period, this Agreement shall terminate without further
obligations to Executive or his legal representatives under this Agreement,
other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to
Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as used in this Section 7(b) shall
include,
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without limitation, and Executive's estate and/or beneficiaries shall be
entitled to receive, benefits under such plans, programs, practices and
policies relating to death, disability or retirement benefits, if any, as
are applicable to Executive on the Date of Termination.
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD
REASON. If Executive's employment shall be terminated for Cause during the
Employment Period, or if Executive voluntarily terminates employment during
the Employment Period without Good Reason, this Agreement shall terminate
without further obligations to Executive, other than for payment of Accrued
Obligations (excluding the pro-rata bonus described in clause 2 of
Section 7(a)(i)(A)) and the timely payment or provision of Other Benefits.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company and for which Executive may qualify,
nor, subject to Section 15(d), shall anything herein limit or otherwise affect
such rights as Executive may have under any contract or agreement with the
Company. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a certified public accounting firm selected
by Executive and reasonably acceptable to the Company as may be designated
by Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of
the receipt of notice from Executive that there has been a Payment, or such
earlier time as is reasonably requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has
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occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of Executive.
10. COSTS OF ENFORCEMENT. In any action taken in good faith relating to
the enforcement of this Agreement or any provision herein, Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
trial, bankruptcy or appellate proceedings.
11. REPRESENTATIONS AND WARRANTIES. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any person or entity, and Executive's
execution of this Agreement and performance of his obligations hereunder will
not violate the terms or conditions of any contract or obligation, written or
oral, between Executive and any other person or entity.
12. RESTRICTIONS ON CONDUCT OF EXECUTIVE.
(a) GENERAL. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the
Company per se, nor is it intended to impair or infringe upon Executive's
right to work, earn a living, or acquire and possess property from the
fruits of his labor. Executive hereby acknowledges that the post-employment
restrictions set forth in this Section 12 are reasonable and that they do
not, and will not, unduly impair his ability to earn a living after the
termination of this Agreement. Therefore, subject to the limitations of
reasonableness imposed by law, Executive shall be subject to the
restrictions set forth in this Section 12.
(b) DEFINITIONS. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"COMPETITIVE POSITION" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information
or Trade Secrets, or in which Executive has duties for such Competitor
that relate to Competitive Services and that are the same or similar to
those services actually performed by Executive for the Company;
"COMPETITIVE SERVICES" means the provision of banking products and
services similar in scope to those provided by the Company and its
subsidiaries as of the Effective Date.
"COMPETITOR" means any Person engaged, wholly or in part, in
Competitive Services.
"CONFIDENTIAL INFORMATION" means all information regarding the
Company, its activities, business or clients that is the subject of
reasonable efforts by the Company to maintain its confidentiality and
that is not generally disclosed by practice or authority to persons not
employed by the Company, but that does not rise to the level of a Trade
Secret. "Confidential Information" shall include, but is not limited to,
financial plans and data concerning the Company; management planning
information; business plans; operational methods; market studies;
marketing plans or strategies; product development techniques or plans;
customer lists; details of customer contracts; current and anticipated
customer requirements; past, current and planned research and
development; business acquisition plans; and new personnel acquisition
plans. "Confidential Information" shall not include information that has
become generally available to the public by the act of one who has the
right to disclose such information without violating any right or
privilege of the Company. This definition shall not limit any definition
of "confidential information" or any equivalent term under state or
federal law.
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"DETERMINATION DATE" means the date of termination of Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"PERSON" means any individual or any corporation, partnership, joint
venture, limited liability company, association or other entity or
enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director,
officer, manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has sold
its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date.
"PROTECTED EMPLOYEES" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"RESTRICTED PERIOD" means the Employment Period and a period
extending two (2) years from the Date of Termination.
"RESTRICTED TERRITORY" means the areas within a 25 mile radius of
each banking office of the Company or its subsidiaries immediately after
the Effective Date.
"RESTRICTIVE COVENANTS" means the restrictive covenants contained in
Section 9(c) hereof.
"TRADE SECRET" means all information, without regard to form,
including, but not limited to, technical or nontechnical data, a formula,
a pattern, a compilation, a program, a device, a method, a technique, a
drawing, a process, financial data, financial plans, product plans,
distribution lists or a list of actual or potential customers,
advertisers or suppliers which is not commonly known by or available to
the public and which information: (A) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (B) is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Without
limiting the foregoing, Trade Secret means any item of confidential
information that constitutes a "trade secret(s)" under the common law or
statutory law of the State of Georgia.
(c) RESTRICTIVE COVENANTS.
(i) RESTRICTION ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION
AND TRADE SECRETS. Executive understands and agrees that the Confidential
Information and Trade Secrets constitute valuable assets of the Company
and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not,
directly or indirectly, at any time during the Restricted Period reveal,
divulge, or disclose to any Person not expressly authorized by the
Company any Confidential Information, and Executive shall not, directly
or indirectly, at any time during the Restricted Period use or make use
of any Confidential Information in connection with any business activity
other than that of the Company. Throughout the term of this Agreement and
at all times after the date that this Agreement terminates for any
reason, Executive shall not directly or indirectly transmit or disclose
any Trade Secret of the Company to any Person, and shall not make use of
any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge
and agree that this Agreement is not intended to, and does not, alter
either the Company's rights or Executive's obligations under any state or
federal statutory or common law regarding trade secrets and unfair trade
practices.
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Anything herein to the contrary notwithstanding, Executive shall not
be restricted from disclosing or using Confidential Information that is
required to be disclosed by law, court order or other legal process;
PROVIDED, HOWEVER, that in the event disclosure is required by law,
Executive shall provide the Company with prompt notice of such
requirement so that the Company may seek an appropriate protective order
prior to any such required disclosure by Executive.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Executive understands
and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may
not be converted to Executive's own use. Accordingly, Executive hereby
agrees that during the Restricted Period Executive shall not directly or
indirectly on Executive's own behalf or as a Principal or Representative
of any Person or otherwise solicit or induce any Protected Employee to
terminate his or her employment relationship with the Company or to enter
into employment with any other Person.
(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED
CUSTOMERS. Executive understands and agrees that the relationship
between the Company and each of its Protected Customers constitutes a
valuable asset of the Company and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that, during the Restricted
Period, Executive shall not, without the prior written consent of the
Company, directly or indirectly, on Executive's own behalf or as a
Principal or Representative of any Person, solicit, divert, take away or
attempt to solicit, divert or take away a Protected Customer for the
purpose of providing or selling Competitive Services; provided, however,
that the prohibition of this covenant shall apply only to Protected
Customers with whom Executive had Material Contact on the Company's
behalf during the twelve (12) months immediately preceding the
termination of his employment hereunder. For purposes of this Agreement,
Executive had "Material Contact" with a Protected Customer if (a) he had
business dealings with the Protected Customer on the Company's behalf;
(b) he was responsible for supervising or coordinating the dealings
between the Company and the Protected Customer; or (c) he obtained Trade
Secrets or Confidential Information about the customer as a result of his
association with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. The parties acknowledge:
(A) that Executive's services under this Agreement require special
expertise and talent in the provision of Competitive Services and that
Executive will have substantial contacts with customers of the Company;
(B) that pursuant to this Agreement, Executive will be placed in a
position of trust and responsibility and he will have access to a
substantial amount of Confidential Information and Trade Secrets and that
the Company is placing him in such position and giving him access to such
information in reliance upon his agreement not to compete with the
Company during the Restricted Period; (C) that due to his management
duties, Executive will be the repository of a substantial portion of the
goodwill of the Company and would have an unfair advantage in competing
with the Company; (D) that due to Executive's special experience and
talent, the loss of Executive's services to the Company under this
Agreement cannot reasonably or adequately be compensated solely by
damages in an action at law; (E) that Executive is capable of competing
with the Company; and (F) that Executive is capable of obtaining gainful,
lucrative and desirable employment that does not violate the restrictions
contained in this Agreement. In consideration of the compensation and
benefits being paid and to be paid by the Company to Executive hereunder,
Executive hereby agrees that, during the Restricted Period, Executive
will not, without prior written consent of the Company, directly or
indirectly seek or obtain a Competitive Position in the Restricted
Territory with a Competitor; PROVIDED, HOWEVER, that the provisions of
this Agreement shall not be deemed to prohibit the ownership by Executive
of any securities of the Company or its affiliated entities or not more
than five
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percent (5%) of any class of securities of any corporation having a class
of securities registered pursuant to the Securities Exchange Act of 1934,
as amended.
(d) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) RIGHTS AND REMEDIES UPON BREACH. In the event Executive
breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the right and remedy to
enjoin, preliminarily and permanently, Executive from violating or
threatening to violate the Restrictive Covenants and to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
Such right and remedy shall be in addition to, and not in lieu of, any
other rights and remedies available to the Company at law or in equity.
(ii) SEVERABILITY OF COVENANTS. Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in time and scope
and in all other respects. The covenants set forth in this Agreement
shall be considered and construed as separate and independent covenants.
Should any part or provision of any covenant be held invalid, void or
unenforceable in any court of competent jurisdiction, such invalidity,
voidness or unenforceability shall not render invalid, void or
unenforceable any other part or provision of this Agreement. If any
portion of the foregoing provisions is found to be invalid or
unenforceable by a court of competent jurisdiction because its duration,
the territory, the definition of activities or the definition of
information covered is considered to be invalid or unreasonable in scope,
the invalid or unreasonable term shall be redefined, or a new enforceable
term provided, such that the intent of the Company and Executive in
agreeing to the provisions of this Agreement will not be impaired and the
provision in question shall be enforceable to the fullest extent of the
applicable laws.
13. ARBITRATION. Any claim or dispute arising under this Agreement shall
be subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. Section1, ET. SEQ. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. Such an award shall be binding and conclusive upon the parties hereto,
subject to 9 U.S.C. Section10. Each party shall have the right to have the award
made the judgment of a court of competent jurisdiction.
14. ASSIGNMENT AND SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior
written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place.
15. MISCELLANEOUS.
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(a) WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms
and conditions of this Agreement shall not be deemed a waiver or
relinquishment of any right granted in this Agreement or of the future
performance of any such term or condition or of any other term or condition
of this Agreement, unless such waiver is contained in a writing signed by
the party making the waiver.
(b) SEVERABILITY. If any provision or covenant, or any part thereof,
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability
of the remaining provisions or covenants, or any part thereof, of this
Agreement, all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and
conditions as may be satisfactory to it.
(d) ENTIRE AGREEMENT. Except as provided herein, this Agreement
contains the entire agreement between the Company and Executive with respect
to the subject matter hereof and, from and after the Effective Date, this
Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of
Georgia shall govern this Agreement in all respects, whether as to its
validity, construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered or three days after mailing if mailed,
first class, certified mail, postage prepaid:
<TABLE>
<S> <C>
To Company: First Sterling Banks, Inc.
1200 Barrett Parkway
Kennesaw, Georgia 30144
Attention: Secretary
To Executive: Edward C. Milligan
600 Longstreet Drive
Marietta, Georgia 30064
</TABLE>
Any party may change the address to which notices, requests, demands and
other communications shall be delivered or mailed by giving notice thereof to
the other party in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
(h) CONSTRUCTION. Each party and his or its counsel have reviewed this
Agreement and have been provided the opportunity to revise this Agreement
and accordingly, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement. Instead, the language of
all parts of this Agreement shall be construed as a whole, and according to
its fair meaning, and not strictly for or against either party.
(SIGNATURES ON FOLLOWING PAGE)
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
FIRST STERLING BANKS, INC.
By:
----------------------------------------
Title:
----------------------------------------
EXECUTIVE:
---------------------------------------------
Edward C. Milligan
</TABLE>
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
day of , 2000 by and between First Sterling Banks, Inc., a
Georgia corporation (hereinafter, the "Company"), and Sam B. Hay (hereinafter,
"Executive"), to be effective as of the Effective Date, as defined in
Section 1.
BACKGROUND
Executive currently serves as the Executive Vice President and Chief
Financial Officer of Main Street Banks Incorporated ("Main Street"). The Company
and Main Street have entered into that certain Merger Agreement, dated as of
December 1, 1999 (the "Merger Agreement"), pursuant to which Main Street will
merge with and into the Company (the "Merger"). The Company desires to retain
Executive as the Executive Vice President and Chief Operating Officer of the
Company and, after two years, as the President of the Company, in accordance
with the terms of this Agreement. Executive is willing to serve as such in
accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. EMPLOYMENT. Executive is hereby employed on the Effective Date as the
Executive Vice President and Chief Operating Officer of the Company. Beginning
on the second anniversary of the Merger, Executive shall become the President
and Chief Operating Officer of the Company. In each such capacity, Executive
shall have such responsibilities commensurate with such positions as set forth
in the bylaws of the Company and as shall be assigned to him by the Chief
Executive Officer or the Board of Directors of the Company. Executive will
report directly to the Chief Executive Officer of the Company.
3. EMPLOYMENT PERIOD. Unless earlier terminated herein in accordance with
Section 6 hereof, Executive's employment shall be for a three year term (the
"Employment Period"), beginning on the Effective Date. Beginning on the third
anniversary of the Effective Date and on each anniversary of the Effective Date,
the Employment Period shall, without further action by Executive or the Company,
be extended by an additional one-year period; PROVIDED, HOWEVER, that either
party may, by notice to the other, cause the Employment Period to cease to
extend automatically. Upon such notice, the Employment Period shall terminate
upon the expiration of the then-current term, including any prior extensions.
4. EXTENT OF SERVICE. During the Employment Period, and excluding any
periods of vacation to which Executive is entitled, Executive agrees to devote
his business time, attention, skill and efforts exclusively to the faithful
performance of his duties hereunder; PROVIDED, HOWEVER, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities and, with the approval of the
Company, industry or professional activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to date of this
Agreement, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of Executive's
responsibilities hereunder.
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5. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During each year of the Employment Period, the Company
will pay to Executive annual base salary in the amount equal to U.S. $140,000
("Base Salary"), less normal withholdings, payable in equal monthly or more
frequent installments as are customary under the Company's payroll practices
from time to time. The Compensation Committee of the Board of Directors of the
Company shall review Executive's Base Salary annually and in its sole
discretion, subject to approval of the Board of Directors of the Company, may
increase Executive's Base Salary from year to year; provided that annual
increases of at least 3%, intended to approximate cost of living increases,
shall be automatic. The annual review of Executive's salary by the Board will
consider, among other things, Executive's own performance and the Company's
performance, as well as any recommendations of an outside consulting firm that
may be engaged by the Company, from time to time, to evaluate management
compensation.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period,
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
senior executive officers of the Company ("Peer Executives"), and on the same
basis as such Peer Executives, with full credit given for Executive's total
accumulated years of employment at Main Street for purposes of determining
vesting and eligibility.
(c) WELFARE BENEFIT PLANS. During the Employment Period, Executive and
Executive's family shall be eligible for participation in, and shall receive all
benefits under, the welfare benefit plans, practices, policies and programs
provided by the Company (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) ("Welfare Plans") to the extent
applicable generally to Peer Executives, with full credit given for Executive's
total accumulated years of employment at Main Street for purposes of determining
vesting and eligibility.
(d) EXPENSES. During the Employment Period, Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by Executive
in accordance with the policies, practices and procedures of the Company to the
extent applicable generally to Peer Executives.
(e) FRINGE BENEFITS. During the Employment Period, Executive shall be
entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company in effect for Peer Executives. Without limiting the
foregoing, during the Employment Period, Executive shall be provided a car
allowance or a Company-owned car of a model appropriate to his position, as
determined by the Compensation Committee of the Board of Directors of the
Company.
(f) PAST SERVICE CREDIT. Executive shall be given full credit for
Executive's years of employment with Main Street and its predecessors for all
purposes under the plans, programs, policies, agreements and practices covering
Executive pursuant to this Section 5. The Company shall cause the Welfare Plans
to (i) waive, with respect to Executive, any waiting period and restrictions and
limitations for preexisting conditions or insurability, and (ii) credit
Executive with any deductible, co-payment, co-insurance, or maximum
out-of-pocket payments made by Executive under the Welfare Plans so as to reduce
the amount of any deductible, co-payment, co-insurance or maximum out-of-pocket
payments payable by Executive under the Welfare Plans.
6. TERMINATION OF AGREEMENT.
(a) DEATH, RETIREMENT OR DISABILITY. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
if there is no such retirement plan, "Retirement" shall mean voluntary
termination after age 65 with ten years of service. If the Company determines in
good faith that the Disability of Executive has
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occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to Executive written notice of its intention to
terminate Executive's employment. In such event, Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such written
notice by Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. For purposes of this Agreement, "Disability"
shall mean the inability of Executive, as determined by the Board, to
substantially perform the essential functions of his regular duties and
responsibilities, with or without reasonable accommodation, due to a medically
determinable physical or mental illness which has lasted (or can reasonably be
expected to last) for a period of six consecutive months. At the request of
Executive or his personal representative, the Board's determination that the
Disability of Executive has occurred shall be certified by two physicians
mutually agreed upon by Executive, or his personal representative, and the
Company. Failing such independent certification (if so requested by Executive),
Executive's termination shall be deemed a termination by the Company without
Cause and not a termination by reason of his Disability.
(b) TERMINATION BY THE COMPANY. The Company may terminate Executive's
employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable efforts,
to meet performance expectations), after a written demand for substantial
performance is delivered to Executive by the Chief Executive Officer or the
Board of Directors of the Company which specifically identifies the manner
in which the Chief Executive Officer or the Board believes that Executive
has not substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company; or
(iii) a requirement by any state or federal authority regulating the
Company or its subsidiaries that Executive be removed from his office.
For purposes of this provision, no act or failure to act, on the part of
Executive shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company and its shareholders
and subsidiaries. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by Executive in good faith and in the best interests of the Company,
its shareholders and subsidiaries. The cessation of employment of Executive
under subparagraph (i) or (ii) above shall not be deemed to be for Cause unless
and until there shall have been delivered to Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
entire membership of the Board of Directors the Company at a meeting of such
Board called and held for such purpose (after reasonable notice is provided to
Executive and Executive is given an opportunity, together with counsel, to be
heard before such Board), finding that, in the good faith opinion of such Board,
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) TERMINATION BY EXECUTIVE. Executive's employment may be terminated by
Executive for Good Reason or no reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) without the written consent of Executive, a change in Executive's
status, title, position or responsibilities (including reporting
responsibilities) which, in Executive's reasonable judgment, represents an
adverse change from his status, title, position or responsibilities as in
effect at the Effective Date or, if greater, at any time thereafter; the
assignment to Executive of any duties or
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responsibilities which, in Executive's reasonable judgment, are inconsistent
with his status, title, position or responsibilities as in effect at the
Effective Date or, if greater, at any time thereafter; or any other change
in condition or circumstances that in Executive's reasonable judgment makes
it materially more difficult for Executive to carry out the duties and
responsibilities of his then-existing office; provided that Good Reason
under this subparagraph (i) excludes an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by Executive;
(ii) a reduction, without the written consent of Executive, in
Executive's Base Salary as in effect on the Effective Date or as the same
may be increased from time to time, or any failure to pay Executive any
compensation or benefits to which he is entitled within five (5) days of the
date due;
(iii) the failure by the Company (a) to continue in effect (without
reduction in benefit level and/or reward opportunities) any compensation or
employee benefit plan in which Executive participated as of the Effective
Date, or at any time thereafter, that is material to Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or
(b) to continue Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of Executive's participation
therein relative to other participants; or
(iv) the Company's requiring Executive, without his consent, to be based
at any office or location other than in Covington, Georgia or to travel on
Company business to a substantially greater extent than required immediately
prior to the Effective Date;
(v) the failure, for any reason, of Executive to be re-elected to the
Board of Directors of the Company;
(vi) the insolvency or the filing by any party, including the Company or
any of its subsidiaries, of a petition for bankruptcy of the Company or any
such subsidiary, which petition is not dismissed within sixty (60) days;
(vii) any failure by the Company to comply with and satisfy
Section 14(c) of this Agreement;
(viii) any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement; or
(ix) the material breach by the Company of any provision of this
Agreement.
Good Reason shall not include Executive's death or Disability. Executive's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder. Any good faith
determination of Good Reason made by Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15(f) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) specifies the termination
date. If a dispute exists concerning the provisions of this Agreement that apply
to Executive's termination of employment, the parties shall pursue the
resolution of such dispute with reasonable diligence. Within five (5) days of
such a resolution, any party owing any payments pursuant to the provisions of
this Agreement shall make all such payments together with
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interest accrued thereon at the rate provided in Section 1274(b)(2)(B) of the
Internal Revenue Code of 1986, as amended (the "Code").
(e) DATE OF TERMINATION. "Date of Termination" means (i) if Executive's
employment is terminated other than by reason of death or Disability, the date
of receipt of the Notice of Termination, or any later date specified therein, or
(ii) if Executive's employment is terminated by reason of death or Disability,
the Date of Termination will be the date of death or the Disability Effective
Date, as the case may be.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY THE COMPANY
OTHER THAN FOR CAUSE. If, during the Employment Period, the Company shall
terminate Executive's employment other than for Cause, or Executive shall
terminate employment for Good Reason, then:
(i) the Company shall pay to Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of
Executive's target annual bonus for the year in which the Date of
Termination occurred (the "Target Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365, and
(3) any accrued vacation pay to the extent not theretofore paid, and
(4) unless Executive has elected a different payout date in a prior
deferral election, any compensation previously deferred by Executive
(together with any accrued interest or earnings thereon) to the extent
not theretofore paid (the sum of the amounts described in clauses (1),
(2), (3) and (4) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to three times the sum of (1) Executive's Base
Salary in effect as of the Date of Termination, and (2) the Target Annual
Bonus; and
(ii) for three years after the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to Executive and/or
Executive's family at least equal to those which would have been provided to
them in accordance with the Welfare Plans described in Section 5(c) of this
Agreement if Executive's employment had not been terminated or, if more
favorable to Executive, as in effect generally at any time thereafter with
respect to other Peer Executives and their families, provided, however, that
if Executive becomes re-employed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility; and
(iii) all of Executive's outstanding stock options and other incentive
awards from the Company in the nature of rights that may be exercised shall
become fully exercisable and all restrictions on Executive's outstanding
awards of restricted stock shall lapse; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to Executive any other amounts or benefits required to
be paid or provided or which Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH; DISABILITY OR RETIREMENT. If Executive's employment is
terminated by reason of Executive's death, Disability or Retirement during the
Employment Period, this Agreement shall terminate without further obligations to
Executive or his legal representatives under this Agreement, other than
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for payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as used in this Section 7(b) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
under such plans, programs, practices and policies relating to death, disability
or retirement benefits, if any, as are applicable to Executive on the Date of
Termination.
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD REASON. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations
(excluding the pro-rata bonus described in clause 2 of Section 7(a)(i)(A)) and
the timely payment or provision of Other Benefits.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company and for which Executive may qualify,
nor, subject to Section 15(d), shall anything herein limit or otherwise affect
such rights as Executive may have under any contract or agreement with the
Company. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a certified public accounting firm selected by Executive and
reasonably acceptable to the Company as may be designated by Executive (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is reasonably
requested by the Company. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Executive thereafter
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is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
10. COSTS OF ENFORCEMENT. In any action taken in good faith relating to
the enforcement of this Agreement or any provision herein, Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
trial, bankruptcy or appellate proceedings.
11. REPRESENTATIONS AND WARRANTIES. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any person or entity, and Executive's
execution of this Agreement and performance of his obligations hereunder will
not violate the terms or conditions of any contract or obligation, written or
oral, between Executive and any other person or entity.
12. RESTRICTIONS ON CONDUCT OF EXECUTIVE.
(a) GENERAL. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect legitimate business
interests of the Company, as more fully described below, and is not intended to
eliminate Executive's post-employment competition with the Company per se, nor
is it intended to impair or infringe upon Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. Executive
hereby acknowledges that the post-employment restrictions set forth in this
Section 12 are reasonable and that they do not, and will not, unduly impair his
ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law, Executive shall be
subject to the restrictions set forth in this Section 12.
(b) DEFINITIONS. The following capitalized terms used in this Section 12
shall have the meanings assigned to them below, which definitions shall apply to
both the singular and the plural forms of such terms:
"COMPETITIVE POSITION" means any employment with a Competitor in which
Executive will use or is likely to use any Confidential Information or Trade
Secrets, or in which Executive has duties for such Competitor that relate to
Competitive Services and that are the same or similar to those services actually
performed by Executive for the Company;
"COMPETITIVE SERVICES" means the provision of banking products and services
similar in scope to those provided by the Company and its subsidiaries as of the
Effective Date.
"COMPETITOR" means any Person engaged, wholly or in part, in Competitive
Services.
"CONFIDENTIAL INFORMATION" means all information regarding the Company, its
activities, business or clients that is the subject of reasonable efforts by the
Company to maintain its confidentiality and that is not generally disclosed by
practice or authority to persons not employed by the Company, but that does not
rise to the level of a Trade Secret. "Confidential Information" shall include,
but is not limited to, financial plans and data concerning the Company;
management planning information; business plans; operational methods; market
studies; marketing plans or strategies; product development techniques or plans;
customer lists; details of customer contracts; current and anticipated customer
requirements; past, current and planned research and development; business
acquisition plans; and new personnel acquisition plans. "Confidential
Information" shall not include information that has become generally available
to the public by the act of one who has the right to disclose such information
without violating any right or privilege of the Company. This definition shall
not limit any definition of "confidential information" or any equivalent term
under state or federal law.
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"DETERMINATION DATE" means the date of termination of Executive's employment
with the Company for any reason whatsoever or any earlier date (during the
Employment Period) of an alleged breach of the Restrictive Covenants by
Executive.
"PERSON" means any individual or any corporation, partnership, joint
venture, limited liability company, association or other entity or enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has sold its
products or services or solicited to sell its products or services during the
twelve (12) months prior to the Determination Date.
"PROTECTED EMPLOYEES" means employees of the Company who were employed by
the Company at any time within six (6) months prior to the Determination Date.
"RESTRICTED PERIOD" means the Employment Period and a period extending two
(2) years from the Date of Termination.
"RESTRICTED TERRITORY" means the areas within a 25 mile radius of each
banking office of the Company or its subsidiaries immediately after the
Effective Date.
"RESTRICTIVE COVENANTS" means the restrictive covenants contained in
Section 9(c) hereof.
"TRADE SECRET" means all information, without regard to form, including, but
not limited to, technical or nontechnical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, distribution lists or a list of
actual or potential customers, advertisers or suppliers which is not commonly
known by or available to the public and which information: (A) derives economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (B) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Without limiting the
foregoing, Trade Secret means any item of confidential information that
constitutes a "trade secret(s)" under the common law or statutory law of the
State of Georgia.
(c) RESTRICTIVE COVENANTS.
(i) Restriction on Disclosure and Use of Confidential Information and
Trade Secrets.
Executive understands and agrees that the Confidential Information and
Trade Secrets constitute valuable assets of the Company and its affiliated
entities, and may not be converted to Executive's own use. Accordingly,
Executive hereby agrees that Executive shall not, directly or indirectly, at
any time during the Restricted Period reveal, divulge, or disclose to any
Person not expressly authorized by the Company any Confidential Information,
and Executive shall not, directly or indirectly, at any time during the
Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company.
Throughout the term of this Agreement and at all times after the date that
this Agreement terminates for any reason, Executive shall not directly or
indirectly transmit or disclose any Trade Secret of the Company to any
Person, and shall not make use of any such Trade Secret, directly or
indirectly, for himself or for others, without the prior written consent of
the Company. The parties acknowledge and agree that this Agreement is not
intended to, and does not, alter either the Company's rights or Executive's
obligations under any state or federal statutory or common law regarding
trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not
be restricted from disclosing or using Confidential Information that is
required to be disclosed by law, court order or other legal process;
provided, however, that in the event disclosure is required by law,
Executive
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shall provide the Company with prompt notice of such requirement so that the
Company may seek an appropriate protective order prior to any such required
disclosure by Executive.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Executive understands and
agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be
converted to Executive's own use. Accordingly, Executive hereby agrees that
during the Restricted Period Executive shall not directly or indirectly on
Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with
any other Person.
(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED CUSTOMERS. Executive
understands and agrees that the relationship between the Company and each of
its Protected Customers constitutes a valuable asset of the Company and may
not be converted to Executive's own use. Accordingly, Executive hereby
agrees that, during the Restricted Period, Executive shall not, without the
prior written consent of the Company, directly or indirectly, on Executive's
own behalf or as a Principal or Representative of any Person, solicit,
divert, take away or attempt to solicit, divert or take away a Protected
Customer for the purpose of providing or selling Competitive Services;
provided, however, that the prohibition of this covenant shall apply only to
Protected Customers with whom Executive had Material Contact on the
Company's behalf during the twelve (12) months immediately preceding the
termination of his employment hereunder. For purposes of this Agreement,
Executive had "Material Contact" with a Protected Customer if (a) he had
business dealings with the Protected Customer on the Company's behalf;
(b) he was responsible for supervising or coordinating the dealings between
the Company and the Protected Customer; or (c) he obtained Trade Secrets or
Confidential Information about the customer as a result of his association
with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. The parties acknowledge:
(A) that Executive's services under this Agreement require special expertise
and talent in the provision of Competitive Services and that Executive will
have substantial contacts with customers of the Company; (B) that pursuant
to this Agreement, Executive will be placed in a position of trust and
responsibility and he will have access to a substantial amount of
Confidential Information and Trade Secrets and that the Company is placing
him in such position and giving him access to such information in reliance
upon his agreement not to compete with the Company during the Restricted
Period; (C) that due to his management duties, Executive will be the
repository of a substantial portion of the goodwill of the Company and would
have an unfair advantage in competing with the Company; (D) that due to
Executive's special experience and talent, the loss of Executive's services
to the Company under this Agreement cannot reasonably or adequately be
compensated solely by damages in an action at law; (E) that Executive is
capable of competing with the Company; and (F) that Executive is capable of
obtaining gainful, lucrative and desirable employment that does not violate
the restrictions contained in this Agreement. In consideration of the
compensation and benefits being paid and to be paid by the Company to
Executive hereunder, Executive hereby agrees that, during the Restricted
Period, Executive will not, without prior written consent of the Company,
directly or indirectly seek or obtain a Competitive Position in the
Restricted Territory with a Competitor; provided, however, that the
provisions of this Agreement shall not be deemed to prohibit the ownership
by Executive of any securities of the Company or its affiliated entities or
not more than five percent (5%) of any class of securities of any
corporation having a class of securities registered pursuant to the
Securities Exchange Act of 1934, as amended.
(d) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) Rights and Remedies Upon Breach.In the event Executive breaches, or
threatens to commit a breach of, any of the provisions of the Restrictive
Covenants, the Company shall have the
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right and remedy to enjoin, preliminarily and permanently, Executive from
violating or threatening to violate the Restrictive Covenants and to have
the Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company. Such
right and remedy shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company at law or in equity.
(ii) Severability of Covenants.Executive acknowledges and agrees that
the Restrictive Covenants are reasonable and valid in time and scope and in
all other respects. The covenants set forth in this Agreement shall be
considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in
any court of competent jurisdiction, such invalidity, voidness or
unenforceability shall not render invalid, void or unenforceable any other
part or provision of this Agreement. If any portion of the foregoing
provisions is found to be invalid or unenforceable by a court of competent
jurisdiction because its duration, the territory, the definition of
activities or the definition of information covered is considered to be
invalid or unreasonable in scope, the invalid or unreasonable term shall be
redefined, or a new enforceable term provided, such that the intent of the
Company and Executive in agreeing to the provisions of this Agreement will
not be impaired and the provision in question shall be enforceable to the
fullest extent of the applicable laws.
13. ARBITRATION. Any claim or dispute arising under this Agreement shall
be subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. Section1, ET. SEQ. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. Such an award shall be binding and conclusive upon the parties hereto,
subject to 9 U.S.C. Section10. Each party shall have the right to have the award
made the judgment of a court of competent jurisdiction.
14. ASSIGNMENT AND SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior written
consent of the Company shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
15. MISCELLANEOUS.
(a) WAIVER. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
(b) SEVERABILITY. If any provision or covenant, or any part thereof, of
this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity,
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illegality or unenforceability shall not affect the validity, legality or
enforceability of the remaining provisions or covenants, or any part thereof, of
this Agreement, all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
(d) ENTIRE AGREEMENT. Except as provided herein, this Agreement contains
the entire agreement between the Company and Executive with respect to the
subject matter hereof and, from and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of Georgia
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
<TABLE>
<S> <C>
To Company: First Sterling Banks, Inc.
Edward C. Milligan, President and CEO
1200 Barrett Parkway
Kennesaw, Georgia 30144
To Executive: Sam B. Hay
625 Cornish Mountain Road
Oxford, Georgia 30054
</TABLE>
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
(h) CONSTRUCTION. Each party and his or its counsel have reviewed this
Agreement and have been provided the opportunity to revise this Agreement and
accordingly, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement. Instead, the language of all parts of this
Agreement shall be construed as a whole, and according to its fair meaning, and
not strictly for or against either party.
(signatures on following page)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
FIRST STERLING BANKS, INC.
By:
----------------------------------------
Title: President and CEO
EXECUTIVE:
---------------------------------------------
Sam B. Hay
</TABLE>
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APPENDIX B TO JOINT
PROXY STATEMENT/PROSPECTUS
FIRST STERLING BANKS, INC.
1999 DIRECTORS STOCK OPTION PLAN
1. DEFINITIONS
a. "Banks"--Community Bank of Georgia, The Eastside Bank & Trust Company
and The Westside Bank & Trust Company
b. "Board"--Board of Directors of the Corporation
c. "Code"--IRS Code Section 83.
d. "Committee"--a committee named specifically to administer this Plan.
e. "Common Stock"--common voting stock of the Corporation.
f. "Corporation"--FIRST STERLING BANKS, INC.
g. "Director"--a voting member of any of the Boards of Directors of the
Banks or the Corporation
h. "Emeritus Director"--a former Director of any of the Banks or the
Corporation who has been designated by any of the Boards of Directors of
the Banks or the Corporation as an emeritus non-voting advisor member of
any such Board.
i. "Fair Market Value"--determined in good faith by the Board by reference
to the price at which the shares of Common Stock are trading on the
NASDAQ National Market System or any other exchange on which the shares
may be traded.
j. "Option"--right to purchase shares of Common Stock.
k. "Option Agreement"--formal agreement for each grant with specific terms
and conditions not inconsistent with this Plan.
l. "Optionee"--an eligible person under Section 5 below who has been
granted options under Plan.
m. "Plan"--the 1999 Directors Stock Option Plan.
2. PURPOSE
To advance the interests of the Banks and the Corporation and its
shareholders by providing Directors and Emeritus Directors of the Banks and
the Corporation a sense of proprietorship and personal involvement and to
encourage Directors and Emeritus Directors of the Banks and the Corporation
to remain with and devote their best efforts to their respective Bank or the
Corporation.
3. SHARES SUBJECT TO THE PLAN
There shall be authorized and reserved for issuance upon the exercise of
Options to be granted under the Plan 100,000 shares of Common Stock.
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4. ADMINISTRATION
A Committee appointed by the Board with not less than three members will
have complete authority to interpret the Plan, make grants, and determine
terms and conditions within the context of the Plan.
5. ELIGIBILITY
The following persons are eligible to receive options under the Plan: All
Directors and Emeritus Directors of the Banks and the Corporation. To the
extent that shares are available, Directors who take office subsequent to
the effective date of the Plan shall be eligible to receive Options.
6. GRANTING OF OPTIONS; OPTION EXERCISE PRICE
All Options granted under the Plan will be Non-Qualified Options as
evidenced by a Non-Qualified Option Agreement. The following individuals
will receive an Option to purchase the number of shares indicated at $11.50
per share, which the Committee has determined to be the Fair Market Value of
the stock as of the date of the grant. The grant and the Option will vest
immediately.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Eugene L. Argo.............................................. 5,645
James L. Armstrong.......................................... 5,645
Dean T. Teusaw.............................................. 5,645
Hugh Norton................................................. 5,645
Thomas M. Carnes............................................ 3,000
Larry N. Reed............................................... 3,000
Robert C. Pittard........................................... 3,000
Ted A. Murphy............................................... 22,000
</TABLE>
The Committee may make additional grants of options as desirable. Any Option
granted hereunder shall have a per share option exercise price at least
equal to the Fair Market Value of a share on the date of the grant as
determined in good faith by the Board of Directors.
7. TERM OF OPTION
Options granted hereunder shall be exercisable in whole or in part, from
time to time, during the ten year period subsequent to the date of the
grant. Except as provided in Section 11, no Option granted under the Plan
may be exercised prior to six months after the date it is granted.
8. MANNER OF EXERCISE
The Options shall be exercised by written notice, delivered to the
Corporation and signed by the Director or Emeritus Director or his or her
successors stating the number of shares with respect to which the Option is
being exercised. Payment in full of the Option price of the said shares must
be made at the time of exercise, and payment may be made in cash or shares
of the Common Stock previously held by the Optionee or a combination.
Payment in shares may be made with shares received upon the exercise or
partial exercise of an Option, whether or not involving a series of
exercises or partial exercises and whether or not share certificates for
such shares surrendered have been delivered to the Optionee. Shares
surrendered in payment of the Option Price shall be valued at the Fair
Market Value as of the date of the exercise.
Except as otherwise provided herein at the time of the exercise of an
Option, the Optionee must be a Director or an Emeritus Director.
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9. NON-TRANSFERABILITY
Options can only be transferred by will or by the laws of descent and
distribution.
10. TERMINATION OF SERVICE AS A DIRECTOR OR EMERITUS DIRECTOR
At the later of the time that an Optionee ceases to be a Director or an
Emeritus Director other than by his or her death or disability, all Options
held by him or her at the time of such termination shall be exercisable by
such Optionee but only:
a. if and to the extent the same were exercisable at the time such Optionee
ceases to be a Director or Emeritus Director, and
b. prior to the earlier of (1) the expiration dates of such Options or
(2) that date which is twelve (12) months from the date such Optionee
ceases to be a Director or an Emeritus Director, such twelve (12) month
period to include the date on which such termination occurs, provided
that the Board may in its discretion extend such date for an additional
twelve (12) months.
If an Optionee ceases to be a Director or an Emeritus Director as a result
of such Optionee's death or disability then all Options held by such
Optionee on the date of such termination shall be exercisable in full,
whether or not exercisable on the date of such termination, but only at any
time prior to the earlier of (1) the expiration dates of such Options or
(2) that date which is two years from the date such Optionee ceases to be a
Director or Emeritus Director. In the event of the death of an Optionee then
such Optionee's Options shall be exercisable to the extent herein otherwise
provided by the executor or personal representative of the Optionee's estate
or by any person who acquired the right to exercise such Options by bequest
under the Optionee's will or by inheritance. In the event of the mental
disability of an Optionee then such Optionee's Options shall be exercisable
to the extent herein otherwise provided by the legal representative of the
Optionee.
If any Optionee ceases to be a Director and immediately is appointed an
Emeritus Director then the provisions of this Paragraph 10 shall not apply
until he or she ceases to be an Emeritus Director.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; ACCELERATION OF EXERCISE RIGHTS
The total number of shares on which Options may be granted under the Plan
and Option rights (both as to the number of shares and the option price)
shall be appropriately adjusted for any increase or decrease in the number
of outstanding shares of Common Stock of the Corporation resulting from a
stock split or payment of a stock dividend on the Common Stock, a
subdivision or combination of shares of the Common Stock, or a
reclassification of the Common Stock, and in the event of a merger or
consolidation in accordance with the following paragraph.
After any merger, consolidation or reorganization of any form involving the
Corporation as a party thereto involving any exchange, conversion,
adjustment or other modification of the outstanding shares of the
Corporation's Common Stock, each Optionee at the time of such reorganization
shall, at no additional cost, be entitled, upon any exercise of his Option,
to receive, in lieu of the number of shares as to which such Option shall
then be so exercised, the number and class of shares of stock or other
securities or such other property to which such Optionee would have been
entitled pursuant to the terms of the agreement of merger or consolidation,
if at the time of such merger or consolidation, such Optionee had been a
holder of record of a number of shares of the Common Stock of the
Corporation equal to the number of shares as to which such Option shall then
be so exercised. Comparable rights shall accrue to each Optionee in the
event of successive mergers or consolidations of the character described
above.
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The foregoing adjustments and the manner of their application will be in the
sole discretion of the Committee to determine.
In the event of: (1) the adoption of a plan of merger or consolidation in
which the Corporation's shareholders as a group would receive less than 50%
of the voting capital stock of the surviving entity; (2) the approval by the
Board of Directors of the Corporation of an agreement providing for the sale
or transfer (other than as security for obligations of the Corporation) of
substantially all the assets of the Corporation; or (3) the acquisition of
more than 20% of the Corporation's voting capital stock by any person as
defined by Section 13(d)(3) of the Securities and Exchange Act of 1934,
other than a person, or group including a person who beneficially owned, as
of the effective date of the Plan, more than 3% of the Corporation's
securities, then, in the absence of a prior expression of approval of the
Board Of Directors of the Corporation, any Option granted hereunder shall
become immediately exercisable in full, subject to any appropriate
adjustments in the number of shares subject to Option and the Option Price,
and shall remain exercisable for the remaining term of such Option,
regardless of whether such option has been outstanding for six months or of
any provision contained in the Stock Option Agreement with respect to
limitations of the exercisability of the Option or any portion thereof for
any length of time.
Anything contained herein to the contrary notwithstanding, upon the
dissolution or liquidation of the Corporation each Option granted under the
Plan shall terminate.
The grant of an Option pursuant to this Plan shall not in any way affect the
right or power of the Corporation to make adjustments, reclassifications, or
changes of its capital or business structure, or to merge or consolidate, or
to dissolve, liquidate or sell, or transfer all or any part of its business
or assets.
12. EFFECTIVENESS OF THE PLAN
The effective date of the Plan shall be June 22, 1999, the date of the
approval of the Plan by the Board of Directors of the Corporation, subject
to the approval of the Plan by the shareholders of the Corporation within
one (1) year following such date. No Option granted hereunder may be
exercised prior to the approval of the Plan by the shareholders of the
Corporation, and in the event that the shareholders fail to approve the Plan
within one year of any Option grants made pursuant to the Plan, then all
such Options shall be void.
No Options may be granted under the Plan after the expiration of ten years
from and including the effective date of the Plan.
13. AMENDMENT AND TERMINATION
The Plan may be amended or terminated by the Board at any time as deemed in
the best interests of the Corporation; provided, however, no amendments
shall be made in the Plan without the approval of the shareholders of the
Corporation which:
a. Increase the total number of shares for which options may be granted
under the Plan except as provided in Section 11.
b. Change the minimum purchase price for the optioned shares except as
provided in Section 11.
c. Affect any outstanding option or any unexercised right thereunder except
as provided in Section 11.
d. Extend the option period provided in Section 7.
e. Extend the termination date of the Plan.
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<PAGE>
APPENDIX C TO JOINT
PROXY STATEMENT/PROSPECTUS
GEORGIA DISSENTERS' RIGHTS STATUTE
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 14-2-1104 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;
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(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
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or share
exchange to accept for their shares anything except shares of the surviving
corporation or another publicly held corporation which at the effective date
of the merger or share exchange are either listed on a national securities
exchange or held of record by more than 2,000 shareholders, except for scrip
or cash payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his or her name only if he or she dissents with respect to
all shares beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
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.
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14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters rights under Code
Section 14-2-1302 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in Code
Section 14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his 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) A record shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this article.
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<PAGE>
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
(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.
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<PAGE>
(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 Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his or her shares,
plus interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code
Section 14-2-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court, but
not including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, an amount
the court finds equitable, to the extent the court
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<PAGE>
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>
APPENDIX D TO JOINT
PROXY STATEMENT/PROSPECTUS
OPINION OF BROWN, BURKE CAPITAL PARTNERS, INC.
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<PAGE>
[BROWN, BURKE CAPITAL PARTNERS, INC. LETTERHEAD]
March 28, 2000
Board of Directors
First Sterling Banks, Inc.
P.O. Box 2147
Marietta, GA 30061
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the
shareholders of First Sterling Bancshares, Inc. ("First Sterling"), from a
financial point of view, of the exchange ratio (the "Exchange Ratio") provided
for in the Merger Agreement (the "Merger Agreement") dated as of December 1,
1999 between First Sterling and Main Street Banks, Inc. ("Main Street"). The
Merger Agreement provides for a merger (the "Merger") of First Sterling and Main
Street pursuant to which the common shareholders of Main Street will receive
1.01 shares of First Sterling common stock for every common share of Main Street
they hold.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to First Sterling and Main Street. We have
also reviewed certain other information, including financial forecasts and
budgets, provided to us by First Sterling and Main Street, and have discussed
the business and prospects of First Sterling and Main Street with their
respective managements.
We have also considered certain financial and stock market data of First
Sterling and Main Street and we have compared that data with similar data for
other publicly-held bank holding companies. Additionally, we have considered the
financial terms of certain other comparable transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant. In connection with our review, we have not independently
verified any of the foregoing information and have relied on its being complete
and accurate in all material respects. With respect to the financial forecasts
and budgets, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of First
Sterling's and Main Street's managements as to the future financial performance
of First Sterling and Main Street. We have not made an independent evaluation or
appraisal of the assets of First Sterling or Main Street and we have assumed
that the aggregate allowances for loan losses for both First Sterling and Main
Street are adequate to cover such losses.
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof and this opinion does not represent
our view as to what the value of the First Sterling common shares necessarily
will be when those shares are issued to the stockholders of Main Street upon
consummation of the Merger.
D-2
<PAGE>
We have acted as financial advisor to First Sterling in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
We agree to the inclusion of this opinion letter in the Proxy
Statement/Prospectus relating to the Merger. The opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof, the Exchange Ratio of the Merger is fair to the common shareholders of
First Sterling from a financial point of view.
Very truly yours,
/s/ Brown, Burke Capital Partners, Inc.
BROWN, BURKE CAPITAL PARTNERS, Inc.
D-3
<PAGE>
APPENDIX E TO JOINT
PROXY STATEMENT/PROSPECTUS
OPINION OF THE CARSON MEDLIN COMPANY
E-1
<PAGE>
[LETTERHEAD OF THE CARSON MEDLIN COMPANY]
March 28, 2000
Board of Directors
Main Street Banks, Incorporated
1121 Floyd Street
Covington, Georgia 30014
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of Main Street
Banks, Incorporated ("Main Street Banks") under the terms of that certain
Agreement and Plan of Merger dated December 1, 1999 (the "Agreement") which
provides for the merger of Main Street Banks with First Sterling Banks, Inc.
("First Sterling Banks") (the "Merger"). Under the terms of the Agreement, each
of the outstanding shares of Main Street Banks common stock shall be converted
into the right to receive 1.01 shares of First Sterling Banks common stock. The
foregoing summary of the Merger is qualified in its entirety by reference to the
Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
member investment banking firm, which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Georgia and the Southeast and the major
commercial banks operating in those markets. We have been retained by Main
Street Banks in a financial advisory capacity to render our opinion hereunder,
for which we will receive compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of First Sterling Banks and Main Street Banks. We
have reviewed: (i) the Agreement; (ii) the annual reports to shareholders and
annual reports on Form 10-K of First Sterling Banks for the five years ended
December 31, 1998; (iii) audited financial statements of Main Street Banks for
the five years ended December 31, 1998; (iv) unaudited financial statements of
First Sterling Banks for the year ended December 31, 1999; (v) unaudited
financial statements of Main Street Banks for the year ended December 31, 1999;
and, (vi) certain other financial and operating information with respect to the
business, operations and prospects of First Sterling Banks and Main Street
Banks. We also: (i) reviewed and discussed with members of management of First
Sterling Banks and Main Street Banks the historical and current business
operations, financial condition and future prospects of their respective
companies; (ii) reviewed the historical market prices and trading activity, if
any, for the common stocks of First Sterling Banks and Main Street Banks and
compared them with those of certain other publicly-traded companies which we
deemed to be relevant; (iii) compared the results of operations of First
Sterling Banks and Main Street Banks with those of certain banking companies
which we deemed to be relevant; (iv) compared the proposed financial terms of
the Merger with the financial terms, to the
E-2
<PAGE>
extent publicly available, of certain other recent business combinations of
commercial banking organizations; (v) analyzed the pro forma financial impact of
the Merger on First Sterling Banks; and (vi) conducted such other studies,
analyses, inquiries and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of First
Sterling Banks or Main Street Banks. The opinion we express herein is
necessarily based upon market, economic and other relevant considerations as
they exist and can be evaluated as of the date of this letter.
Based upon the foregoing, it is our opinion that the exchange ratio provided for
in the Agreement is fair, from a financial point of view, to the shareholders of
Main Street Banks, Incorporated.
Very truly yours,
/s/ THE CARSON MEDLIN COMPANY
THE CARSON MEDLIN COMPANY
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 14-2-850 through 14-2-859 of the Georgia Business Corporation Code
set forth provisions pertaining to the indemnification of and insurance for
directors and officers of a corporation. The Georgia Business Corporation Code
provides for the mandatory indemnification of a director, against reasonable
expenses incurred by the director in connection with a proceeding, where a
director is wholly successful in the defense of the proceeding and where the
proceeding is one to which he or she was a party because he or she was a
director of the corporation. The Georgia Business Corporation Code grants the
Registrant the power to indemnify its directors and officers against liability
for certain of their acts.
Article 11 (Article 10 of the Restated Articles of Incorporation if approved
by the First Sterling shareholders) 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 Main Street Banks 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 and
insurance for 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
- --------------------- ------------------------------------------------------------
<C> <S>
2.1 Merger Agreement dated December 1, 1999, between the
Registrant and Main Street Banks Incorporated, included as
APPENDIX A to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
4.1 See 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-4 (File No.
33-78046) (incorporated by reference)
4.2 See page 1 of the Form of Registrant's Restated Articles of
Incorporation, included as Exhibit A to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
5.1 Opinion of Miller & Martin LLP as to the legality of the
securities being registered
8.1 Form of 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)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
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. 333-56473) (incorporated
by reference)
10.8 Form of Registrant's 1997 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-56473)
(incorporated by reference)
10.9 Registrant's 1997 Incentive Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated
by reference)
10.10 Form of Registrant's 1997 Incentive Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-74555)
(incorporated by reference)
10.11 Registrant's 1999 Directors Stock Option Plan included as
APPENDIX B to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
10.12 Form of Registrant's 1999 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-88645)
(incorporated by reference)
10.13 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.
333-03116) (incorporated by reference)
10.14 Proposed Employment Agreement, between the Registrant and
Edward C. Milligan, to be entered into upon consummation of
the merger of the Registrant and Main Street Banks
Incorporated, included in Exhibit B to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
10.15 Proposed Employment Agreement, between the Registrant and
Robert R. Fowler, III, to be entered into upon consummation
of the merger between the Registrant and Main Street Banks
Incorporated, included in Exhibit B to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
10.16 Proposed Employment Agreement, between the Registrant and
Sam B. Hay, to be entered into upon consummation of the
merger of the Registrant and Main Street Banks Incorporated,
included in Exhibit B to the Merger Agreement included as
APPENDIX A to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
10.17 Proposed Employment Agreement, between the Registrant and
Joseph K. Strickland, Jr., to be entered into upon
consummation of the merger between the Registrant and Main
Street Banks Incorporated
10.18 Employment Agreement dated January 5, 1998, between The
Eastside Bank & Trust Company and Christopher H. Burnett
filed as Exhibit 10.14 to Registrant's Form 10-KSB for the
year ended December 31, 1998 (incorporated by reference)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.19 Employment Agreement dated January 1, 1998 between Community
Bank of Georgia and Ted A. Murphy
13.1 Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999 (incorporated by reference)
23.1 Consents of Miller & Martin LLP are contained in its
opinions filed as Exhibits 5.1 and 8.1 hereto
23.2 Consent of Mauldin & Jenkins, LLC concerning the financial
statements of First Sterling Banks, Inc.
23.3 Consent of Ernst & Young LLP concerning the financial
statements of Main Street Banks Incorporated
23.4 Consent of Brown, Burke Capital Partners, Inc.
23.5 Consent of The Carson Medlin Company
23.6 Consent of Porter Keadle Moore, LLP concerning the financial
statements of Georgia Bancshares, Inc.
24 A Power of Attorney relating to this Registration Statement
is set forth on the signature pages to this Registration
Statement
99.1 Opinion of The Carson Medlin Company dated March 28, 2000
(included as APPENDIX E to the Joint Proxy
Statement/Prospectus)
99.2 Opinion of Brown, Burke Capital Partners, Inc. dated March
28, 2000 (included as APPENDIX D to the Joint Proxy
Statement/Prospectus)
99.3 Form of Proxy Card for the Annual Meeting of Shareholders of
Registrant
99.4 Form of Proxy Card for the Special Meeting of Shareholders
of Main Street Banks Incorporated
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
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<PAGE>
(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 that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
(c) 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.
(d) (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.
(e) 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 foregoing provisions, 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
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
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<PAGE>
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.
(f) 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.
(g) 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.
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<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 28th day of March, 2000.
<TABLE>
<S> <C>
FIRST STERLING BANKS, INC.
/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, Chief Executive March 28, 2000
Edward C. Milligan Officer and Director(1)
/s/ HARRY L. HUDSON, JR.
------------------------------------------- Director March 28, 2000
Harry L. Hudson, Jr.
/s/ JOHN S. THIBADEAU, JR.
------------------------------------------- Director March 28, 2000
John S. Thibadeau, Jr.
/s/ HONORABLE P. HARRIS HINES
------------------------------------------- Director March 28, 2000
Honorable P. Harris Hines
/s/ BENJAMIN H. WOFFORD, M.D.
------------------------------------------- Director March 28, 2000
Benjamin H. Wofford, M.D.
/s/ EUGENE L. ARGO
------------------------------------------- Director March 28, 2000
Eugene L. Argo
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TED A. MURPHY
------------------------------------------- Director March 28, 2000
Ted A. Murphy
/s/ JAMES L. ARMSTRONG, JR.
------------------------------------------- Director March 28, 2000
James L. Armstrong, Jr.
/s/ CHRISTOPHER H. BURNETT
------------------------------------------- Director March 28, 2000
Christopher H. Burnett
/s/ BARBARA J. BOND
------------------------------------------- Secretary(2) March 28, 2000
Barbara J. Bond
</TABLE>
- ------------------------
(1) Principal executive officer
(2) Principal financial and accounting officer
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
2.1 Merger Agreement dated December 1, 1999, between the
Registrant and Main Street Banks Incorporated, included as
APPENDIX A to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
4.1 See 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-4 (File No.
33-78046) (incorporated by reference)
4.2 See page 1 of the Form of Registrant's Restated Articles of
Incorporation, included as Exhibit A to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
5.1 Opinion of Miller & Martin LLP as to the legality of the
securities being registered
8.1 Form of 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. 333-56473) (incorporated
by reference)
10.8 Form of Registrant's 1997 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-56473)
(incorporated by reference)
10.9 Registrant's 1997 Incentive Stock Option Plan filed as
Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated
by reference)
10.10 Form of Registrant's 1997 Incentive Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-74555)
(incorporated by reference)
10.11 Registrant's 1999 Directors Stock Option Plan included as
APPENDIX B to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
10.12 Form of Registrant's 1999 Directors Stock Option Agreement
filed as Exhibit 4.2 to Form S-8 (File No. 333-88645)
(incorporated by reference)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.13 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.
333-03116) (incorporated by reference)
10.14 Proposed Employment Agreement, between the Registrant and
Edward C. Milligan, to be entered into upon consummation of
the merger of the Registrant and Main Street Banks
Incorporated, included in Exhibit B to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
10.15 Proposed Employment Agreement, between the Registrant and
Robert R. Fowler, III, to be entered into upon consummation
of the merger between the Registrant and Main Street Banks
Incorporated, included in Exhibit B to the Merger Agreement
included as APPENDIX A to the Joint Proxy
Statement/Prospectus set forth in Part I of the Registration
Statement
10.16 Proposed Employment Agreement, between the Registrant and
Sam B. Hay, to be entered into upon consummation of the
merger of the Registrant and Main Street Banks Incorporated,
included in Exhibit B to the Merger Agreement included as
APPENDIX A to the Joint Proxy Statement/Prospectus set forth
in Part I of the Registration Statement
10.17 Proposed Employment Agreement, between the Registrant and
Joseph K. Strickland, Jr., to be entered into upon
consummation of the merger between the Registrant and Main
Street Banks Incorporated
10.18 Employment Agreement dated January 5, 1998, between The
Eastside Bank & Trust Company and Christopher H. Burnett
filed as Exhibit 10.14 to Registrant's Form 10-KSB for the
year ended December 31, 1998 (incorporated by reference)
10.19 Employment Agreement dated January 1, 1998 between Community
Bank of Georgia and Ted A. Murphy
13.1 Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999 (incorporated by reference)
23.1 Consents of Miller & Martin LLP are contained in its
opinions filed as Exhibits 5.1 and 8.1 hereto
23.2 Consent of Mauldin & Jenkins, LLC concerning the financial
statements of First Sterling Banks, Inc.
23.3 Consent of Ernst & Young LLP concerning the financial
statements of Main Street Banks Incorporated
23.4 Consent of Brown, Burke Capital Partners, Inc.
23.5 Consent of The Carson Medlin Company
23.6 Consent of Porter Keadle Moore, LLP concerning the financial
statements of Georgia Bancshares, Inc.
24 A Power of Attorney relating to this Registration Statement
is set forth on the signature pages to this Registration
Statement
99.1 Opinion of The Carson Medlin Company dated March 28, 2000
(included as APPENDIX E to the Joint Proxy
Statement/Prospectus)
99.2 Opinion of Brown, Burke Capital Partners, Inc. dated March
28, 2000 (included as APPENDIX D to the Joint Proxy
Statement/Prospectus)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
99.3 Form of Proxy Card for the Annual Meeting of Shareholders of
Registrant
99.4 Form of Proxy Card for the Special Meeting of Shareholders
of Main Street Banks Incorporated
</TABLE>
II-10
<PAGE>
Exhibit 5.1
[Miller & Martin LLP Letterhead]
March 28, 2000
First Sterling Banks, Inc.
676 Chastain Road
Kennesaw, Georgia 30144
RE: FIRST STERLING BANKS, INC. ISSUANCE OF SHARES IN CONNECTION WITH
MERGER WITH MAIN STREET BANKS INCORPORATED
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 1, 1999, between the Company and Main Street Banks
Incorporated ("Main Street") which provides for the merger of Main Street into
the Company with the Company as the surviving entity (the "Merger").
The terms of the Merger Agreement provide that each outstanding share of
Main Street stock ("Main Street Stock") owned by a shareholder will be converted
into the right to receive 1.01 share(s) 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.
<PAGE>
First Sterling Banks, Inc.
March 28, 2000
Page 2
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.
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
<PAGE>
Exhibit 8.1
, 2000
--------------
First Sterling Banks, Inc. Main Street Banks Incorporated
Attention: Board of Directors Attn: Board of Directors
676 Chastain Road 1121 Floyd Street
Kennesaw, Georgia 30144 Covington, Georgia 30014
Re: Tax Opinion for the Merger Transaction Involving FIRST STERLING
BANKS, INC. AND MAIN STREET BANKS INCORPORATED
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain matters of
U.S. federal income tax law in connection with the proposed merger (the
"MERGER") involving First Sterling Banks, Inc., a corporation organized and
existing under the laws of the State of Georgia ("FSLB"), and Main Street Banks
Incorporated, a corporation organized and existing under the laws of the State
of Georgia ("MAIN STREET").
The Merger is structured as a statutory merger of Main Street with and into
FSLB, with FSLB surviving the merger, all pursuant to the applicable corporate
laws of the State of Georgia in accordance with the Merger Agreement by and
between FSLB and Main Street, made and entered into effective as of December 1,
1999, and exhibits thereto (collectively, the "MERGER AGREEMENT"). Except as
otherwise indicated, capitalized terms used herein have the meanings set forth
in the Merger Agreement. All section references, unless otherwise indicated, are
to the Internal Revenue Code of 1986, as amended (the "CODE").
We have acted as legal counsel to FSLB in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
<PAGE>
First Sterling Banks, Inc.
Main Street Banks Incorporated
, 2000
- --------------------------
Page 2
(1) The Merger Agreement;
(2) The letter of representation from FSLB dated ____________, ____,
signed by an authorized officer of FSLB and delivered to us from FSLB and
incorporated herein by reference; and
(3) The letter of representation from Main Street dated ____________,
____, signed by an authorized officer of Main Street and delivered to us
from Main Street and incorporated herein by reference.
In addition, we have reviewed such other instruments and documents
related to the formation, organization and operation of FSLB and Main Street or
the consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations and are relying thereon (without any independent investigation
or review thereof) that:
(1) Original documents (including signatures) are authentic;
documents submitted to us as copies conform to the original documents, and
there has been (or will be by the Effective Date of the Merger) due
execution and delivery of all documents where due execution and delivery
are prerequisites to the effectiveness thereof;
(2) All participants in the Merger possess adequate legal capacity;
(3) 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;
(4) The Merger will be consummated pursuant to the Merger Agreement
and will be effective under the laws of the State of Georgia;
(5) FSLB has no plan or intention directly or indirectly (through one
or more related parties) to reacquire any of its common stock issued in the
Merger. For these purposes, "RELATED PARTIES" include corporations that are
members of the same affiliated group as defined in Section 1504 of the Code
(determined without regard to Section 1504(b) of the
<PAGE>
First Sterling Banks, Inc.
Main Street Banks Incorporated
, 2000
- ---------------------------
Page 3
Code), or two corporations if the first corporation purchases the stock of
the second corporation in a transaction which would be treated as a
distribution in redemption of the stock of the first corporation under
Section 304(a)(2) of the Code (determined without regard to Treas. Reg.
Section 1.1502-80(b)). In addition, a corporation will be treated as
related to another corporation if such relationship exists immediately
before or immediately after the acquisition of the stock involved.
Moreover, a corporation, other than Main Street or a person related to Main
Street, will be treated as related to FSLB if the relationship is created
in connection with the Merger.
(6) Following the Merger, FSLB will continue Main Street's historic
business or use a significant portion of its historic business assets in a
business;
(7) To the extent any expenses relating to the Merger (or the "plan
of reorganization" within the meaning of Treas. Reg. Section 1.368-1(c)
with respect to the Merger) are funded directly or indirectly by a party
other than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187;
(8) At all relevant times prior to and including the Effective Date:
(i) no outstanding indebtedness of FSLB or Main Street has represented or
will represent equity for tax purposes; (ii) no outstanding equity of FSLB
or Main Street has represented or will represent indebtedness for tax
purposes; and (iii) no outstanding security, instrument, agreement or
arrangement that provides for, contains, or represents either a right to
acquire Main Street stock (or to share in the appreciation thereof)
constitutes or will constitute "stock" for purposes of Section 368(c) of
the Code;
(9) Neither FSLB or Main Street is, or will be at the time of the
Merger, an investment company as defined in Section 368(a)(2)(F) of the
Code; and
(10) FSLB and Main Street will report the Merger on their respective
U.S. federal income tax returns in a manner consistent with the opinion set
forth below and will comply with all reporting obligations set forth in the
Code and the Treasury Regulations promulgated thereunder.
Based on 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
<PAGE>
First Sterling Banks, Inc.
Main Street Banks Incorporated
, 2000
- ---------------------------
Page 4
consummated in accordance with the provisions of the Merger Agreement (and
without any waiver, breach of amendment of any of the provisions thereof):
(i) The Merger will constitute a "reorganization" for federal income
tax purposes within the meaning of Section 368(a) of the Code;
(ii) The exchange pursuant to the Merger of Main Street Stock for FSLB
Stock will not give rise to gain or loss for federal income tax purposes to
the stockholders of Main Street with respect to such exchange (except to
the extent of any cash received); and
(iii) Neither Main Street or FSLB will recognize gain or loss for
federal income tax purposes as a consequence of the Merger, except for
income and deferred gain recognized pursuant to Treasury Regulations issued
under Section 1502 of the Code.
Our opinion set forth above is based on the existing provisions of the
Code, Treasury Regulations (including Temporary Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "SERVICE") and existing
court decisions, any of which could be changed at any time. 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.
Nevertheless, 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.
Our opinion concerning certain of the U.S. federal tax consequences of the
Merger is limited to the specific U.S. federal 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 FSLB or Main Street; (ii)
any transaction in which FSLB Stock or Main Street Stock is acquired or 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
Main Street Stock; (iv) the effects of the Merger and FSLB's assumption (if any)
of outstanding options to acquire Main Street Stock on the holders of such
options under any Main Street employee stock option or stock purchase plan,
respectively; (v) the effects of the Merger on any Main Street 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
<PAGE>
First Sterling Banks, Inc.
Main Street Banks Incorporated
, 2000
- ---------------------------
Page 5
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 FSLB or Main Street 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 Main Street 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
representation, 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 that no assurance can be given that contrary positions may not
be taken by the Service or that a court considering the issues would not hold
otherwise.
This opinion is being delivered solely for the purpose of satisfying the
condition set forth in Section 10.6 of the Merger Agreement. This opinion may
not otherwise be relied upon or utilized for any other purpose or by any other
person or entity, and may not be made available to any other person or entity,
without our prior written consent.
We hereby consent to the reference to us under the heading "The Merger
- --Material Federal Income Tax Consequences of the Merger" in the Proxy
Statement-Prospectus pertaining to the Merger and to the filing of this opinion
as an exhibit to the related Registration Statement on Form S-4 filed with the
Securities and Exchange Commission. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
____ day of ___________, 2000 by and among First Sterling Banks, Inc., a Georgia
corporation (hereinafter, the "Company"), and Joseph K. Strickland, Jr.
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive currently serves as the President of Main Street Bank ("MSB"), a
wholly owned subsidiary of Main Street Banks Incorporated ("Main Street"). The
Company and Main Street have entered into that certain Merger Agreement, dated
as of December 1, 1999 (the "Merger Agreement"), pursuant to which Main Street
will merge with and into the Company (the "Merger"). The Company desires to
employ Executive as Executive Vice President, Banking, of the Company following
the Merger, in accordance with the terms of this Agreement. Executive is willing
to serve as such in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. EMPLOYMENT. Executive is hereby employed on the Effective Date as
Executive Vice President, Banking, of the Company. In such capacity, Executive
shall have such responsibilities commensurate with such positions as set forth
in the bylaws of the Company and as shall be assigned to him by the Chief
Executive Officer or the Chief Operating Officer of the Company, or by the Board
of Directors of the Company. Executive will report directly to the Chief
Operating Officer of the Company.
3. EMPLOYMENT PERIOD. Unless earlier terminated herein in accordance with
Section 6 hereof, Executive's employment shall be for a two year term (the
"Employment Period"), beginning on the Effective Date. Beginning on the second
anniversary of the Effective Date and on each anniversary of the Effective Date,
the Employment Period shall, without further action by Executive or the Company,
be extended by an additional one-year period; PROVIDED, HOWEVER, that either
party may, by notice to the other, cause the Employment Period to cease to
extend automatically. Upon such notice, the Employment Period shall terminate
upon the expiration of the then-current term, including any prior extensions.
<PAGE>
4. EXTENT OF SERVICE. During the Employment Period, and excluding any
periods of vacation to which Executive is entitled, Executive agrees to devote
his business time, attention, skill and efforts exclusively to the faithful
performance of his duties hereunder; PROVIDED, HOWEVER, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities and, with the approval of the
Company, industry or professional activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to date of this
Agreement, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of Executive's
responsibilities hereunder.
5. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During each year of the Employment Period, the
Company will pay to Executive annual base salary in the amount equal to U.S.
$142,662 ("Base Salary"), less normal withholdings, payable in equal monthly or
more frequent installments as are customary under the Company's payroll
practices from time to time. The Compensation Committee of the Board of
Directors of the Company shall review Executive's Base Salary annually and in
its sole discretion, subject to approval of the Board of Directors of the
Company, may increase Executive's Base Salary from year to year; provided that
annual increases of at least 3%, intended to approximate cost of living
increases, shall be automatic. The annual review of Executive's salary by the
Board will consider, among other things, Executive's own performance and the
performance of the Company and MSB, as well as any recommendations of an outside
consulting firm that may be engaged by the Company, from time to time, to
evaluate management compensation.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
senior executive officers of the Company ("Peer Executives"), and on the same
basis as such Peer Executives, with full credit given for Executive's total
accumulated years of employment at Main Street or MSB for purposes of
determining vesting and eligibility.
(c) WELFARE BENEFIT PLANS. During the Employment Period, Executive
and Executive's family shall be eligible for participation in, and shall receive
all benefits under, the welfare benefit plans, practices, policies and programs
provided by the Company (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) ("Welfare Plans") to the extent
applicable generally to Peer Executives, with full credit given for Executive's
total accumulated years of employment at Main Street or MSB for purposes of
determining vesting and eligibility.
-2-
<PAGE>
(d) EXPENSES. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company to the extent applicable generally to Peer Executives.
(e) FRINGE BENEFITS. During the Employment Period, Executive shall be
entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company in effect for Peer Executives. Without limiting the
foregoing, during the Employment Period, Executive shall be provided a car
allowance or a Company-owned car of a model appropriate to his position, as
determined by the Compensation Committee of the Board of Directors of the
Company.
(f) PAST SERVICE CREDIT. Executive shall be given full credit for
Executive's years of employment with Main Street or MSB and its predecessors for
all purposes under the plans, programs, policies, agreements and practices
covering Executive pursuant to this Section 5. The Company shall cause the
Welfare Plans to (i) waive, with respect to Executive, any waiting period and
restrictions and limitations for preexisting conditions or insurability, and
(ii) credit Executive with any deductible, co-payment, co-insurance, or maximum
out-of-pocket payments made by Executive under the Welfare Plans so as to reduce
the amount of any deductible, co-payment, co-insurance or maximum out-of-pocket
payments payable by Executive under the Welfare Plans.
6. TERMINATION OF AGREEMENT.
(a) DEATH, RETIREMENT OR DISABILITY. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
if there is no such retirement plan, "Retirement" shall mean voluntary
termination after age 65 with ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice of its intention to terminate Executive's
employment. In such event, Executive's employment shall terminate effective on
the 30th day after receipt of such written notice by Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt,
Executive shall not have returned to full-time performance of Executive's
duties. For purposes of this Agreement, "Disability" shall mean the inability of
Executive, as determined by the Board, to substantially perform the essential
functions of his regular duties and responsibilities, with or without reasonable
accommodation, due to a medically determinable physical or mental illness which
has lasted (or can reasonably be expected to last) for a period of six
consecutive months. At the request of Executive or his personal representative,
the Board's determination that the Disability of Executive has occurred shall be
certified by two physicians mutually agreed upon by Executive, or his personal
representative, and the Company. Failing such independent certification (if so
requested by Executive), Executive's termination shall be deemed a termination
by the Company without Cause and not a termination by reason of his Disability.
-3-
<PAGE>
(b) TERMINATION BY THE COMPANY. The Company may terminate Executive's
employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness, and specifically
excluding any failure by Executive, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to Executive by the Chief Executive Officer, the Chief Operating
Officer or the Board of Directors of the Company which specifically identifies
the manner in which such officer or the Board believes that Executive has not
substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to MSB or the
Company; or
(iii) a requirement by any state or federal authority
regulating the Company or MSB that Executive be removed from his office.
For purposes of this provision, no act or failure to act, on the part of
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of MSB or the Company and its
shareholders and subsidiaries. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by Executive in good faith and in the best interests of MSB
and the Company, its shareholders and subsidiaries. The cessation of employment
of Executive under subparagraph (i) or (ii) above shall not be deemed to be for
Cause unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the entire membership of the Board of Directors the Company at a meeting of
such Board called and held for such purpose (after reasonable notice is provided
to Executive and Executive is given an opportunity, together with counsel, to be
heard before such Board), finding that, in the good faith opinion of such Board,
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) TERMINATION BY EXECUTIVE. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) without the written consent of Executive, a change in
Executive's status, title, position or responsibilities (including reporting
responsibilities) which, in Executive's reasonable judgment, represents an
adverse change from his status, title, position or responsibilities as in effect
at the Effective Date or, if greater, at any time thereafter; the assignment to
Executive of any duties or responsibilities which, in Executive's reasonable
judgment, are inconsistent with his status, title, position or
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responsibilities as in effect at the Effective Date or, if greater, at any time
thereafter; or any other change in condition or circumstances that in
Executive's reasonable judgment makes it materially more difficult for Executive
to carry out the duties and responsibilities of his then-existing office;
provided that Good Reason under this subparagraph (i) excludes an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) a reduction, without the written consent of Executive, in
Executive's Base Salary as in effect on the Effective Date or as the same may be
increased from time to time, or any failure to pay Executive any compensation or
benefits to which he is entitled within five (5) days of the date due;
(iii) the failure by the Company (a) to continue in effect
(without reduction in benefit level and/or reward opportunities) any
compensation or employee benefit plan in which Executive participated as of the
Effective Date, or at any time thereafter, that is material to Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or (b) to continue
Executive's participation therein (or in such substitute or alternative plan) on
a basis not materially less favorable, both in terms of the amount of benefits
provided and the level of Executive's participation therein relative to other
participants; or
(iv) the Company's requiring Executive, without his consent, to
be based at any office or location other than in Covington, Georgia or to travel
on Company business to a substantially greater extent than required immediately
prior to the Effective Date;
(v) the insolvency or the filing by any party, including the
Company or any of its subsidiaries, of a petition for bankruptcy of the Company
or any such subsidiary, which petition is not dismissed within sixty (60) days;
(vi) any failure by the Company to comply with and satisfy
Section 14(c) of this Agreement;
(vii) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(viii) the material breach by the Company of any provision of
this Agreement.
Good Reason shall not include Executive's death or Disability. Executive's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder. Any good faith
determination of Good Reason made by Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15(f) of this Agreement. For
purposes of this Agreement, a "Notice of
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Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so indicated
and (iii) specifies the termination date. If a dispute exists concerning the
provisions of this Agreement that apply to Executive's termination of
employment, the parties shall pursue the resolution of such dispute with
reasonable diligence. Within five (5) days of such a resolution, any party owing
any payments pursuant to the provisions of this Agreement shall make all such
payments together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
(e) DATE OF TERMINATION. "Date of Termination" means (i) if Executive's
employment is terminated other than by reason of death or Disability, the date
of receipt of the Notice of Termination, or any later date specified therein, or
(ii) if Executive's employment is terminated by reason of death or Disability,
the Date of Termination will be the date of death or the Disability Effective
Date, as the case may be.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY EXECUTIVE FOR GOOD REASON; TERMINATION BY THE
COMPANY OTHER THAN FOR CAUSE. If, during the Employment Period, the Company
shall terminate Executive's employment other than for Cause, or Executive shall
terminate employment for Good Reason, then:
(i) the Company shall pay to Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) Executive's Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x)
Executive's target annual bonus for the year in which the Date of
Termination occurred (the "Target Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365, and (3) any
accrued vacation pay to the extent not theretofore paid, and (4) unless
Executive has elected a different payout date in a prior deferral election,
any compensation previously deferred by Executive (together with any
accrued interest or earnings thereon) to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), (3) and (4) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to two times the sum of (1)
Executive's Base Salary in effect as of the Date of Termination, and (2)
the Target Annual Bonus; and
(ii) for two years after the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to Executive and/or
Executive's family at least equal to those which would have been provided to
them in accordance with the Welfare Plans described in Section 5(c) of this
Agreement if Executive's
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employment had not been terminated or, if more favorable to Executive, as in
effect generally at any time thereafter with respect to other Peer Executives
and their families, provided, however, that if Executive becomes re-employed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility; and
(iii) all of Executive's outstanding stock options and other
incentive awards from the Company in the nature of rights that may be exercised
shall become fully exercisable and all restrictions on Executive's outstanding
awards of restricted stock shall lapse; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Executive any other amounts or benefits required
to be paid or provided or which Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the Company (such other
amounts and benefits shall be hereinafter referred to as the "Other Benefits").
(b) DEATH; DISABILITY OR RETIREMENT. If Executive's employment is
terminated by reason of Executive's death, Disability or Retirement during the
Employment Period, this Agreement shall terminate without further obligations to
Executive or his legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as used in this Section 7(b) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
under such plans, programs, practices and policies relating to death, disability
or retirement benefits, if any, as are applicable to Executive on the Date of
Termination.
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD
REASON. If Executive's employment shall be terminated for Cause during the
Employment Period, or if Executive voluntarily terminates employment during the
Employment Period without Good Reason, this Agreement shall terminate without
further obligations to Executive, other than for payment of Accrued Obligations
(excluding the pro-rata bonus described in clause 2 of Section 7(a)(i)(A)) and
the timely payment or provision of Other Benefits.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company and for which Executive may qualify,
nor, subject to Section 15(d), shall anything herein limit or otherwise affect
such rights as Executive may have under any contract or agreement with the
Company. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
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9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a certified public accounting firm selected by
Executive and reasonably acceptable to the Company as may be designated by
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that there has been a Payment, or such earlier
time as is reasonably requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
10. COSTS OF ENFORCEMENT. In any action taken in good faith relating to
the enforcement of this Agreement or any provision herein, Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
trial, bankruptcy or appellate proceedings.
11. REPRESENTATIONS AND WARRANTIES. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any
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person or entity, and Executive's execution of this Agreement and performance of
his obligations hereunder will not violate the terms or conditions of any
contract or obligation, written or oral, between Executive and any other person
or entity.
12. RESTRICTIONS ON CONDUCT OF EXECUTIVE.
(a) GENERAL. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect legitimate business
interests of the Company, as more fully described below, and is not intended to
eliminate Executive's post-employment competition with the Company PER SE, nor
is it intended to impair or infringe upon Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. Executive
hereby acknowledges that the post-employment restrictions set forth in this
Section 12 are reasonable and that they do not, and will not, unduly impair his
ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law, Executive shall be
subject to the restrictions set forth in this Section 12.
(b) DEFINITIONS. The following capitalized terms used in this Section
12 shall have the meanings assigned to them below, which definitions shall apply
to both the singular and the plural forms of such terms:
"COMPETITIVE POSITION" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"COMPETITIVE SERVICES" means the provision of banking products and
services similar in scope to those provided by the Company and its subsidiaries
as of the Effective Date.
"COMPETITOR" means any Person engaged, wholly or in part, in
Competitive Services.
"CONFIDENTIAL INFORMATION" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, financial plans and data concerning the
Company; management planning information; business plans; operational methods;
market studies; marketing plans or strategies; product development techniques or
plans; customer lists; details of customer contracts; current and anticipated
customer requirements; past, current and planned research and development;
business acquisition plans; and new personnel acquisition plans. "Confidential
Information" shall not include information that has become generally available
to the public by the act of one who has the right to disclose such information
without
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violating any right or privilege of the Company. This definition shall not limit
any definition of "confidential information" or any equivalent term under state
or federal law.
"DETERMINATION DATE" means the date of termination of Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Employment Period) of an alleged breach of the Restrictive Covenants
by Executive.
"PERSON" means any individual or any corporation, partnership, joint
venture, limited liability company, association or other entity or enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has sold
its products or services or solicited to sell its products or services during
the twelve (12) months prior to the Determination Date.
"PROTECTED EMPLOYEES" means employees of the Company who were employed
by the Company at any time within six (6) months prior to the Determination
Date.
"RESTRICTED PERIOD" means the Employment Period and a period extending
two (2) years from the Date of Termination.
"RESTRICTED TERRITORY" means the areas within a 25 mile radius of each
banking office of the Company or its subsidiaries immediately after the
Effective Date.
"RESTRICTIVE COVENANTS" means the restrictive covenants contained in
Section 9(c) hereof.
"TRADE SECRET" means all information, without regard to form,
including, but not limited to, technical or nontechnical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, distribution lists or a
list of actual or potential customers, advertisers or suppliers which is not
commonly known by or available to the public and which information: (A) derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (B) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Without
limiting the foregoing, Trade Secret means any item of confidential information
that constitutes a "trade secret(s)" under the common law or statutory law of
the State of Georgia.
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(c) RESTRICTIVE COVENANTS.
(i) RESTRICTION ON DISCLOSURE AND USE OF CONFIDENTIAL
INFORMATION AND TRADE SECRETS. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; PROVIDED, HOWEVER, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Executive
understands and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to Executive's own use. Accordingly, Executive hereby agrees that
during the Restricted Period Executive shall not directly or indirectly on
Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with any
other Person.
(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED CUSTOMERS.
Executive understands and agrees that the relationship between the Company and
each of its Protected Customers constitutes a valuable asset of the Company and
may not be converted to Executive's own use. Accordingly, Executive hereby
agrees that, during the Restricted Period, Executive shall not, without the
prior written consent of the Company, directly or indirectly, on Executive's own
behalf or as a Principal or Representative of any Person, solicit, divert, take
away or attempt to solicit, divert or take away a Protected Customer for the
purpose of providing or selling Competitive Services; PROVIDED, HOWEVER, that
the prohibition of this covenant shall apply only to Protected Customers with
whom Executive had Material Contact on the Company's behalf during the twelve
(12) months immediately preceding the termination of his employment hereunder.
For purposes of this Agreement, Executive had "Material Contact" with a
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Protected Customer if (a) he had business dealings with the Protected Customer
on the Company's behalf; (b) he was responsible for supervising or coordinating
the dealings between the Company and the Protected Customer; or (c) he obtained
Trade Secrets or Confidential Information about the customer as a result of his
association with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. The parties acknowledge:
(A) that Executive's services under this Agreement require special expertise and
talent in the provision of Competitive Services and that Executive will have
substantial contacts with customers of the Company; (B) that pursuant to this
Agreement, Executive will be placed in a position of trust and responsibility
and he will have access to a substantial amount of Confidential Information and
Trade Secrets and that the Company is placing him in such position and giving
him access to such information in reliance upon his agreement not to compete
with the Company during the Restricted Period; (C) that due to his management
duties, Executive will be the repository of a substantial portion of the
goodwill of the Company and would have an unfair advantage in competing with the
Company; (D) that due to Executive's special experience and talent, the loss of
Executive's services to the Company under this Agreement cannot reasonably or
adequately be compensated solely by damages in an action at law; (E) that
Executive is capable of competing with the Company; and (F) that Executive is
capable of obtaining gainful, lucrative and desirable employment that does not
violate the restrictions contained in this Agreement. In consideration of the
compensation and benefits being paid and to be paid by the Company to Executive
hereunder, Executive hereby agrees that, during the Restricted Period, Executive
will not, without prior written consent of the Company, directly or indirectly
seek or obtain a Competitive Position in the Restricted Territory with a
Competitor; PROVIDED, HOWEVER, that the provisions of this Agreement shall not
be deemed to prohibit the ownership by Executive of any securities of the
Company or its affiliated entities or not more than five percent (5%) of any
class of securities of any corporation having a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended.
(d) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) RIGHTS AND REMEDIES UPON BREACH. In the event Executive
breaches, or threatens to commit a breach of, any of the provisions of the
Restrictive Covenants, the Company shall have the right and remedy to enjoin,
preliminarily and permanently, Executive from violating or threatening to
violate the Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company. Such right and remedy shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company at
law or in equity.
(ii) SEVERABILITY OF COVENANTS. Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in time and scope and in
all other respects. The covenants set forth in this Agreement shall be
considered and construed as separate and independent covenants. Should any part
or provision of any covenant be held invalid, void or unenforceable in any court
of
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competent jurisdiction, such invalidity, voidness or unenforceability shall not
render invalid, void or unenforceable any other part or provision of this
Agreement. If any portion of the foregoing provisions is found to be invalid or
unenforceable by a court of competent jurisdiction because its duration, the
territory, the definition of activities or the definition of information covered
is considered to be invalid or unreasonable in scope, the invalid or
unreasonable term shall be redefined, or a new enforceable term provided, such
that the intent of the Company and Executive in agreeing to the provisions of
this Agreement will not be impaired and the provision in question shall be
enforceable to the fullest extent of the applicable laws.
13. ARBITRATION. Any claim or dispute arising under this Agreement shall be
subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. Section1, et. seq. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. Such an award shall be binding and conclusive upon the parties hereto,
subject to 9 U.S.C. Section10. Each party shall have the right to have the award
made the judgment of a court of competent jurisdiction.
14. ASSIGNMENT AND SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior
written consent of the Company shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
15. MISCELLANEOUS.
(a) WAIVER. Failure of any party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
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(b) SEVERABILITY. If any provision or covenant, or any part thereof,
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
(d) ENTIRE AGREEMENT. Except as provided herein, this Agreement
contains the entire agreement between the Company and Executive with respect to
the subject matter hereof and, from and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of Georgia
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
To Company: First Sterling Banks, Inc.
Edward C. Milligan, President and CEO
1200 Barrett Parkway
Kennesaw, Georgia 30144
To Executive: Joseph K. Strickland, Jr.
85 Cornish Trace Drive
Covington, Georgia 30014
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
(h) CONSTRUCTION. Each party and his or its counsel have reviewed
this Agreement and have been provided the opportunity to revise this Agreement
and accordingly, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement. Instead, the language of all parts of
this Agreement shall be construed as a whole, and according to its fair meaning,
and not strictly for or against any party.
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(signatures on following page)
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
FIRST STERLING BANKS, INC.
By:
-----------------------------
Title:
--------------------------
EXECUTIVE:
--------------------------------
Joseph K. Strickland, Jr.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of January, 1998, between TED A. MURPHY, ("Executive"), and
COMMUNITY BANK OF GEORGIA, a state-chartered Georgia banking institution whose
principal place of business is located at 3333 Lawrenceville Highway, Tucker,
Georgia, ("Employer").
RECITALS
WHEREAS, the Board of Directors of the Employer recognizing the
experience and knowledge of the Executive in the banking industry, determines
that it is in the best interests of the Employer to arrange terms of employment
for Executive so as to induce Executive to remain in his capacity with the
Employer for the term as set forth in this Employment Agreement (the
"Agreement"); and
WHEREAS, Executive is willing to provide services to Employer in
accordance with the terms and conditions hereinafter set forth.
THEREFORE, in the consideration of the mutual promises and agreements
in these premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
SECTION 1. EMPLOYMENT
a. Employer employs Executive on the terms and conditions hereafter
stated as Employer's President and Chief Executive Officer to perform such
services and duties as the Board of Directors may, from time to time, designate
during the term hereof. Executive will also serve as President and Chief
Executive Officer of Georgia Bancshares, Inc., ("Bancshares") Tucker, Georgia,
the Employer's parent bank holding company. Subject to the terms and conditions
hereof, Executive will perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the direction of the Board of Directors.
b. Executive accepts such employment and shall devote his full time,
attention, and best efforts to the diligent performance of his duties herein
specified.
SECTION 2. TERM OF EMPLOYMENT.
a. Executive's employment under this Agreement shall commence
immediately on January 1, 1998. Such employment shall continue for a period of
thirty-six full calendar months commencing January 1, 1998.
<PAGE>
b. Executive's employment pursuant to this Agreement shall be
terminated by the first to occur of any of the following:
i) The death of the Executive;
ii) The Complete Disability of Executive. "Complete
Disability" as used herein shall mean the inability of Executive, due to
illness, accident, or any other physical or mental incapacity, to completely
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
iii) The discharge of Executive by Employer for cause.
(1) "Cause" as used herein shall mean: dishonesty;
theft; conviction of a crime (other than minor traffic violations) which is
either a felony or a misdemeanor involving moral turpitude; unethical business
conduct; gross or repeated negligence in carrying out Executive's duties. In all
instances other than dishonesty, theft or conviction of a crime, written notice
of said activity, negligence or violation shall be provided by Employer to
Executive along with a reasonable period of time, which shall be not less than
ninety (90) days, in which to correct the deficiency.
(2) Discharge for "Cause" shall require a two-thirds
majority vote of the entire Board of Directors of Employer excluding the
Executive from voting on the discharge.
(iv) Sixty (60) days after Executive has given written notice
to Employer of his intent to terminate his employment hereunder.
c. Termination of Executive's employment shall constitute his
resignation as an employee, director and executive officer of Employer (and as a
director and executive officer of Bancshares) effective upon acceptance by
Employer of that tender.
SECTION 3. COMPENSATION.
For all services which Executive may render to Employer during the term hereof
Employer shall pay to Executive, subject to such deductions as may be required
by law, according to the schedule set out below:
a. Annual Base Salary. From January 1, 1998, through December 31, 1998,
Executive shall receive a salary payable based on an annual rate of $138,400,
payable in equal monthly installments. The annual base salary for the calendar
year 1999 will be increased by five percent (5%) to $145,320, payable in equal
monthly installments. The annual base salary for the calendar year 2000 will be
increased by five percent (5%) to $152,586, payable in equal monthly
installments.
-2-
<PAGE>
b. Performance Bonus. In addition to the Executive's annual base
salary, the Employer shall pay to Executive a performance bonus.
The right to receive an annual performance bonus is based upon meeting
or exceeding established goals with respect to (i) return on average assets
("ROAA"), (ii) return on average equity ("ROE"), and (iii) average past due
loans. No performance bonus shall be earned in any year in which the Bank's
composite C-A-M-E-L-S rating is less than "2".
Three levels of bonus are available hereunder. A Level I bonus is equal
to 10% of annual base salary, a Level II bonus is equal to 15% of annual base
salary and a Level III bonus is equal to 20% of annual base salary. In order to
receive a Level I bonus, the Executive must achieve either (i) at least 2 of the
Level I performance goals, or (ii) at least 1 of the Level I performance goals
AND 1 of the Level II or Level III performance goals. In order to receive Level
II bonus, the employee must achieve either (i) at least 2 of the Level II
performance goals, or (ii) at least 1 of the Level II performance goals AND 1 of
the Level III performance goals. In order to receive a Level III bonus, the
Executive must achieve at least 2 of the Level III performance goals.
Operation of the performance bonus criteria is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BONUS ROAA ROE AVG. PAST
LEVEL DUE LOANS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level I 1% 10% 2%
but less than but less than but more than
1.25% 12% 1.5%
- ----------------------------------------------------------------------------------------------------------------
Level II 1.25% 12% 1.5%
but less than but less than but more than
1.5% 15% 1.25%
- ----------------------------------------------------------------------------------------------------------------
Level III 1.5% or greater 15% or greater 1.25% or less
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
c. Election to Defer Performance Bonus. Prior to the end of any contact
year, Executive shall be permitted to make an election to defer receipt of all
or a portion of any annual performance based bonus that otherwise becomes
payable for such year. The election to defer receipt of any such performance
bonus shall be made in writing on a Deferred Compensation Election Form
(Attachment "A") provided by the Employer. Any such election shall be subject to
the provisions of the Executive's Deferred Compensation Election Form.
d. Severance Compensation. If the Executive's employment is terminated
during the term of this Agreement for reasons other than those stated in
paragraphs 2(b)(iii) or (iv), Employer shall pay Executive as Severance
Compensation, without set off, reduction, or diminution for other compensation
-3-
<PAGE>
which Executive may receive from sources other than Employer, a sum equal to the
gross monthly compensation which would then be payable to Executive under the
terms and conditions of this Agreement without reduction for taxes except as
required by law and payable for twenty-four (24) consecutive months or the
remainder of the term of this Agreement whichever is greater ("Severance
Compensation"). Said Severance Compensation shall be payable on the first day of
each month following Executive's termination of employment. Notwithstanding the
foregoing, if mutually agreed between Employer and Executive, the Severance
Compensation may be paid in one lump sum or other equal payments. Employer shall
maintain Executive's full medical and disability benefits for Executive and his
family at no expense to Executive for twenty-four months subsequent to said
termination or the remainder of the term of this Agreement whichever is greater.
Thereafter, Executive shall be eligible to secure such medical and dental
benefits as may be available pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") at Executive's expense.
SECTION 4. OTHER BENEFITS
During the term of Executive's employment hereinafter, on and after the
effective dates, as noted, Employer shall furnish to Executive the following
benefits.
a. A group health and hospitalization insurance policy covering the
Executive and immediate family.
b. A monthly car allowance covering depreciation, insurance and all
operating costs in an amount of $1,000 per month.
c. In lieu of the foregoing car allowance, the Employer and Executive
may mutually agree that Executive will be provided use of an automobile owned or
leased by Employer with reimbursement to Executive for all out of pocket
expenses incurred by Executive for the use and upkeep of said automobile,
including taxes, if any, which may become due and payable by Executive based
upon such arrangement.
d. All expenses for attendance of the Executive and his spouse at the
annual convention of the Community Banker's Association of Georgia and the
Georgia Banker's Association.
e. Initiation fees, membership fees and monthly dining room charges at
a golf, dining or country club of Executive's choosing in an aggregate annual
amount not to exceed $7,500.
f. All reasonable expenses shall be reimbursed on a monthly basis,
however these expenses are subject to review and approval of the Chairman of the
Employer's Board of Directors or the Vice Chairman.
-4-
<PAGE>
g. A fully paid vacation of twenty (20) working days per year for the
duration and any continuance of this contract. Time for such vacation/vacations
shall be determined solely by the Executive provided Executive shall give the
Chairman of Employer's Board of Directors or the Vice Chairman, reasonable prior
notice of the Executive's scheduled vacation days.
h. An Executive Assistance Program ("EAP") for Executive and immediate
family to help resolve the problems which may include, but are not limited to,
stress, marital, family, child rearing, drugs, alcohol, prescription drugs,
legal, financial, health or any other problems that may be of concern. Referral
by EAP to an outside agency may involve additional charges which may be covered
in part by the Employer's health plans.
SECTION 5. POST TERMINATION COVENANTS.
a. Executive hereby expressly covenants and agrees that during the term
of his employment whether or not pursuant to this Agreement and for a period of
twelve (12) months following the termination of his employment with Employer, if
said termination is pursuant to Section 2(b)(iv), Executive shall not engage in
rendering or providing executive managerial services as chief executive officer
or serve as chief executive officer of or to any National Bank or State Bank
Institution located within an area of ten (10) miles of Community Bank of
Georgia's main office or its branches without the express permission of the
Employer. This covenant shall not be effective against Executive in the event of
termination of Executive for any other reason, actual, or constructive as
provided herein below.
SECTION 6. CHANGE IN CONTROL.
So long as this Agreement is in effect, in the event of a Change in Control (as
that term is defined below) of Employer and/or Bancshares, if the duties of
Executive are changed (as defined below) within two (2) years after such Change
in Control, and the Executive so notifies Employer in writing within six (6)
months thereof, such change in duties shall constitute a termination of
Executive's employment hereunder by Employer for reasons other than those stated
in paragraphs 2(b)(iii) and (iv). In that event, Executive shall be entitled to
receive all of the Severance Compensation due and payable to Executive under
Section 3(d) of this Agreement without set off, reduction, or diminution for
other compensation which Executive may receive from sources other than Employer.
a. "Change in Duties" shall mean any one or more of the following:
i) a significant change in the nature or scope of the
Executive's authorities (including a change in title) or duties from those
applicable to him immediately prior to the date on which a Change of Control
occurs;
-5-
<PAGE>
ii) a reduction in the Executive's Annual Base Salary from
that provided for under this Agreement;
iii) any diminution in the Executive's eligibility to
participate or level of participation in bonus, stock option and other
compensation plans which provide opportunities to receive compensation, from the
greater of:
-the opportunities provided by the Bank for executives with
comparable duties; or
-the opportunities under any such plans under which he was
participating immediately prior to the date on which a Change
of Control occurs including as set forth in Section 3(b) of
this Agreement.
iv) a diminution in Executive benefits (including but not
limited to medical, dental, life insurance and long-term disability plans) and
perquisites applicable to Executive, from the greater of:
-the Executive benefits and perquisites provided by the Bank
to executives with comparable duties; or
-the Executive benefits and perquisites to which he was
entitled immediately prior to the date on which a Change in
Control occurs.
v) a change in the location of the Executive's principal place
of employment by the Bank (more than 50 miles from the location where he was
principally employed immediately prior to the date on which a Change of Control
occurs) to which Executive has not agreed;
b. A "Change of Control" shall be deemed to have occurred if:
i) any person, including a "group" as determined in accordance
with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act") (other than Bancshares, or any Executive benefit plan, as defined in
ERISA, of any of the foregoing) is or becomes the beneficial owner, directly or
indirectly, of securities of Bancshares representing 25% or more of the combined
voting power of Bancshares's then outstanding securities;
ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Bank and Bancshares before
the Transaction shall cease to constitute a majority of the Board of Directors
of the Bank or Bancshares or any successor to the Bank or Bancshares;
-6-
<PAGE>
iii) the Bank or Bancshares is merged or consolidated with
another corporation and as a result of the merger or consolidation less than 51%
of the outstanding voting securities of the surviving or resulting corporation
shall then be owned in the aggregate by the former, shareholders of Bancshares,
other than (x) affiliates within the meaning of the Exchange Act or (y) any
party to the merger or consolidation;
iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of Bancshares representing 50% or more of the
combined voting power of Bancshares's then outstanding voting securities; or
v) the Bank transfers substantially all of its assets to
another corporation which is not a wholly-owned subsidiary of Bancshares.
SECTION 7. CONFLICTS OF INTEREST.
Executive shall not, while employed by Employer, accept employment with any
other individual, corporation, partnership. governmental authority or other
entity, or engage in any other venture for profit which the Employer's Board of
Directors may consider by majority vote of all of the directors then serving
with Executive abstaining to be in conflict with the Employer's best interest or
to be in competition with the performance of his duties hereunder. This
restriction does not preclude Executive from owning or being involved in real
estate or other investments, so long as such does not create a conflict of
interest on the part of the Executive as to his duties and obligations to
Employer as set forth herein. In addition, the Executive may be a Board member
of companies not in competition with the Employer. Notwithstanding the
foregoing, Executive may not be involved in any of these activities without
first making a full disclosure to the Employer of the details of each proposed
endeavor.
SECTION 8. WAIVER OF PROVISIONS.
Failure by any of the parties hereto to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions of
this Agreement shall not be deemed a waiver or relinquishment of any right
granted hereunder or of the obligation of future performance of any such term or
condition or any other term or condition of this Agreement, unless such waiver
is contained in a writing signed by or on behalf of all the parties.
SECTION 9. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia. If for any reason any provision of this
Agreement shall be held by a court of competent jurisdiction to be void or
unenforceable, the same shall not affect the remaining provisions hereof.
-7-
<PAGE>
SECTION 10. MODIFICATION AND AMENDMENT.
This Agreement contains the sole and entire agreement among the parties hereto
and supersedes all prior discussions and agreements among the parties, and any
such prior agreements shall, from and after the date hereof, be null and void;
except, nothing herein shall cause the Agreement by and between Executive and
Employer dated as of September 13, 1994, to terminate other than upon its
Initial Termination Date of December 31, 1997. This Agreement shall not be
modified or amended except by an instrument in writing signed by or on behalf of
all parties hereto.
SECTION 11. NOTICE AND MAILING THEREOF.
Whenever in this Agreement notice is required to be given to either of the
parties hereto, such notice shall be effective only if delivered to the parties
as follows by hand delivery or first class United States Mail:
If to Employer: Chairman of the Board
Community Bank of Georgia
3333 Lawrenceville Highway
Tucker, Georgia 30084
If to Executive: Ted A. Murphy
1761 East Gate Drive
Stone Mountain, Georgia 30087
SECTION 12. RECITALS, COUNTERPARTS AND HEADINGS.
The Recitals appearing above are incorporated into this Agreement as fully and
completely as if set forth expressly herein and are an integral part of this
Agreement. 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. The headings set out herein are for
convenience of reference and shall not be deemed a part of this Agreement.
SECTION 13. SUCCESSORS.
This Agreement shall inure to the benefit of and be binding upon the Employer,
its successors and assigns and upon the Executive, and his heirs and personal
representatives. Neither this Agreement nor performance hereunder may be
assigned by Executive.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
EXECUTIVE: EMPLOYER:
/s/ TED A. MURPHY
- ------------------------------------ COMMUNITY BANK OF GEORGIA
Ted A. Murphy
By:/s/ EUGENE L. ARGO
--------------------------
Chairman of Board of Directors
ATTEST:
/s/ JAMES L. ARMSTRONG
-----------------------------
Chairman, Compensation Committee
-9-
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated January 27, 2000 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.
Atlanta, Georgia /s/ MAULDIN & JENKINS, LLC
March 30, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 21, 2000, with respect to the financial
statements of Main Street Banks Incorporated included in the Registration
Statement (Form S-4 No. 333-00000) and related Prospectus of First Sterling
Banks, Inc. for the registration of 8,917,290 shares of its common stock.
Atlanta, Georgia
March 30, 2000
/s/ Ernst & Young LLP
<PAGE>
Exhibit 23.4
[Brown, Burke Capital Partners, Inc. Letterhead]
CONSENT OF FINANCIAL ADVISOR
March 28, 2000
We hereby consent to the use of our Fairness Opinion addressed
to the Board of Directors of First Sterling Banks, Inc. which is to be
used in the Form S- 4 Registration Statement and the Prospectus/Proxy
Statement forming a part of this Form S-4 Registration Statement and to
all references to our firm in such Prospectus/Proxy Statement. In
giving such consent, we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission thereunder.
/s/ Brown, Burke Capital Partners, Inc.
Brown, Burke Capital Partners, Inc.
<PAGE>
Exhibit 23.5
CONSENT OF THE CARSON MEDLIN COMPANY
We hereby consent to the inclusion as Appendix E to the Prospectus/Proxy
Statement constituting part of the Registration Statement on Form S-4 of First
Sterling Banks, Inc. of our letter to the Board of Directors of Main Street
Banks Incorporated and to the references made to such letter and to the firm in
such Prospectus/Proxy Statement. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ The Carson Medlin Company
THE CARSON MEDLIN COMPANY
Raleigh, North Carolina
March 28, 2000
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 3, 1999, accompanying the
consolidated financial statements of Georgia Bancshares, Inc. and subsidiary
for the years ended December 31, 1998 and 1997, included in the Form 10-K for
First Sterling Banks, Inc. for the year ended December 31, 1999. We hereby
consent to the incorporation by reference of said report in the Registration
Statement and Prospectus of First Sterling Banks, Inc. on Form S-4, and the
use of our name under the caption "Experts".
/s/ PORTER KEADLE MOORE LLP
Atlanta, Georgia
March 31, 2000
<PAGE>
EXHIBIT 99.3
FIRST STERLING BANKS, INC.
676 CHASTAIN ROAD
KENNESAW, GEORGIA 30144
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS-- , 2000
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FIRST STERLING
BANKS, INC.)
The undersigned shareholder of First Sterling Banks, Inc. hereby appoints
Edward C. Milligan, P. Harris Hines, Harry L. Hudson, Jr. 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 Annual
Meeting of the Shareholders of First Sterling to be held in Kennesaw, Georgia,
on , 2000, at a.m., local time, or at any adjournment thereof:
(1) PROPOSAL TO MERGE MAIN STREET BANKS INCORPORATED INTO FIRST STERLING
BANKS, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ] with respect to the approval of that
certain Merger Agreement between Main Street Banks Incorporated and First
Sterling, pursuant to which Main Street Banks will be merged into First Sterling
and the issuance of up to 8,917,290 shares of First Sterling stock to Main
Street Banks shareholders in exchange for their Main Street Banks stock as
described in more detail in the Joint Proxy Statement/Prospectus dated ,
2000.
(2) PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION OF FIRST STERLING
BANKS, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ] with respect to the approval of the
Restated Articles of Incorporation of First Sterling Banks, Inc. which amends
the present Articles of Incorporation of First Sterling Banks, Inc. to increase
the number of shares that First Sterling Banks, Inc. is authorized to issue from
10,000,000 to 50,000,000 shares of common stock and provides that a director
must be elected by a majority of the outstanding shares as described in more
detail in the Joint Proxy Statement/ Prospectus dated , 2000.
(3) PROPOSAL TO ELECT THREE CLASS III DIRECTORS OF FIRST STERLING
BANKS, INC.
The election of the following named persons each to serve as a
Class III Director for a three-year term expiring at the 2003 Annual Meeting of
Shareholders or until his successor is duly elected and qualified.
<TABLE>
<S> <C>
[ ] For all the nominees listed below (except as marked to [ ] Withhold authority to vote for all nominees listed
the contrary below) below
</TABLE>
(Instructions: To withhold authority to vote for any individual nominee or
nominees, strike a line through the nominee's name or names listed below.)
P. Harris Hines, Harry L. Hudson, Jr. and Edward C. Milligan
<PAGE>
(4) PROPOSAL TO APPROVE THE 1999 DIRECTORS STOCK OPTION PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ] with respect to the approval of the First
Sterling Banks, Inc. 1999 Directors Stock Option Plan as described in more
detail in the Joint Proxy Statement/Prospectus dated , 2000.
(5) In their discretion, upon such other matters as may properly come before
the Annual 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 Proposals (1) through (4).
Dated: ____________________________________________________________, 2000.
_____________________________________
(Print Name)
_____________________________________
(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 99.4
MAIN STREET BANKS INCORPORATED
1121 FLOYD STREET
COVINGTON, GEORGIA 30014
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS-- , 2000
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF MAIN STREET BANKS
INCORPORATED)
The undersigned shareholder of Main Street Banks Incorporated hereby
appoints John R. Chesnut, Jr. and Ronald H. Cook, 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 Main Street Banks Incorporated to be held in Covington, Georgia,
on , 2000 at 10:00 a.m., local time, or at any adjournment thereof:
(1) PROPOSAL TO MERGE MAIN STREET BANKS INCORPORATED INTO FIRST STERLING
BANKS, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ] with respect to the approval of that
certain Merger Agreement between Main Street Banks Incorporated and First
Sterling Banks, Inc. pursuant to which Main Street Banks Incorporated will be
merged into First Sterling and each share of common stock of Main Street Banks
Incorporated outstanding at the time of the Merger shall be converted into the
right to receive 1.01 shares(s) of stock of First Sterling as described in more
detail in the Joint Proxy Statement/Prospectus dated , 2000.
(2) In their discretion, upon such other matters as may properly come before
the Special Meeting of Shareholders or any adjournment or adjournments thereof.
<PAGE>
The Proxy will be voted as directed. If no direction is given, the Proxy
will be voted FOR Proposal (1). Dated: ________________________________________,
2000. _______________________________
(Print Name)
_______________________________
(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.
