<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ALABAMA NATIONAL BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6712 63-1114426
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
----------------
1927 FIRST AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
(205) 583-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICE)
----------------
JOHN H. HOLCOMB, III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1927 FIRST AVENUE NORTH
BIRMINGHAM, AL 35203
(205) 583-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
CHRISTOPHER B. HARMON, ESQ. RICHARD R. CHEATHAM, ESQ.
MAYNARD, COOPER & GALE, P.C. KILPATRICK STOCKTON, LLP
1901 SIXTH AVENUE NORTH 1100 PEACHTREE STREET
SUITE 2400 SUITE 2800
BIRMINGHAM, ALABAMA 35203 ATLANTA, GEORGIA 30309
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement has become
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common, $1.00 par val-
ue.................... 1,132,887 $8.40 $9,516,336 $2,807
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) based upon the book value of all
outstanding shares of Community Financial Corporation as of March 31,
1998.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[Community Financial Corporation Letterhead]
, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the shareholders
of Community Financial Corporation ("CFC"), to be held at the principal
executive office of Georgia State Bank, 620 Fontaine Road, S.W., Mableton,
Georgia, on , 1998, at .m Eastern Time (the "Annual
Meeting").
At this important meeting, you will be asked to consider and vote upon the
approval of an Agreement and Plan of Merger dated as of June 8, 1998 (the
"Merger Agreement"), which provides for the merger of CFC with and into
Alabama National BanCorporation ("ANB") (the "Merger"). If the Merger is
consummated, each outstanding share of CFC common stock will be converted into
the right to receive 0.351807 shares of the common stock, par value $1.00, of
ANB. The accompanying Proxy Statement and Prospectus provides a detailed
description of the proposed Merger, including the conditions to consummation
of the Merger. In addition, you will be asked to consider and vote upon the
election of eleven directors of CFC to serve until the consummation of the
Merger, or until the next annual meeting of the shareholders of CFC and their
successors are elected and qualified.
The affirmative vote of the holders of at least a majority of the shares of
CFC common stock entitled to vote at the Annual Meeting is required for
approval of the Merger Agreement. Accordingly, your vote is important, no
matter how large or how small your holdings are.
Enclosed are the Notice of Annual Meeting, the Proxy Statement and
Prospectus and proxy for the Annual Meeting. Please give this information your
careful attention.
The Board of Directors of CFC has carefully reviewed and considered the
terms and conditions of the proposed Merger Agreement and has received an
opinion from Brown, Burke Capital Partners, Inc. that the Merger is fair to
the CFC shareholders from a financial point of view. THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Annual Meeting.
Sending in your proxy now will not interfere with your right to attend the
Annual Meeting or to vote your shares personally at the Annual Meeting if you
wish to do so.
Sincerely,
Ken F. Thigpen
Chief Executive Officer
<PAGE>
COMMUNITY FINANCIAL CORPORATION
620 FONTAINE ROAD, S.W.
MABLETON, GEORGIA 30126
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
----------------
, 1998
TO THE SHAREHOLDERS OF COMMUNITY FINANCIAL CORPORATION
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of Community Financial Corporation ("CFC") will be held at the
principal executive office of Georgia State Bank, 620 Fontaine Road, S.W.,
Mableton, Georgia on , 1998, at .m., Eastern Time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of June 8, 1998 (the "Merger Agreement"), by and
between Alabama National BanCorporation ("ANB") and CFC, pursuant to which,
among other matters, (a) CFC would be merged with and into ANB, and (b)
each share of CFC common stock will be converted into the right to receive
0.351807 shares of ANB common stock. A copy of the Merger Agreement is set
forth in Appendix A to the accompanying Proxy Statement and Prospectus and
is hereby incorporated by reference herein.
2. To elect eleven directors of CFC to serve until the consummation of
the Merger, or until the next annual meeting of the shareholders of CFC and
their successors are elected and qualified.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on July 31, 1998 are
entitled to receive notice of and to vote at the Annual Meeting or any
adjournments thereof. Approval of the Merger Agreement requires the
affirmative vote of the holders of at least a majority of the shares of CFC
common stock entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS OF CFC UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
Each shareholder has the right to dissent from the Merger Agreement and
demand payment of the fair value of his shares if the Merger is consummated.
The right of any shareholder to receive such payment is contingent upon strict
compliance with requirements of Sections 14-2-1301 et seq. of the Georgia
Business Corporation Code (the "Georgia Dissent Provisions"). The full text of
the Georgia Dissent Provisions is set forth in Appendix B to the Proxy
Statement and Prospectus and is incorporated herein by reference. For a
summary of the requirements of the Georgia Dissent Provisions, see "GENERAL
INFORMATION--Dissenters' Rights" in the Proxy Statement and Prospectus.
By order of the Board of Directors
Ken F. Thigpen
Chief Executive Officer
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND
THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY IF YOU WISH. THE PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
<PAGE>
PROXY STATEMENT
COMMUNITY FINANCIAL CORPORATION
For Annual Meeting
Of Shareholders
To Be Held On
[ ], 1998
----------------
PROSPECTUS
ALABAMA NATIONAL BANCORPORATION
Common Stock
----------------
This Proxy Statement and Prospectus ("Proxy Statement") is being furnished
to the shareholders of Community Financial Corporation, a Georgia corporation
("CFC"), in connection with the solicitation of proxies by the Board of
Directors of CFC from holders of outstanding shares of common stock, par value
$2.50 per share, of CFC ("CFC Common Stock"), for use at CFC's meeting of
shareholders as shown above (the "Annual Meeting"). One very important purpose
of the Annual Meeting is to consider and vote upon that certain Agreement and
Plan of Merger dated as of June 8, 1998 (the "Merger Agreement"), pursuant to
which CFC will merge (the "Merger") with and into Alabama National
Bancorporation ("ANB"). Except as described herein, each share of CFC Common
Stock issued and outstanding at the Effective Time (described below) shall be
converted into the right to receive 0.351807 shares of ANB Common Stock,
subject to adjustment in certain circumstances as described herein (the
"Exchange Ratio"). This Proxy Statement also serves as a prospectus with
respect to the issuance of up to approximately 1,132,887 shares of ANB Common
Stock that are issuable to the shareholders of CFC and holders of options to
purchase CFC Common Stock upon consummation of the Merger. See "The Merger--
Terms of the Merger."
In addition to the consideration of the Merger, the shareholders of CFC will
be asked to consider the election of eleven directors of CFC to serve until
the consummation of the Merger or until the next annual meeting of CFC and
their successors are elected and qualified.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY SHAREHOLDERS OF CFC.
This Proxy Statement, the accompanying Notice of Meeting and the other
documents enclosed herewith are being first mailed to the shareholders of CFC
on or about [ ], 1998.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES
OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
----------------
THE DATE OF THIS PROXY STATEMENT IS , 1998
<PAGE>
AVAILABLE INFORMATION
ANB is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by ANB can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's
Regional Offices in New York (75 Park Place, 14th Floor, New York, New York
10007) and Chicago (500 West Madison Street, Suite 1400, Chicago, Illinois
60661). Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy statements, and
other information regarding ANB, CFC and other registrants that file
electronically with the Commission.
ANB has filed with the Commission a Registration Statement (No. 333-) on
Form S-4 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of ANB Common Stock to be issued pursuant to the Merger
Agreement. This Proxy Statement does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, portions of
which were omitted in accordance with the rules and regulations of the
Commission. For further information regarding ANB and the ANB Common Stock
offered hereby, reference is made to the complete Registration Statement,
including all amendments thereto and the schedules and exhibits filed as a
part thereof. Statements contained herein or in any document incorporated by
reference herein as to the contents of documents are necessarily summaries of
the documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission. In addition,
ANB Common Stock is traded on the NASDAQ National Market System. Reports,
proxy statements, and other information concerning ANB may be inspected at the
office of the National Association of Securities' Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 70006.
All information contained in this Proxy Statement pertaining to ANB and its
subsidiaries has been supplied by ANB, and all information pertaining to CFC
and its subsidiaries has been supplied by CFC.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ANB OR CFC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
FORWARD-LOOKING STATEMENTS
Statements related to ANB or the Merger contained in this Proxy Statement
which are not historical facts are forward-looking statements. In addition,
ANB, through its senior management, may make from time to time forward-looking
public statements concerning the matters described herein. Such forward-
looking statements are necessarily estimates reflecting the best judgment of
ANB's senior management based upon current information and involve a number of
risks and uncertainties. Certain factors which could affect the accuracy of
such forward-looking statements are identified in the section entitled "Risk
Factors" herein and in ANB's Annual Report on Form 10-K for the year ended
December 31, 1997, which is incorporated herein by reference. Forward-looking
statements contained in this Proxy Statement or in the other public statements
of ANB or its senior management should be considered in light of those
factors. There can be no assurance that such factors or other factors will not
affect the accuracy of such forward-looking statements. See "Risk Factors" and
"Incorporation of Certain Documents by Reference."
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by ANB with the Commission
(Commission File No. 0-25160) pursuant to the Exchange Act are hereby
incorporated by reference in this Proxy Statement:
1. ANB's Annual Report on Form 10-K for the year ended December 31, 1997;
2. ANB's Proxy Statement for its 1998 Annual Meeting of Shareholders;
3. ANB's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998; and
4. ANB's Report on Form 8-K dated June 11, 1998.
All documents filed by ANB pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Proxy Statement and before the date of
the CFC Annual Meeting, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of the filing thereof. Any statement
contained herein or in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Proxy Statement to the extent that another statement contained
herein, in any supplement hereto or in any other subsequently filed document
which also is incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement, this Proxy Statement or any supplement hereto.
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. On the written or oral request of any
person to whom this Proxy Statement is delivered, ANB will provide, without
charge, a copy of any or all of the documents incorporated herein by reference
pertaining to it (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written or
telephone requests for such copies should be directed to Kimberly Moore,
Secretary, Alabama National BanCorporation, 1927 First Avenue North,
Birmingham, Alabama 35203, (205) 583-3600. In order to ensure timely delivery
of such documents, any request should be made by [ ], 1998.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 1
FORWARD-LOOKING STATEMENTS................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 2
SUMMARY.................................................................... 5
Parties to the Merger.................................................... 5
Shareholder Meeting...................................................... 5
The Merger............................................................... 6
Selected Consolidated Financial Data..................................... 9
ANB SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)...................... 10
CFC SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)...................... 12
Pro Forma Selected Consolidated Financial Data........................... 13
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA............................. 14
Comparative Per Share Data............................................... 16
RISK FACTORS............................................................... 17
Determination of Terms and Exchange Ratio................................ 17
Restrictions on Dividends................................................ 17
Competition.............................................................. 17
Supervision and Regulation............................................... 17
Monetary Policies........................................................ 18
Allowance for Loan Losses................................................ 18
Tax Considerations....................................................... 18
Interests of Certain Persons in the Transaction.......................... 18
Restrictions on Resale of ANB Common Stock............................... 19
GENERAL INFORMATION........................................................ 19
Meeting, Record Dates and Votes Required................................. 19
Proxies.................................................................. 19
Dissenters' Rights....................................................... 20
Recommendation of Board of Directors..................................... 21
THE MERGER................................................................. 21
Terms of the Merger...................................................... 21
Effective Time........................................................... 22
Background of and Reasons for the Merger................................. 22
Opinion of Brown, Burke Capital Partners, Inc............................ 24
Effect on Certain Employee Benefit Plans of CFC.......................... 27
Surrender of Certificates................................................ 28
Conditions to Consummation of the Merger................................. 29
Regulatory Approvals..................................................... 30
Conduct of Business Pending the Merger................................... 31
Waiver and Amendment; Termination; Termination Fee....................... 33
Management and Operations After the Merger............................... 33
Interests of Certain Persons in the Merger............................... 33
Federal Income Tax Consequences.......................................... 34
Accounting Treatment..................................................... 35
Expenses and Fees........................................................ 35
Resales of ANB Common Stock.............................................. 35
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS............................................ 36
DESCRIPTION OF ANB CAPITAL STOCK.......................................... 41
General................................................................. 41
Common Stock............................................................ 41
Preferred Stock......................................................... 41
Certain Anti-Takeover Effects........................................... 41
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS................................ 43
Charter and Bylaw Provisions............................................ 43
Shareholder Approval of Mergers......................................... 43
Dissenters' Rights...................................................... 43
Shareholders Meetings and Voting........................................ 44
Dividends............................................................... 45
Preemptive Rights....................................................... 46
Liquidation Rights...................................................... 46
Limitation of Liability and Indemnification............................. 46
Antitakeover Legislation................................................ 47
CERTAIN INFORMATION CONCERNING ANB........................................ 47
General................................................................. 47
Recent Developments..................................................... 48
CERTAIN INFORMATION CONCERNING CFC........................................ 48
Description of Business................................................. 48
Information About Voting Securities and Principal Holders Thereof....... 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CFC........................................................ 51
Financial Condition..................................................... 51
Loans................................................................... 52
Investment Securities................................................... 54
Deposits................................................................ 54
Capital Resources....................................................... 55
Results of Operations................................................... 56
Interest Sensitivity.................................................... 60
Market Risk............................................................. 61
Provisions and Allowance for Loan Losses................................ 62
Nonperforming Assets.................................................... 64
Noninterest Income...................................................... 65
Noninterest Expense..................................................... 65
Income Taxes, Inflation and Other Issues................................ 65
ELECTION OF DIRECTORS..................................................... 66
LEGAL MATTERS............................................................. 66
EXPERTS................................................................... 67
APPENDICES
Appendix A--Agreement and Plan of Merger
Appendix B--Provisions of Georgia Business Corporation Act Relating to
Dissenters' Rights
Appendix C--Consolidated Financial Statements of Community Financial
Corporation
Appendix D--Opinion of Brown, Burke Capital Partners, Inc.
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. The following summary is not intended to be a complete
description of all material information regarding ANB, CFC and the matters to
be considered at the Annual Meeting, and is qualified in all respects by the
information appearing elsewhere or incorporated by reference in this Proxy
Statement, the Appendices hereto and the documents referred to herein. The
Merger Agreement, a copy of which is set forth in Appendix A to this Proxy
Statement, is incorporated herein and reference is made thereto for a complete
description of the terms of the Merger. As used in this Proxy Statement, the
terms "ANB" and "CFC" refer to such corporations, respectively, and where the
context so requires, such corporations and their respective subsidiaries.
PARTIES TO THE MERGER
ANB. ANB is a registered bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve") and is a corporation organized under the laws of the State of
Delaware. Its main office is located at 1927 First Avenue North, Birmingham,
Alabama 35203 (Telephone Number: (205) 583-3600). ANB is currently the parent
of three national banks, National Bank of Commerce of Birmingham (Birmingham,
Alabama and the Birmingham metropolitan area), First Citizens Bank N.A.
(Talladega, Alabama) and Citizens & Peoples Bank, N.A. (Pensacola, Florida);
three state member banks, Alabama Exchange Bank (Tuskegee, Alabama), Bank of
Dadeville (Dadeville, Alabama) and First Gulf Bank (Baldwin County, Alabama),
and two state nonmember banks, First American Bank (Decatur, Alabama) ("FAB")
and Public Bank (St. Cloud, Florida) (collectively the "Banks"). In addition,
ANB is the ultimate parent entity of one securities brokerage firm, NBC
Securities, Inc. (Birmingham, Alabama); one receivables factoring company,
Corporate Billing, Inc. (Decatur, Alabama); and one insurance agency, Ashland
Insurance, Inc. (Ashland, Alabama).
At March 31, 1998, ANB had total assets of approximately $1.28 billion, total
deposits of approximately $967.7 million, total net loans of approximately
$838.4 million and total shareholders' equity of approximately $100.6 million.
Additional information about ANB is included elsewhere in this Proxy Statement
and in documents incorporated by reference in this Proxy Statement. See
"Summary--ANB Selected Consolidated Financial Data," "Available Information,"
"Incorporation of Certain Documents by Reference," and "Certain Information
Regarding ANB."
CFC. CFC is a one-bank holding corporation organized under the laws of the
State of Georgia and registered under the Bank Holding Company Act of 1956, as
amended. It is subject to supervision and regulation by the Federal Reserve and
the Georgia Department of Banking and Finance (the "Georgia Department"). CFC's
principal offices are located at 620 Fontaine Road, Mableton, Georgia 30126,
(Telephone Number: (770) 941-2100). CFC is the parent corporation of Georgia
State Bank, a Georgia bank. Georgia State Bank is organized as a state-
chartered bank and offers a wide range of consumer and commercial banking
services.
At March 31, 1998, CFC had total assets of approximately $123.6 million and
total shareholders' equity of approximately $9.5 million. Georgia State Bank's
total deposits as of March 31, 1998 were approximately $103.6 million, and its
net loans totaled approximately $67.3 million. Additional information about CFC
is found elsewhere in this Proxy Statement. See "Summary--CFC Selected
Consolidated Financial Data," "Certain Information Concerning CFC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Appendix C.
SHAREHOLDER MEETING TO APPROVE MERGER AND ELECT DIRECTORS OF CFC
The Annual Meeting of Shareholders of CFC (the "Annual Meeting") will be held
at .m. local time, on , 1998, at the main office of Georgia
State Bank, 620 Fontaine Road, S.W., Mableton, Georgia
5
<PAGE>
30126. The purpose of the Annual Meeting is to consider and vote upon approval
of the Merger Agreement and to elect eleven directors of CFC. The Board of
Directors of CFC has fixed the close of business on July 31, 1998 as the record
date for determining shareholders entitled to notice of and to vote at the
Annual Meeting (the "Record Date"). As of such date, there were 3,059,194
shares of CFC Common Stock issued and outstanding and entitled to be voted at
the Annual Meeting.
See "General Information--Meeting, Record Dates and Votes Required."
THE MERGER
Terms. The Merger Agreement provides that CFC will merge with and into ANB
(the "Merger"). Each share of CFC Common Stock outstanding immediately prior to
the Effective Time, other than shares with respect to which dissenters'
appraisal rights shall have been perfected and certain shares owned by CFC or
its subsidiaries, will be converted into the right to receive 0.351807 shares
of ANB Common Stock. In addition, options held to purchase shares of CFC Common
Stock will be converted into options to purchase 0.351807 shares of ANB Common
Stock for each share of CFC Common Stock subject to option, pursuant to the
terms of the Merger Agreement. The number of shares of ANB Common Stock to be
exchanged for each share of CFC Common stock is referred to as the "Exchange
Ratio." Cash will be paid by ANB in lieu of the issuance of fractional shares.
See "Risk Factors," "The Merger--Terms of the Merger" and "The Merger--Waiver
and Amendment; Termination."
Effective Time. The Merger will become effective on the date and at the time
that the later of the following occurs (i) the Certificate of Merger reflecting
the merger of ANB and CFC (the "Certificate of Merger") shall be accepted for
filing by the Secretary of State of Delaware, and the Articles of Merger
reflecting the merger of ANB and CFC (the "Articles of Merger") shall be
accepted for filing by the Secretary of State of Georgia, or (ii) on such date
and at such time subsequent to the filing of the Certificate of Merger and
Articles of Merger, as may be specified by the parties in the Certificate of
Merger and the Articles of Merger (provided that such subsequent date and time
shall not be later than a time on the 30th day after the date that the
Certificate of Merger is filed), which filing shall not occur until after all
conditions contained in the Merger Agreement have been satisfied or waived,
including receipt of all regulatory approvals, expiration of all statutory
waiting periods and the approval of the Merger Agreement by the shareholders of
CFC (the "Effective Time"). See "The Merger--Effective Time."
Recommendation of CFC Board of Directors; Opinion of Brown, Burke Capital
Partners, Inc. The Board of Directors of CFC considered numerous factors in
approving the Merger Agreement. The CFC Board of Directors also obtained an
opinion from an independent investment banker, Brown, Burke Capital Partners,
Inc. ("Brown, Burke"), with respect to the fairness of the transaction to its
shareholders from a financial point of view. Brown, Burke conducted an analysis
of the values of the two companies and determined a range of values and
acceptable exchange ratios and issued an opinion to the effect that the terms
of the Merger are fair, from a financial standpoint, to the shareholders of
CFC. CFC has paid, or will pay, Brown, Burke, professional fees not to exceed
$899,000, plus reasonable out of pocket expenses, in connection with rendering
of investment banking services related to the Merger, which fees include a fee
of $50,000 in connection with the issuance of the fairness opinion. See "The
Merger--Background of and Reasons for the Merger" and "--Opinion of Brown,
Burke Capital Partners, Inc." and Appendix D. The Board of Directors of CFC
recommends that shareholders of CFC vote for approval of the Merger Agreement.
Vote Required. Approval of the Merger Agreement will require the affirmative
vote of the holders of at least a majority of the outstanding shares of CFC
Common Stock. The directors and executive officers of CFC beneficially owned,
as of the Record Date, and are entitled to vote, a total of 1,724,272 shares of
CFC Common Stock at the CFC Meeting, or 56.4% of the outstanding shares
entitled to be voted. Each of the members of the Board of Directors of CFC and
certain officers of CFC have entered into an agreement with ANB whereby such
6
<PAGE>
persons have agreed, subject to certain conditions, to vote their shares of CFC
Common Stock in favor of the Merger. See "General Information--Meetings, Record
Dates and Votes Required."
Exchange of Certificates. No later than five days after the Effective Time,
AmSouth Bank, as Exchange Agent, will mail to each holder of record of CFC
Common Stock at the Effective Time a transmittal letter, with instructions and
return envelope, to use in effecting the exchange of certificates representing
such CFC Common Stock for certificates representing shares of ANB Common Stock
and for cash in lieu of fractional shares. Beginning six months after the
Effective Time, dividends and other distributions payable with respect to ANB
Common Stock will be paid to the holder of an unsurrendered CFC Common Stock
certificate only upon surrender of such certificate. See "The Merger--Surrender
of Certificates."
Conditions to Consummation. The obligations of ANB and CFC to effect the
Merger are subject to various conditions, including (i) approval of the Merger
Agreement and the transactions provided for therein by the CFC shareholders,
(ii) receipt of regulatory approvals required in connection with the Merger and
expiration of statutory waiting periods, (iii) receipt of any other consents
necessary to the consummation of the Merger, (iv) receipt of certain opinions
of counsel, (v) receipt by CFC of an opinion of fairness from Brown, Burke and
(vi) the receipt by ANB of a letter from PricewaterhouseCoopers LLP concurring
with the conclusions of ANB's and CFC's management that no conditions exist
with respect to each company that would preclude accounting for the Merger as a
pooling of interests. See "The Merger--Conditions to Consummation of the
Merger," and "--Regulatory Approvals."
Federal Income Tax Consequences. The Merger is intended to be a tax-free
reorganization in which no gain or loss will be recognized by ANB or CFC and no
gain or loss will be recognized by CFC shareholders, except in respect of cash
received for fractional shares and except for dissenting shareholders who
receive cash payments. Counsel for ANB has delivered an opinion to the effect
that, for federal income tax purposes, under current law, assuming the Merger
will take place as described in the Merger Agreement and that certain factual
matters represented by ANB and CFC are true and correct at the time of the
consummation of the Merger, the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). See "The Merger--Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT EACH
SHAREHOLDER CONSULT SUCH HOLDER'S TAX ADVISOR CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN SUCH HOLDER'S
PARTICULAR CIRCUMSTANCES.
Management and Operations after the Merger. The Merger Agreement provides
that from and after the Effective Time, the ANB Board of Directors will consist
of the thirteen (13) current directors of ANB and one of either Roy E. Barnes
or W. Ray Barnes, both of whom are current directors of CFC, to be chosen at
the discretion of CFC. The Merger Agreement also provides that from and after
the Effective Time, Ken F. Thigpen, shall, pursuant to an employment agreement,
serve as Chief Executive Officer of Georgia State Bank. All current ANB
officers will continue to serve ANB in accordance with the Bylaws of ANB after
the Effective Time. See "The Merger--Management and Operations after the
Merger."
Interests of Certain Persons in the Merger. Certain of the directors and
officers of ANB and CFC have been selected or will be selected to serve as
directors and officers of ANB after the Effective Time. Certain directors and
executive officers of CFC and their family members and related interests will
receive shares of ANB Common Stock in exchange for their shares of CFC Common
Stock upon consummation of the Merger at the Exchange Ratio, as will other CFC
shareholders. As of the Effective Time, Ken F. Thigpen will enter into an
employment agreement whereby Mr. Thigpen will agree to serve as Chief Executive
Officer of Georgia State Bank for a period of three years from the Effective
Time. Under Mr. Thigpen's new employment agreement,
7
<PAGE>
Mr. Thigpen will receive annual compensation of not less than $190,000 per
year. See "The Merger--Interest of Certain Persons in the Merger."
Accounting Treatment. The Merger is expected to qualify as a "pooling of
interests" for accounting and financial reporting purposes. The receipt of a
letter from PricewaterhouseCoopers LLP, independent accountants, concurring
with the conclusions of ANB's and CFC's management that no conditions exist
with respect to each company that would preclude accounting for the Merger as a
pooling of interests, is a condition to consummation of the Merger. See "The
Merger--Accounting Treatment."
Market Prices. The following table sets forth the market value of ANB Common
Stock; the market value of CFC Common Stock; and the market value of CFC Common
Stock on an equivalent per share basis determined as if the Effective Time were
(A) June 5, 1998, the business day immediately preceding the announcement of
the execution of the Merger Agreement and (B) , 1998, the last day
for which such information could be calculated prior to the mailing of this
Proxy Statement:
<TABLE>
<CAPTION>
ANB CFC EQUIVALENT PRICE
COMMON STOCK(1) COMMON STOCK(2) PER SHARE OF CFC(3)
--------------- --------------- -------------------
<S> <C> <C> <C>
June 5, 1998......... $34.00 N/A $11.96
, 1998.....
</TABLE>
- --------
(1) Determined on an historical basis with reference to the last sales price as
reported on the NASDAQ National Market for each particular date.
(2) There is no established public trading market for the CFC Common Stock on
which an historical market value could be based.
(3) Determined on an equivalent price per share basis by multiplying the ANB
market value on each particular date by the Exchange Ratio of 0.351807.
Resales of ANB Stock. The shares of ANB Common Stock issued pursuant to the
Merger Agreement will be freely transferable under federal securities law,
except for shares issued to any shareholder who may be deemed an "affiliate" of
CFC for purposes of Rule 145 under the Securities Act (generally including
directors, executive officers and beneficial owners of ten percent of any class
of capital stock). Affiliates may not sell their shares of ANB Common Stock
acquired in the Merger, except (i) upon registration, (ii) in compliance with
Rule 145 promulgated under the Securities Act, or (iii) pursuant to another
applicable exemption from the registration requirements of the Securities Act.
See "The Merger--Resales of ANB Common Stock" and "Risk Factors."
Waiver and Amendment; Termination; Termination Fee. Either ANB or CFC may
waive or extend the time for performance by the other of obligations under the
Merger Agreement, and the Boards of Directors of each of ANB and CFC may agree,
subject to certain limitations imposed by Delaware and Georgia law, to amend
the Merger Agreement. The Merger Agreement may be terminated at any time prior
to the Effective Time (i) by mutual consent, (ii) in the event of a breach of a
representation, warranty, covenant or agreement by the non-breaching party
under certain circumstances, (iii) by either party (provided such terminating
party is not in material breach of any material obligation in the Merger
Agreement) in the event any required regulatory approval is denied or not
obtained or the shareholders of CFC fail to approve the Merger, (iv) by either
party in the event there is a material adverse effect on the business,
operations or financial conditions of the other party that is not remedied, (v)
by either party in the event any of the conditions precedent to the Merger
cannot be satisfied or fulfilled or the Merger is not consummated by December
14, 1998, and such failure was not the fault of the terminating party, (vi) by
ANB, if the holders of greater than 7.5% of the outstanding shares of CFC
Common Stock properly assert their dissenters' rights under the Georgia
Business Corporation Code ("GBCC"), or (vii) by CFC, if a majority of the
disinterested members of the Board of Directors of CFC shall have determined to
enter into an agreement with respect to an acquisition or merger transaction
proposal which it considers superior to the Merger, provided that if CFC
terminates the Merger Agreement as a result of a superior
8
<PAGE>
acquisition or merger proposal, CFC shall pay to ANB a termination fee of
$750,000. See "The Merger--Waiver and Amendment; Termination; Termination Fee."
Certain Differences in Shareholders' Rights. At the Effective Time, CFC
shareholders, whose rights are governed by CFC's Articles of Incorporation and
Bylaws and by the GBCC, will automatically become ANB shareholders, and their
rights as ANB shareholders will be determined by ANB's Certificate of
Incorporation and Bylaws and by the Delaware General Corporation Law ("DGCL").
The rights of ANB's shareholders differ from the rights of CFC shareholders in
certain important respects. See "Effect of the Merger on Rights of
Shareholders."
Dissenters' Rights. CFC shareholders have the right to dissent from the
Merger Agreement and, upon satisfaction of certain specified procedures, to
receive cash in respect of the "fair value" of their shares of CFC Common Stock
in accordance with applicable Georgia law. The procedures to be followed by
dissenting shareholders are summarized under "General Information--Dissenters'
Rights." A copy of the applicable Georgia statutory provisions is set forth in
Appendix B to this Proxy Statement. Failure to follow precisely such provisions
as are applicable may result in loss of dissenters' rights.
In general, any dissenting shareholder who perfects his statutory dissenters'
rights to be paid the "fair value" of his stock in cash will recognize gain or
loss for federal income tax purposes upon receipt of such cash. See "The
Merger--Federal Income Tax Consequences."
If a significant number of shares of CFC Common Stock are held by
shareholders who dissent and elect to receive cash in lieu of their shares, the
Merger might not qualify for pooling-of-interests accounting treatment. Such
accounting treatment is a condition to ANB's obligation to effect the Merger.
In addition, the Merger Agreement may be terminated by ANB if the holders of
more than 7.5% of the outstanding shares of CFC Common Stock invoke their
dissenters' rights. Further, dissent by holders of a significant number of
shares of CFC Common Stock could cause the Merger not to qualify as a tax-free
reorganization for federal income tax purposes. See "The Merger--Accounting
Treatment," "--Conditions to Consummation of the Merger" and "--Federal Income
Tax Consequences."
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present for ANB and CFC, on an historical basis,
selected consolidated financial data and ratios. This information is based on
the consolidated financial statements of ANB, incorporated herein by reference,
and of CFC, included herein as Appendix C, and should be read in conjunction
therewith and with notes thereto. See "Available Information," "Incorporation
of Certain Documents by Reference," "Pro Forma Financial Information" and
Appendix C.
9
<PAGE>
ANB SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1998(1)(2) 1997(1)(2) 1997(1)(2) 1996(1)(2) 1995(1)(2) 1994(1)(2) 1993(1)(2)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 23,432 $ 21,650 $ 90,388 $ 83,180 $ 53,067 $ 40,970 $ 34,515
Interest expense........ 11,839 10,084 42,840 38,246 26,555 17,243 13,990
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income..... 11,593 11,566 47,548 44,934 26,512 23,727 20,525
Provision for loan
losses (benefit of
recoveries)............ 265 486 2,988 885 1,016 1,596 (50)
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income
after provision for
loan losses (benefit of
recoveries)............ 11,328 11,080 44,560 44,049 25,496 22,131 20,575
Net securities gains
(losses)............... 28 11 (8) (84) 26 (52) 222
Noninterest income...... 6,531 4,472 18,047 17,510 9,160 5,820 6,776
Noninterest expense..... 12,511 10,888 45,461 44,053 26,849 19,720 20,298
---------- ---------- ---------- ---------- ---------- -------- --------
Income before income
taxes.................. 5,376 4,675 17,138 17,422 7,833 8,179 7,275
Provision for income
taxes.................. 1,625 1,547 5,458 5,281 901 736 838
---------- ---------- ---------- ---------- ---------- -------- --------
Income before minority
interest in earnings of
consolidated
subsidiary............. 3,751 3,128 11,680 12,141 6,932 7,443 6,437
Minority interest in
earnings of
consolidated
subsidiary............. 3 3 12 14 650 750 236
---------- ---------- ---------- ---------- ---------- -------- --------
Net income.............. $ 3,748 $ 3,125 $ 11,668 $ 12,127 $ 6,282 $ 6,693 $ 6,201
========== ========== ========== ========== ========== ======== ========
BALANCE SHEET DATA:
Total assets............ $1,281,322 $1,135,609 $1,274,166 $1,110,729 $1,027,099 $607,628 $545,348
Earning assets.......... 1,128,873 1,037,586 1,109,202 1,013,789 929,677 560,900 506,676
Securities.............. 231,167 186,384 214,012 182,009 199,830 128,346 128,899
Loans................... 851,309 791,640 842,790 785,282 680,172 422,307 351,990
Allowance for loan
losses................. 12,959 11,206 12,829 11,011 10,421 6,506 7,307
Deposits................ 967,685 907,259 928,970 858,103 841,899 506,256 457,644
Short-term debt......... 27,000 20,500 27,750 42,105 21,280 12,717 7,350
Long-term debt.......... 19,576 12,927 14,587 12,939 1,089 2,132 1,376
Stockholders' equity.... 100,609 90,928 97,933 88,803 78,144 43,520 35,496
Weighted Average Shares
Outstanding--Diluted
(3).................... 8,960 8,877 8,884 8,756 4,955 4,464 4,316
PER COMMON SHARE DATA:
Net income--diluted (4). $ 0.42 $ 0.35 $ 1.31 $ 1.38 $ 1.10 $ 1.34 $ 1.27
Book value (period end)
(5).................... 11.63 10.58 11.32 10.38 9.16 7.05 5.78
Tangible book value
(period end) (5)....... 10.64 9.68 10.32 9.48 8.27 6.55 5.21
Dividends declared...... 0.15 0.115 0.46 0.28 -- -- --
PERFORMANCE RATIOS:
Return on average
assets................. 1.16% 1.13% 1.01% 1.17% 0.95% 1.18% 1.22%
Return on average
equity................. 14.97 13.96 12.42 14.48 13.58 17.89 18.54
Net interest margin (6). 4.08 4.59 4.53 4.70 4.29 4.49 4.34
Net interest margin
(taxable
equivalent) (6)........ 4.16 4.67 4.64 4.79 4.39 4.64 4.48
ASSET QUALITY RATIOS:
Allowance for loan
losses to period end
loans.................. 1.52% 1.42% 1.52% 1.40% 1.53% 1.54% 2.08%
Allowance for loan
losses to period end
nonperforming loans
(7).................... 278.81 286.53 245.48 356.92 320.55 354.36 240.28
Net charge-offs
(recoveries) to average
loans.................. 0.06 0.15 0.15 0.04 0.05 0.68 (0.11)
Nonperforming assets to
period end loans and
foreclosed property
(7).................... 0.73 0.57 0.79 0.46 0.57 0.54 1.18
CAPITAL AND LIQUIDITY
RATIOS:
Average equity to
average assets......... 7.73% 8.12% 8.10% 8.06% 6.98% 6.59% 6.58%
Leverage (4.00% required
minimum) (8) .......... 7.16 7.68 7.58 8.13 10.59 8.25 6.78
Risk-based capital
Tier 1 (4.00% required
minimum) (8) ......... 9.53 10.09 9.38 10.28 10.51 11.17 9.99
Total (8.00% required
minimum) (8) ......... 10.78 11.28 10.63 11.38 11.59 12.30 11.14
Average loans to average
deposits .............. 88.84 88.98 89.24 87.06 82.36 81.35 75.98
</TABLE>
10
<PAGE>
- --------
(1) On November 30, 1997, FAB merged with and into ANB ("the FAB Merger").
Pursuant to the terms of the FAB Merger, each share of FAB common stock
was converted into .7199 shares of ANB's common stock. The FAB Merger was
accounted for as a pooling of interests. On September 30, 1996, FIRSTBANC
Holding Company, Inc. ("FIRSTBANC") was merged with and into ANB, with
each share of common stock of FIRSTBANC being converted into 7.12917
shares of ANB Common Stock. The FIRSTBANC merger was accounted for as a
pooling of interests. On December 29, 1995, National Commerce Corporation
("NCC") and Commerce Bankshares, Inc. ("CBS") merged with and into ANB
("the NCC Merger"). Pursuant to the terms of the NCC Merger, each share of
NCC common stock was converted into 348.14 shares of ANB Common Stock and
each share of CBS common stock was converted into 7.0435 shares of ANB
Common Stock for a total of 3,106,981 shares (or 50.1%) of ANB Common
Stock. The NCC Merger was accounted for as a "reverse acquisition,"
whereby NCC is deemed to have acquired ANB for financial reporting
purposes. However, ANB remained as the continuing legal entity and
registrant for Securities and Exchange Commission filing purposes.
Consistent with the reverse acquisition accounting treatment, the
historical income statement information included in the ANB Selected
Consolidated Financial Data is that of NCC for years prior to 1996. The
balance sheet information included in the ANB Selected Consolidated
Financial Data is that of NCC for years prior to 1995, as adjusted for
subsequent poolings of interests. The ANB Selected Consolidated Financial
Data for all periods have been restated to include the results of
operations of FAB and FIRSTBANC from the earliest period presented, except
for dividends per common share.
(2) Data presented herein does not include Public Bank Corporation, which was
merged into ANB on May 29, 1998. See "CERTAIN INFORMATION CONCERNING ANB--
Recent Developments."
(3) The weighted average common share and common equivalent shares outstanding
are those of NCC, CBS, FAB, and FIRSTBANC converted into ANB common and
common equivalents at the applicable exchange ratios.
(4) Net income per common share--diluted is calculated based upon net income
as adjusted for minority interests in earnings of consolidated
subsidiaries and cash dividends on preferred stock.
(5) Book value and tangible book value at December 31, 1994 and 1993 are
calculated on the outstanding common shares of NCC, CBS, FAB, and
FIRSTBANC converted at the exchange ratio.
(6) Net interest income divided by average earning assets.
(7) Nonperforming loans and nonperforming assets includes loans past due 90
days or more that are still accruing interest.
(8) Based upon fully phased-in requirements.
11
<PAGE>
CFC SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 2,246 $ 1,753 $ 7,774 $ 6,372 $ 5,867 $ 4,739 $ 4,248
Interest expense........ 959 690 3,116 2,596 2,307 1,647 1,683
--------- --------- -------- ------- ------- ------- -------
Net interest income..... 1,287 1,063 4,658 3,776 3,560 3,092 2,565
Provision for loan
losses................. 10 -- 150 -- 30 112 100
--------- --------- -------- ------- ------- ------- -------
Net interest income
after provision for
loan losses............ 1,277 1,063 4,508 3,776 3,530 2,980 2,465
Net securities gains
(losses)............... -- -- 6 -- (5) -- --
Noninterest income...... 390 306 1,353 999 856 750 743
Noninterest expense..... 994 909 4,020 3,523 3,342 2,969 2,932
--------- --------- -------- ------- ------- ------- -------
Income before income
taxes.................. 673 460 1,847 1,252 1,039 761 276
Provision for income
taxes.................. 229 75 211 -- -- -- --
--------- --------- -------- ------- ------- ------- -------
Net income.............. $ 444 $ 385 $ 1,636 $ 1,252 $ 1,039 $ 761 $ 276
========= ========= ======== ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets............ $ 123,675 $ 86,953 $100,984 $83,168 $70,724 $65,072 $58,381
Earning assets.......... 113,717 78,731 91,727 76,488 65,081 59,885 53,996
Securities ............. 28,263 23,985 26,385 22,354 20,019 16,850 13,250
Loans................... 67,398 53,575 65,341 51,013 42,762 40,359 36,401
Allowance for loan
losses................. 1,239 1,141 1,233 1,139 847 781 768
Deposits................ 103,638 76,855 87,143 74,096 63,619 59,882 53,788
Short-term debt......... 8,785 1,421 3,416 100 -- -- --
Long-term debt.......... -- -- -- -- -- -- --
Stockholders' equity.... 9,516 7,362 8,793 7,103 6,042 4,720 4,094
Weighted Average Shares
Outstanding--Diluted... 2,981 2,904 2,909 2,852 2,695 2,608 2,125
PER COMMON SHARE DATA:
Net income--diluted..... $ 0.15 $ 0.13 $ 0.56 $ 0.44 $ 0.39 $ 0.30 $ 0.13
Book value (period end)
....................... 3.60 3.02 3.55 2.92 2.52 1.98 1.71
Tangible book value
(period end)........... 3.60 3.02 3.55 2.92 2.52 1.98 1.71
Dividends declared...... -- -- 0.05 -- -- -- --
PERFORMANCE RATIOS:
Return on average
assets................. 1.62% 1.82% 1.75 % 1.62% 1.52% 1.26% 0.48%
Return on average
equity................. 19.62 20.99 20.88 19.31 19.43 17.16 8.01
Net interest margin (1)
....................... 5.13 5.48 5.48 5.31 5.58 6.44 4.84
Net interest margin
(taxable equivalent)
(1).................... 5.17 5.50 5.50 5.32 5.58 6.44 4.84
ASSET QUALITY RATIOS:
Allowance for loan
losses to period end
loans.................. 1.84% 2.13% 1.89% 2.23% 1.98% 1.94% 2.11%
Allowance for loan
losses to period end
nonperforming loans
(2).................... 24,780.00 12,677.78 -- 666.08 274.11 -- 40.66
Net charge-offs
(recoveries) to average
loans.................. 0.02 (0.02) 0.10 (0.64) (0.09) 0.26 0.12
Nonperforming assets to
period end loans and
foreclosed property
(2).................... 0.01 0.02 -- 0.34 0.88 0.71 8.36
CAPITAL AND LIQUIDITY
RATIOS:
Average equity to
average assets......... 8.28% 8.66% 8.38% 8.41% 7.84% 7.32% 5.95%
Leverage (4.00% required
minimum) (3)........... 8.70 8.56 7.90 8.40 8.25 7.51 7.06
Risk-based capital
Tier 1 (4.00% required
minimum) (3)........... 12.60 13.13 13.10 12.60 12.91 11.67 10.85
Total (8.00% required
minimum) (3).......... 13.80 14.38 14.30 13.90 14.16 11.78 11.07
Average loans to average
deposits............... 71.48 70.18 68.89 66.24 66.58 68.06 64.93
</TABLE>
- --------
(1) Net interest income divided by average earning assets.
(2) Nonperforming loans and nonperforming assets include loans past due 90 days
or more that are still accruing interest.
(3) Based upon fully phased-in requirements.
12
<PAGE>
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth pro forma combined selected consolidated
financial data and ratios giving effect to the Merger on a pooling-of-interests
accounting basis for the three months ended March 31, 1998 and 1997, and the
five years ended December 31, 1997. The data are not necessarily indicative of
the results of the future operations of either entity or the actual results
that would have occurred had the Merger been consummated as of the beginning of
the periods presented. In addition, the data should be read in conjunction with
the Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
appearing elsewhere in this Proxy Statement, the consolidated financial
statements of ANB, incorporated herein by reference, and the consolidated
financial statements of CFC, included herein as Appendix C. See "Incorporation
of Certain Documents by Reference," "Pro Forma Financial Information" and
Appendix C.
13
<PAGE>
PROFORMA SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ........ $ 25,678 $ 23,403 $ 98,162 $ 89,552 $ 58,934 $ 45,709 $ 38,763
Interest expense ....... 12,798 10,774 45,956 40,842 28,862 18,890 15,673
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income .... 12,880 12,629 52,206 48,710 30,072 26,819 23,090
Provision for loan
losses................. 275 486 3,138 885 1,046 1,708 50
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income
after provision for
loan losses............ 12,605 12,143 49,068 47,825 29,026 25,111 23,040
Net securities gains
(losses) .............. 28 11 (2) (84) 21 (52) 222
Noninterest income ..... 6,921 4,778 19,400 18,509 10,016 6,570 7,519
Noninterest expense (7)
....................... 13,515 11,807 49,521 47,626 30,229 22,689 23,230
---------- ---------- ---------- ---------- ---------- -------- --------
Income before income
taxes ................. 6,039 5,125 18,945 18,624 8,834 8,940 7,551
Provision for income
taxes ................. 1,854 1,622 5,669 5,281 901 736 838
---------- ---------- ---------- ---------- ---------- -------- --------
Income before minority
interest in earnings of
consolidated subsidiary
....................... 4,185 3,503 13,276 13,343 7,933 8,204 6,713
Minority interest in
earnings of
consolidated subsidiary
....................... 3 3 12 14 650 750 236
---------- ---------- ---------- ---------- ---------- -------- --------
Net income ............. $ 4,182 $ 3,500 $ 13,264 $ 13,329 $ 7,283 $ 7,454 $ 6,477
========== ========== ========== ========== ========== ======== ========
BALANCE SHEET DATA:
Total assets ........... $1,404,997 $1,222,562 $1,375,150 $1,193,897 $1,097,823 $672,710 $603,729
Earning assets ......... 1,242,590 1,116,317 1,200,929 1,090,277 994,758 620,785 560,672
Securities ............. 259,430 210,369 240,397 204,363 219,849 145,196 142,149
Loans................... 918,707 845,215 908,131 836,295 722,934 462,666 388,391
Allowance for loan
losses ................ 14,198 12,347 14,062 12,150 11,268 7,287 8,075
Deposits ............... 1,071,323 984,114 1,016,113 932,199 905,518 566,138 511,432
Short-term debt ........ 35,785 21,921 31,166 42,205 21,280 12,717 7,350
Long-term debt ......... 19,576 12,927 14,587 12,939 1,089 2,132 1,376
Stockholders' equity (7)
....................... 109,987 98,192 106,598 95,818 84,148 48,240 39,590
Weighted Average Shares
Outstanding--Diluted
(1) ................... 10,009 9,899 9,907 9,759 5,903 5,381 5,064
PER COMMON SHARE DATA:
Net income--diluted (2)
....................... $ 0.42 $ 0.35 $ 1.34 $ 1.37 $ 1.23 $ 1.39 $ 1.28
Book value (period end)
(3).................... 11.48 10.39 11.20 10.65 9.54 8.78 7.72
Tangible book value
(period end) (3) ...... 10.68 9.58 10.28 9.78 8.68 8.36 7.24
Dividends declared...... 0.23 0.10 0.28 -- -- -- --
PERFORMANCE RATIOS:
Return on average
assets................. 1.19% 1.18% 1.06% 1.20% 1.00% 1.19% 1.14%
Return on average
equity................. 15.35 14.48 13.07 14.83 14.18 17.81 17.55
Net interest margin (4)
....................... 4.16 4.65 4.60 4.74 4.41 4.65 4.39
Net interest margin
(taxable equivalent)
(4) ................... 4.24 4.65 4.70 4.83 4.50 4.79 4.52
ASSET QUALITY RATIOS:
Allowance for loan
losses to period end
loans ................. 1.55% 1.46% 1.55% 1.45% 1.56% 1.58% 2.08%
Allowance for loan
losses to period end
nonperforming loans (5)
....................... 305.14 314.97 269.08 373.16 316.52 396.90 163.79
Net charge-offs
(recoveries) to average
loans.................. 0.08 0.19 0.14 0.04 0.65 (0.08)
Nonperforming assets to
period end loans and
foreclosed property (5)
....................... 0.67 0.54 0.74 0.45 0.59 0.56 1.87
CAPITAL AND LIQUIDITY
RATIOS:
Average equity to
average assets ........ 7.77% 8.15% 8.12% 8.08% 7.06% 6.66% 6.52%
Leverage (4.00% required
minimum) (6) .......... 7.42 7.68 7.61 8.15 10.41 8.25 6.78
Risk-based capital
Tier 1 (4.00% required
minimum) (6) ......... 9.84 10.09 9.70 10.46 10.69 11.17 9.99
Total (8.00% required
minimum) (6) ......... 11.09 11.28 10.94 11.58 11.78 12.30 11.14
Average loans to average
deposits .............. 65.22 63.49 87.54 85.46 80.75 79.94 74.76
</TABLE>
14
<PAGE>
- --------
(1) The weighted average common shares and common equivalent shares outstanding
are of ANB plus CFC converted at the exchange ratio of 0.351807 shares of
ANB Common Stock for each share of CFC Common Stock. For the purpose of
these pro forma selected consolidated financial data, it is assumed that
1,010,000 shares of ANB Common Stock and common equivalent shares will
result from consummation of the Merger. This figure is calculated by
multiplying the exchange ratio by the number of CFC Common Shares actually
outstanding and common equivalent shares as of March 31, 1998. It does not
include CFC shares issued after March 31, 1998. See "THE MERGER--Terms of
the Merger."
(2) Net income per common share--diluted is calculated based upon net income as
adjusted for minority interests in earnings of consolidated subsidiaries
and cash dividends on preferred stock.
(3) Book value and tangible book value are calculated on the total shares of
ANB Common Stock plus shares of CFC Common Stock converted at the exchange
ratio of 0.351807 shares of ANB Common Stock for each share of CFC Common
Stock. For the purpose of this pro forma selected consolidated financial
data, it is assumed that 931,073 shares of ANB Common Stock will be issued
in consummating the Merger. This figure is calculated by multiplying the
exchange ratio by the number of CFC common shares actually outstanding as
of March 31, 1998. It does not include common equivalent shares or CFC
shares issued after March 31, 1998. See "THE MERGER--Terms of the Merger."
(4) Net interest income divided by average earning assets.
(5) Nonperforming loans and nonperforming assets includes loans past due 90
days or more that are still accruing interest.
(6) Based upon fully phased-in requirements.
(7) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents selected comparative per share data for ANB
Common Stock and CFC Common Stock on an historical basis, for ANB Common Stock
on a pro forma basis reflecting consummation of the Merger and for CFC Common
Stock on an equivalent pro forma basis reflecting consummation of the Merger.
Such information has been prepared giving effect to the Merger on a pooling-of-
interests basis. See "THE MERGER--Accounting Treatment." The data is not
necessarily indicative of the results of future operations of either entity or
the actual results that would have occurred had the Merger been consummated as
of the beginning of the periods presented. The information is derived from and
should be read in conjunction with the consolidated financial statements of ANB
incorporated herein by reference, the consolidated financial statements of CFC
included herein as Appendix C, and the unaudited pro forma financial
information appearing elsewhere in this Proxy Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "PRO FORMA FINANCIAL INFORMATION," and
"Appendix C."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996 1995
------------ -------- -------- -------
<S> <C> <C> <C> <C>
ANB Common Stock
Net income per common share-diluted:
Historical ......................... $ 0.42 $ 1.31 $ 1.38 $ 1.10
Pro forma combined ................. 0.42 1.34 1.37 1.23
Dividends paid per common share:
Historical ......................... 0.15 0.46 0.28 --
Book value per common share (end of
period)
Historical ......................... 11.63 11.32 10.38 9.16
Pro forma combined ................. 11.48 11.20 10.65 9.54
CFC Common Stock
Net income per common share:
Historical.......................... $ 0.15 $ 0.56 $ 0.44 $ 0.39
Pro forma equivalent (1)............ 0.15 0.47 0.48 0.43
Dividends paid per common share:
Historical ......................... -- 0.05 -- --
Pro forma equivalent (1)............ 0.05 0.16 0.10 --
Book value per common share (end of
period)
Historical ......................... 3.60 3.55 2.92 2.52
Pro forma equivalent (1)............ 4.04 3.94 3.75 3.36
</TABLE>
- --------
(1) CFC equivalent pro forma amounts are computed by multiplying the ANB pro
forma amount by the exchange ratio of 0.351807 shares of ANB Common Stock
for each share of CFC Common Stock. See "THE MERGER--Terms of the Merger."
16
<PAGE>
RISK FACTORS
Shareholders of CFC are urged to consider carefully the following factors:
DETERMINATION OF TERMS AND EXCHANGE RATIO
The terms of the Merger, including the Exchange Ratio, were determined by
arms-length negotiations between ANB and CFC. ANB and CFC considered the book
value, earnings per share, potential market values and the projected financial
performance of the combined company in evaluating the Exchange Ratio. No
effort was made to determine the going concern or liquidation values of ANB
and CFC. See "The Merger--Background of and Reasons for the Merger" and "The
Merger--Opinion of Brown, Burke Capital Partners, Inc."
RESTRICTIONS ON DIVIDENDS
The principal business operations of ANB are conducted through its
subsidiary banks. Cash available to pay dividends to shareholders of ANB is
derived primarily, if not entirely, from dividends paid by the Banks. After
the Merger, the ability of the Banks and Georgia State Bank to pay dividends
to ANB as well as ANB's ability to pay dividends to its stockholders will
continue to be subject to and limited by certain legal and regulatory
restrictions. Further, any lenders making loans to ANB may impose financial
covenants that may be more restrictive than regulatory requirements with
respect to the payment of dividends by ANB. There can be no assurance of
whether or when ANB may pay dividends after the Merger. See "Incorporation of
Certain Documents by Reference."
COMPETITION
The banking business is highly competitive, particularly in the Banks' and
Georgia State Bank's market areas. The Banks and Georgia State Bank compete as
financial intermediaries with other commercial banks, savings associations,
credit unions, mortgage banking companies, securities brokerage companies,
insurance companies and money market mutual funds operating in Alabama,
Georgia, Florida and elsewhere. Many of these competitors have substantially
greater resources and lending limits than ANB, the Banks and Georgia State
Bank. Additionally, non-depository institution competitors are generally not
subject to the extensive regulations applicable to ANB, the Banks and Georgia
State Bank. Pursuant to the recently effective Riegle-Neal Interstate Banking
and Branching Efficiency Act, bank holding companies can acquire financial
institutions, and commercial banks can merge with other banks, on a nationwide
basis, further increasing competition. See "Incorporation of Certain Documents
by Reference."
SUPERVISION AND REGULATION
The banking industry is heavily regulated. Subsequent to the Merger, ANB,
the Banks and Georgia State Bank will be subject, in certain respects, to
regulation by the Federal Reserve, the Federal Depository Insurance
Corporation (the "FDIC"), the Office of the Comptroller of the Currency
("OCC"), the Alabama State Banking Department, the Florida State Banking
Department and the Georgia Department of Banking and Finance (the "Georgia
Department"). The success of ANB, the Banks and Georgia State Bank depends not
only on competitive factors but also on state and federal regulations
affecting banks and bank holding companies. The regulations are primarily
intended to protect depositors, not shareholders. The ultimate effect of
recent and proposed changes to the regulation of the financial institution
industry cannot be predicted. The effects of the implementation of new
legislation applicable to ANB, the Banks and Georgia State Bank, including the
Community Development and Regulatory Improvement Act and the Riegle-Neal
Interstate Banking and Branching Efficiency Act, cannot be measured at this
time. The enactment of the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") changed the framework of federal regulation of banks.
The FDICIA contains a number of provisions that affect the operation of banks,
including the establishment of a system of prompt corrective action for
insured depository institutions that set regulatory capital categories for
such institutions. Regulations now affecting ANB, the Banks and Georgia State
Bank may be modified at any time, and there is no assurance that such
modification will not adversely affect the business of ANB, the Banks and
Georgia State Bank. See "Incorporation of Certain Documents by Reference."
17
<PAGE>
MONETARY POLICIES
The results of operations of the Banks and Georgia State Bank are affected
by credit policies of monetary authorities, particularly the Federal Reserve.
The instruments of monetary policy employed by the Federal Reserve include
open market operations in U.S. government securities, changes in the discount
rate on bank borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of actions by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of the Banks and Georgia State Bank.
ALLOWANCE FOR LOAN LOSSES
Management of each of the Banks and Georgia State Bank maintains an
allowance for loan losses based upon, among other things, historical
experience, an evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors, management
makes various assumptions and judgments about the ultimate collectibility of
the respective loan portfolios and provides an allowance for potential loan
losses based upon a percentage of the outstanding balances and for specific
loans when their ultimate collectibility is considered questionable. Although
each of ANB and CFC believes that the allowance for loan losses at each of the
Banks and Georgia State Bank are adequate, there can be no assurance that such
allowances will prove sufficient to cover future losses. Future adjustments
may be necessary if economic conditions differ or adverse developments arise
with respect to non-performing or performing loans of the Banks and Georgia
State Bank. Material additions to the allowance for loan losses of the Banks
and Georgia State Bank would result in a material decrease in ANB's net
income, and possibly its capital, and could result in its inability to pay
dividends, among other adverse consequences. See "Incorporation of Certain
Documents by Reference," "Summary--Parties to the Merger" and "Certain
Information Concerning CFC."
TAX CONSIDERATIONS
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986 (the "Code").
Based upon certain representations made by the managements of ANB and CFC,
Maynard, Cooper & Gale, P.C. has delivered an opinion to ANB and CFC,
regarding the federal income tax effects of the Merger, described under the
caption "The Merger--Federal Income Tax Consequences."
No ruling has been requested from the Internal Revenue Service ("IRS") as to
any federal income tax consequences in connection with the Merger, and the
opinions of counsel described above are not binding on the IRS. Further,
because certain tax consequences of the Merger may vary depending upon the
particular circumstances of each shareholder and other factors, each holder of
CFC stock is urged to consult such holder's own tax advisor to determine the
particular tax consequences to such holder of the Merger (including the
application and effect of state, local and other tax laws).
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Directors and officers of ANB and CFC (and certain of their family members
and related interests) have personal interests in the Merger that may present
them with conflicts of interest in connection with the Merger. The Boards of
Directors of ANB and CFC are aware of this and have considered personal
interests disclosed in this Proxy Statement in their evaluation of the Merger.
See "The Merger--Background of and Reasons for the Merger" and "The Merger--
Interests of Certain Persons in the Merger."
18
<PAGE>
RESTRICTIONS ON RESALE OF ANB COMMON STOCK
Affiliates of CFC who receive ANB Common Stock pursuant to the Merger will
be restricted on the resale of such ANB Common Stock pursuant to Rule 145
under the Securities Act. Additionally, individuals who are not affiliates of
CFC but who will become affiliates of ANB after the Merger will be restricted
on the resale of any ANB Common Stock, whether or not received in the Merger,
pursuant to Rule 144 under the Securities Act. An affiliate of CFC who will
also be an affiliate of ANB after the Merger will be subject to the
restrictions on resale contained in both Rule 145 and Rule 144. An "affiliate"
is generally a person that, directly or indirectly, controls an entity and
generally includes all officers, directors and 10% shareholders of such
entity. See "The Merger--Resales of ANB Common Stock."
GENERAL INFORMATION
MEETING, RECORD DATES AND VOTES REQUIRED
The Annual Meeting of Shareholders of CFC will be held at .m.
local time, on , 1998, at the main office of Georgia State
Bank, 620 Fontaine Road, S.W., Mableton, Georgia 30126. The purpose of the
meeting is to consider and vote upon a proposal to approve the Merger
Agreement, which provides for, among other things, the Merger and to elect
eleven directors of CFC. Only holders of record of CFC Common Stock at the
close of business on July 31, 1998, will be entitled to notice of and to vote
at the Annual Meeting. As of the Record Date, there were 3,059,194 shares of
CFC Common Stock issued, outstanding and entitled to be voted. There were
CFC shareholders of record on the Record Date. Each share of CFC Common
Stock will be entitled to one vote at the Annual Meeting.
The presence, in person or by proxy, of holders of a majority of the issued
and outstanding shares of CFC Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum at such meeting.
Approval of the Merger Agreement on behalf of CFC, pursuant to the GBCC,
will require the affirmative vote of the holders of at least a majority of the
outstanding shares of CFC Common Stock entitled to be voted thereon. A failure
to return the enclosed proxy or a vote to abstain will have the same effect as
a vote against approval of the Merger Agreement. As of the Record Date,
1,724,272 shares of CFC Common Stock, or 56.4% of the total shares of CFC
Common Stock outstanding, were beneficially owned and entitled to be voted by
directors and executive officers of CFC and certain family members and related
interests. Certain officers and directors of CFC with the power to vote an
aggregate of 1,724,272 shares of CFC Common Stock (approximately 56.4% of the
outstanding shares entitled to vote), have entered into agreements with ANB
whereby they have agreed to vote their shares in favor of the Merger. Approval
of the Merger is therefore assured.
Dissenters' rights may be demanded by CFC shareholders who do not vote in
favor of the Merger and who follow the specified procedures of Georgia law.
See "Dissenters' Rights" below.
PROXIES
The enclosed CFC proxies are solicited on behalf of the Board of Directors
of CFC for use in connection with the CFC Meeting and any adjournment or
adjournments thereof. Holders of CFC Common Stock are requested to complete,
date and sign the accompanying proxy and return it promptly to CFC in the
enclosed envelope. Failure to return a properly executed proxy or to vote at
the CFC Meeting will have the same effect as a vote against approval of the
Merger Agreement. CFC shareholders should not forward any stock certificates
with their proxies.
A CFC shareholder who has executed and delivered a proxy may revoke it at
any time before such proxy is voted by giving a later written proxy, by giving
written revocation to the Secretary of CFC, provided such later proxy or
revocation is actually received by CFC before the vote of the shareholders, or
by voting in person at the Annual Meeting. Any shareholder attending the
Annual Meeting may vote in person whether or not a proxy
19
<PAGE>
has been previously filed. The shares represented by all properly executed
proxies received in time for the Annual Meeting, unless said proxies are
revoked, will be voted in accordance with the instructions therein. IF
INSTRUCTIONS ARE NOT GIVEN, PROPERLY EXECUTED PROXIES RECEIVED WILL BE VOTED
FOR APPROVAL OF THE MERGER AGREEMENT AND FOR THE ELECTION OF EACH OF THE
NOMINATED DIRECTORS.
Other Matters. CFC will bear the costs of solicitation of proxies for the
Annual Meeting. Such solicitation will be made by mail but also may be made by
telephone, facsimile or in person by the directors, officers and employees of
CFC.
The management of CFC is not aware of any business to be acted upon at the
Annual Meeting other than the proposal to approve the Merger Agreement. If
other matters are properly brought before the Annual Meeting or any
adjournment thereof, the enclosed proxy, if properly signed, dated and
returned, will be voted in accordance with the recommendation of the CFC's
management or, if there is no such recommendation, in the discretion of the
individuals named as proxies therein.
DISSENTERS' RIGHTS
Under the GBCC, shareholders of a corporation generally have the right to
dissent from certain corporate actions, including the consummation of a plan
of merger, and obtain payment of the fair value of their shares. If the Merger
is consummated, holders of record of CFC Common Stock who follow the
procedures specified by Sections 14-2-1301 et seq. of the GBCC (the "Georgia
Dissent Provisions") will be entitled to determination and payment in cash of
the "fair value" of their stock as of the day prior to the Annual Meeting,
such value is exclusive of any appreciation in anticipation of the Merger.
Shareholders who elect to follow such procedures are referred to herein as
"Dissenting Shareholders."
A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A HOLDER OF CFC COMMON STOCK WILL
RESULT IN THE WAIVER OF THE SHAREHOLDER'S RIGHT TO DEMAND PAYMENT FOR HIS OR
HER SHARES PURSUANT TO THE GEORGIA DISSENT PROVISIONS.
The following summary of the provisions of Sections 14-2-1301 et seq. of the
GBCC is not intended to be a complete statement of such provisions, the full
text of which is attached as Appendix B to this Proxy Statement, and is
qualified in its entirety by reference thereto.
Any shareholder of record of CFC Common Stock who objects to the Merger and
who fully complies with the Georgia Dissent Provisions will be entitled to
demand and receive payment in cash of an amount equal to the fair value of
all, but not less than all, of his or her shares of CFC Common Stock if the
Merger is consummated. A shareholder of record may assert dissenters' rights
as to fewer than the shares registered in such shareholder's name only if he
or she dissents with respect to all shares beneficially owned by any one
beneficial owner and notifies CFC in writing of the name and address of each
person on whose behalf he asserts dissenters' rights. For the purpose of
determining the amount to be received in connection with the exercise of
statutory dissenters' rights under the Georgia Dissent Provisions, the fair
value of a dissenting shareholder's CFC Common Stock equals the value of the
shares immediately before the Effective Time of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger.
Any CFC shareholder desiring to receive payment of the fair value of his or
her CFC Common Stock in accordance with the requirements of the Georgia
Dissent Provisions: (a) must deliver to CFC prior to the time the shareholder
vote on the Merger Agreement is taken, a written notice of his or her intent
to demand payment for his shares if such Merger is consummated; (b) must not
vote his or her shares in favor of the Merger Agreement; and (c) must demand
payment and deposit stock certificates representing CFC Common Stock in
accordance with the terms of a notice which will be sent to the shareholder by
CFC no later than 10 days after the Merger is consummated. A filing of the
written notice of intent to dissent with respect to the Merger Agreement
should be sent to: Ken Thigpen, Community Financial Corporation, 620 Fontaine
Rd SW, Mableton, Georgia 30126. A VOTE AGAINST THE MERGER AGREEMENT ALONE WILL
NOT SATISFY THE REQUIREMENTS FOR THE
20
<PAGE>
SEPARATE WRITTEN NOTICE OF INTENT TO DISSENT TO THE MERGER, THE SEPARATE
WRITTEN DEMAND FOR PAYMENT OF THE FAIR VALUE OF SHARES OF CFC COMMON STOCK AND
THE DEPOSIT OF THE STOCK CERTIFICATES, WHICH ARE REFERRED TO IN CONDITIONS (A)
AND (C) ABOVE. RATHER, A DISSENTING SHAREHOLDER MUST SEPARATELY COMPLY WITH
ALL OF THOSE CONDITIONS.
Within 10 days of the later of the Effective Time or receipt of a payment
demand by a shareholder who deposits his or her stock certificates in
accordance with the CFC's dissenters' notice sent to those shareholders who
notified CFC of their intent to dissent, described in (c) above, ANB, as the
surviving corporation in the Merger, must offer to pay to each dissenting
shareholder the amount ANB estimates to be the fair value of the dissenting
shareholder's shares, plus accrued interest. Such notice and offer must be
accompanied by: (a) CFC's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of making an offer, 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; (b)
an explanation of how the interest was calculated; (c) a statement of the
dissenting shareholder's right to demand payment of a different amount under
Section 14-2-1327 of the GBCC; and (d) a copy of the Georgia Dissent
Provisions.
If the dissenting shareholder accepts ANB's offer, by written notice to such
entity, within 30 days after ANB's offer or is deemed to have accepted the
offer by reason of failing to respond to such offer, ANB must make payment for
his or her shares within 60 days after the making of the offer or the
Effective Date, whichever is later. Upon payment of the agreed value, the
dissenting shareholder will cease to have any interest in his shares of CFC
Common Stock.
If within 30 days after ANB offers payment for the shares of a dissenting
shareholder, the dissenting shareholder does not accept the estimate of fair
value of his or her shares and interest due thereon and demands payment of his
or her own estimate of the fair value of the shares and interest due thereon,
then CFC, within 60 days after receiving the payment demand of a different
amount from a dissenting shareholder, must file an action in a court of
competent jurisdiction in Cobb County, Georgia, requesting that the fair value
of such shares be found and determined. ANB must make all dissenting
shareholders whose demands remain unsettled parties to the proceeding. If ANB
does not commence the proceeding within such 60-day period, it shall be
required to pay each dissenting shareholder whose demand remains unsettled the
amount demanded by the dissenting shareholder.
The foregoing does not purport to be a complete statement of the provisions
of the GBCC relating to statutory dissenters' rights and is qualified in its
entirety by reference to the Georgia Dissent Provisions, which are reproduced
in full in Appendix B to this Proxy Statement and which are incorporated
herein by reference.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of CFC recommends that the shareholders of CFC vote
FOR the proposal to approve the Merger Agreement. See "The Merger--Background
of and Reasons for the Merger."
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, which is attached hereto as Appendix A and
incorporated herein by reference. The information contained herein with
respect to the opinion of the financial advisor to CFC is qualified in its
entirety by reference to the opinion of such financial advisor, which is
attached hereto as Appendix C and incorporated herein by reference.
TERMS OF THE MERGER
At the Effective Time, CFC will merge with and into ANB. In the Merger, each
share of CFC Common Stock outstanding immediately prior to the Effective Time,
other than shares with respect to which dissenters'
21
<PAGE>
rights shall have been perfected, and also excluding shares held by CFC or its
subsidiaries other than in a fiduciary capacity or as a result of debts
previously contracted, will be converted into and exchanged for the right to
receive 0.351807 shares of ANB Common Stock. If the Merger is consummated,
approximately 10.46% of the outstanding shares of ANB Common Stock will be
held by former CFC shareholders. In addition, options held to purchase shares
of CFC Common Stock will be converted into options to purchase 0.351807 shares
of ANB Common Stock for each share of CFC Common Stock, pursuant to the terms
of the Merger Agreement. See "The Merger--Effect on Employee Benefit Plans."
No fractional shares of ANB Common Stock will be issued in respect to CFC
Common Stock, and cash will be paid by ANB in lieu of issuance of such
fractional shares. The amount paid in lieu of fractional shares will be
calculated by multiplying such fractional part of a share of ANB Common Stock
by the average of the high and low sales price of one share of ANB Common
Stock reported on the NASDAQ National Market System on each of the ten trading
days ending on the fifth business day prior to the Effective Time. No holder
of CFC Common Stock who would otherwise have been entitled to a fractional
share of ANB Common Stock will be entitled to dividends, voting rights or any
right as holder with respect to such fractional shares.
Holders of CFC Common Stock will have the right to dissent from the Merger
Agreement and receive a cash payment equal to the fair value of their shares,
all in conformity with the GBCC. See "General Information--Dissenters'
Rights."
EFFECTIVE TIME
Articles of Merger will be filed with the Secretary of State of the State of
Georgia, and a Certificate of Merger will be filed with the Secretary of State
of the State of Delaware, as soon as practicable after all conditions
contained in the Merger Agreement have been satisfied or lawfully waived,
including receipt of all regulatory approvals, and expiration of all statutory
waiting periods, and the approval of the Merger Agreement by the shareholders
of CFC. The Effective Time of the Merger will be at the later of the time the
Certificate of Merger shall be accepted for filing by the Secretary of State
of Delaware or the time that the Articles of Merger shall be accepted for
filing by the Secretary of State of Georgia (or such later time as the parties
may agree).
BACKGROUND OF AND REASONS FOR THE MERGER
In the latter part of 1997, the Board of Directors of CFC elected to explore
the possibility of a sale of CFC. After discussions with Brown, Burke, an
investment banking firm specializing in financial institutions, CFC executed a
contract with Brown, Burke whereby Brown, Burke was retained to solicit offers
and represent CFC in negotiating a potential merger or sale of CFC.
After interviewing CFC management and reviewing financial and other
information provided by CFC, Brown, Burke prepared a confidential information
memorandum regarding CFC in February, 1998 (the "Information Memorandum").
Brown, Burke then contacted several potential financial institution bidders
(including ANB), and those bidders, after executing a confidentiality
agreement, received a copy of the Information Memorandum. ANB executed a
confidentiality agreement on February 24, 1998 and received the Information
Memorandum shortly thereafter.
Part of ANB management's current strategy is to expand through acquisitions
into other markets with attractive economic characteristics, and the greater-
Atlanta market has experienced strong growth in recent years. In addition,
Georgia is contiguous to Alabama, and Atlanta is within approximately 150
miles of ANB's headquarters in Birmingham, Alabama.
Upon receipt of the Information Memorandum, ANB analyzed the data contained
therein and determined that in addition to the attractive growth
characteristics of CFC's market, Georgia State Bank's success as a community
bank made CFC a good strategic merger partner for ANB. Following the offering
procedures established by CFC and Brown, Burke, ANB responded with a
preliminary non-binding written indication of
22
<PAGE>
interest on the March 23, 1998 deadline for the receipt of such letters. Upon
receipt of the indication letters, Brown, Burke personnel and CFC management
compared the summary non-binding offers received, and a final group of two
bidders was selected to perform due diligence on CFC prior to finalizing
offers. ANB was one of the two institutions so selected. A group of ANB
officers and employees performed a due diligence review of CFC's books and
records at the offices of CFC from April 14 through April 16, 1998.
After compiling and analyzing the information obtained during the due
diligence period, ANB determined that it wished to pursue the transaction
further with CFC. John Holcomb, ANB's Chairman and Chief Executive Officer,
and Will Matthews, ANB's Chief Financial Officer, held a conference call with
Dennis Wolfarth, Principal of Brown, Burke, on April 22, 1998. Messrs. Holcomb
and Matthews subsequently visited with Mr. Wolfarth and Ken Thigpen, CFC's
Chief Executive Officer, Ray Barnes, CFC's Chairman, and Roy Barnes, a CFC
board member, at CFC's offices on April 30, 1998. At that meeting, both sides
discussed their respective strategies, markets, and management philosophies.
It was ascertained at this meeting that the two entities hold the common
belief in the strategic importance of community banking. Discussions at this
meeting of business strategies and philosophies further solidified both
parties' interest in a merger of ANB and CFC. A subsequent meeting was held at
CFC's offices with Messrs. Holcomb, Matthews, Thigpen, Ray Barnes and Roy
Barnes on May 11, 1998, during which relative value ranges were discussed.
Messrs. Holcomb and Matthews then returned to Atlanta to meet Messrs. Thigpen,
Barnes and Barnes on May 13, 1998 at Peachtree Dekalb Airport. At that
meeting, the parties further discussed the valuation issue and agreed verbally
upon a value and exchange ratio for the transaction.
At the regularly scheduled April 16, 1998 meeting of the ANB Board of
Directors, Mr. Holcomb presented information on the potential CFC merger to
the ANB Board. Information presented to the ANB Board relating to CFC included
financial information, market share, banking practices and banking personnel.
After deliberations and careful consideration of information presented to the
Board, the ANB Board authorized its officers to move forward with the
consummation of a merger with CFC. Subsequently, after negotiations indicated
that ANB might be successful in reaching a definitive agreement with CFC, the
ANB Board of Directors formally approved by unanimous written consent as of
June 3, 1998, the execution of the Merger Agreement and authorized its
officers to take all other action necessary to consummate the Merger.
ANB's Reasons for the Merger.
In approving the Merger Agreement and the Merger, the ANB Board considered a
number of factors concerning the benefits of the Merger. Without assigning any
relative or specific weights to the factors, the ANB Board of Directors
considered the following material factors:
(a) the information presented to the directors by the management of ANB
concerning the business, operations, earnings, asset quality and financial
condition of CFC, including the composition of the earning assets portfolio
of CFC;
(b) the financial terms of the Merger, including the relationship of the
value of the consideration issuable in the Merger to the market value,
tangible book value and earnings per share of CFC;
(c) the nonfinancial terms of the Merger, including the treatment of the
Merger as a tax-free exchange of CFC Common Stock for ANB Common Stock for
federal income tax purposes;
(d) the likelihood of the Merger being approved by applicable regulatory
authorities without undue conditions or delay;
(e) the opportunity for reducing the noninterest expense of the
operations of CFC and the ability of the operations of CFC after the
Effective Time to contribute to the earnings of ANB;
(f) the attractiveness of the CFC franchise, the market position of CFC
in each of the markets in which it operates, and the compatibility of the
franchise of CFC in north-central Georgia with the operations of ANB in its
market areas; and
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(g) the compatibility of the community banking orientation of the
operations of CFC to that of ANB and the Banks.
CFC's Reasons for the Merger. In approving the Merger Agreement and the
Merger, the Board of CFC considered a number of factors and criteria regarding
the potential benefits of the Merger. Without assigning relative or specific
weights to those factors, the CFC Board considered the following material
factors:
(a) ANB's ability to provide additional financial services to the
customers of Georgia State Bank;
(b) ANB's ability, due to its superior capitalization, to facilitate
Georgia State Bank's addition of bank branches which would increase
customer convenience;
(c) the impact of ANB's reputation as an owner and operator of community
banks on Georgia State Bank's image as a community bank;
(d) ANB's experience in owning and operating community banks and the
value thereof to the Mableton, Austell, Powder Springs and Hiram, Georgia
communities;
(e) ANB's commitment to using CFC as a platform to create a north-central
Georgia network of community banks as an opportunity for the growth and
enhancement of the Mableton, Austell, Powder Springs and Hiram, Georgia
communities;
(f) ANB's reputation for maintaining continuity of qualified, local
personnel in acquired banks;
(g) the marketability and liquidity of ANB's securities;
(h) the ability of ANB's growth potential to enhance shareholder value;
and
(i) the overall ability of the merger to enhance shareholder value.
CFC's Board of Directors recommends that CFC Stockholders vote FOR approval
of the Merger Agreement.
OPINION OF BROWN, BURKE CAPITAL PARTNERS, INC.
CFC has retained Brown, Burke to act as its financial advisor in connection
with the Merger. Representatives of Brown, Burke participated in the meeting
of the CFC Board held on June 5, 1998, at which meeting the CFC Board reviewed
the terms of the Merger Agreement. At the meeting, Brown, Burke rendered its
oral opinion to the effect that, as of such date, conversion of each share of
CFC Common Stock into the right to receive a number of shares of ANB Common
Stock equal to the Exchange Ratio and the additional terms to be provided by
the Merger Agreement (the "Per Share Purchase Price and Terms") were fair to
the holders of CFC Common Stock from a financial point of view. Brown, Burke
has also rendered a written opinion to the CFC Board that, as of July 22,
1998, based on the information set forth therein, the Per Share Purchase Price
and Terms were fair, from a financial point of view, to the CFC shareholders.
The full text of Brown, Burke's written opinion is attached as Exhibit D to
this Proxy Statement and is incorporated herein by reference. The description
of the opinion set forth herein is qualified in its entirety by reference to
Exhibit D. Holders of CFC Common Stock 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 CFC Board only and is directed
only to the Per Share Purchase Price and Terms, and does not constitute a
recommendation to any holder of CFC Common Stock regarding how such
stockholder should vote on the Merger at the Annual Meeting.
In arriving at its written opinion, Brown, Burke, among other things: (i)
analyzed certain audited and unaudited financial statements and other
information of CFC and ANB; (ii) reviewed and discussed with appropriate
management personnel of CFC and ANB the past and current business activities
and financial results and the business and financial outlook of CFC and ANB;
(iii) reviewed the historical price and trading activity
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of the common stock of ANB; (iv) compared certain financial and stock market
data relating to ANB with similar data of other publicly held banking
institutions considered to be potential alternative affiliation candidates to
ANB for CFC; (v) performed an analysis comparing the pro forma consequences of
the Merger to CFC stockholders with respect to earnings per share, book value
per share and dividends per share represented by the ANB Common Stock they
will receive in the Merger to those same measures represented by the CFC
Common Stock they currently hold; (vi) reviewed the prices paid in certain
comparable acquisition transactions of community banking institutions and the
multiples of earnings and book value and the level of deposit base premium
received by the selling institutions; (vii) reviewed the Merger Agreement and
certain related documents; (viii) considered the financial implications of
certain other strategic alternatives available to CFC; and (ix) 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 CFC with respect to the
reasonableness and achievability of the financial forecast (and the
assumptions and bases underlying such forecast) provided to it. CFC instructed
Brown, Burke that, for the purposes of its opinion, Brown, Burke should assume
that such forecast will be realized in the amounts and in the time periods
currently estimated by the management of CFC. Brown, Burke also assumed, with
CFC's consent, that the aggregate allowances for loan losses for each of CFC
and ANB 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
CFC or ANB or any of their subsidiaries. Brown, Burke did not, and was not
asked to, express any opinion about what the value of ANB Common Stock
actually will be when issued to the holders of CFC Common Stock pursuant to
the Merger or the price at which ANB Common Stock will trade subsequent to the
Merger. Moreover, CFC 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 limitations were imposed by CFC or the CFC Board on the scope of Brown,
Burke's investigation or the procedures to be followed by Brown, Burke in
rendering its opinion. As part of its procedures, Brown, Burke solicited
regional bank holding companies for their indications of acquisition interest
in CFC. 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 arriving at the opinion of fairness, from a financial point of view, of
the consideration to be received by the holders of CFC Common Stock, Brown,
Burke developed an opinion of the value of CFC Common Stock should the
institution remain independent and analyzed such value in light of the premium
represented by the Per Share Purchase Price and Terms. In connection with
rendering its opinion to the CFC Board, Brown, Burke also reviewed a variety
of generally recognized valuation methodologies and merger analyses and
performed those which it believed were most appropriate for developing its
opinion of fairness, from a financial point of view.
The preparation of a fairness opinion involves various determinations of the
most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. 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 CFC's and ANB's control. Any estimates
contained in Brown, Burke's analyses are not necessarily indicative of actual
values or predictive of future results or values
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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 CFC Board was one of many factors taken into consideration
by the CFC 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 CFC Board on June 5, 1998:
Summary of Proposal. Brown, Burke reviewed the terms of the proposed
transaction as reflected in the Merger Agreement, including the calculation of
the Exchange Ratio. Brown, Burke stated that assuming exercise of all
outstanding CFC warrants and based on the recent price of ANB Common Stock of
$34.625, an Exchange Ratio of 0.351807 shares of ANB Common Stock per share of
CFC Common Stock would provide CFC stockholders a per share value of $12.18
(the "Per Share Purchase Price") or a total transaction value of $37.7
million.
Indicated Value of CFC as an Independent Bank Holding Company. Brown, Burke
undertook an analysis addressing the range of potential values which would be
implied if CFC were to remain an independent bank holding company. Brown,
Burke computed this range of values based on a discounted cash flow analysis,
relying on projections extrapolated from CFC's 1998 budget and its historical
performance. In this analysis methodology, Brown, Burke assumed stockholders
received, in addition to the projected dividend stream, a terminal valuation
at December 31, 2000 based upon a 2.3 times multiple of December 31, 2000
stated book value and a 13.0 times multiple of earnings for such year. These
amounts were discounted at rates ranging from 12% to 14% and indicated net
present values to CFC stockholders between $25.7 million and $28.0 million.
Per Share Merger Consequences Analysis. Based upon an Exchange Ratio of
0.351807 shares of ANB Common Stock for each share of CFC Common Stock and
using the earnings estimates for CFC prepared by CFC management and earnings
estimates for ANB prepared by independent securities analysts, Brown, Burke
compared the estimated 1998 and 1999 fully diluted earnings per share of CFC
Common Stock on a stand-alone basis to the equivalent pro forma earnings per
share of ANB Common Stock which would be received in the Merger. Brown, Burke
concluded that the Merger would result in an earnings decrease of 1.4% in 1998
and 3.8% in 1999 for CFC stockholders in the combined company.
Brown, Burke also analyzed the impact of the Merger on the amount of fully
diluted book value represented by a share of CFC Common Stock. Brown, Burke
assumed exercise of all outstanding warrants and consummation of the Merger as
of December 31, 1998 and utilized the above described earnings estimates for
CFC and ANB. Brown, Burke concluded that the Merger would result in an
increase of 6.2% in fully diluted book value on an equivalent per share basis,
respectively, for CFC stockholders projected as of December 31, 1998.
Finally, Brown, Burke compared the amount of dividends expected to be paid
on a share of CFC Common Stock before the Merger to the level expected to be
paid on a pro forma basis reflecting the Merger. Brown, Burke assumed that 25%
of future earnings of CFC would be paid out in the form of dividends to common
shareholders. Brown, Burke concluded that the Merger would result in an
increase of 31.3% in 1998 in dividends per share for CFC common stockholders.
Analysis of Selected Other Bank Mergers Involving Southeastern Community
Banks. Brown, Burke reviewed twenty-one mergers involving southeastern
community banks and bank holding companies announced since January 1, 1998 in
which the seller had a return on average assets greater than 1.25%. Brown,
Burke noted in particular the prices paid 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
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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 CFC
and to the value to be received by CFC 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 12.6 times and a high of 29.9
times and a median value of 21.4 times. The CFC multiple of trailing earnings
was 27.2 times. For the purposes of this analysis, Brown, Burke adjusted CFC's
reported earnings for the last twelve months to reflect an income tax rate
that would have been used had CFC not utilized a portion of its net loss
carryforward. The calculations yielded a range of transaction values as
multiples of book value per share of a low of 1.99 times to a high of 5.59
times and a median value of 2.98 times. The CFC multiple as of April 30, 1998
book value was 3.89 times. Finally, the calculations yielded a range of
deposit base premiums paid from a low of 12.1% to a high of 64.9%, with a
median value of 27.8%. The equivalent premium on CFC deposits represented by
the Per Share Purchase Price and Terms was 30.9%.
No company or transaction used in the above analyses as a comparison is
identical to CFC, ANB, or the Merger. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial 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) is not, in itself, a meaningful method of
using comparable company data.
In connection with its opinion dated as of July 22, 1998, Brown, Burke
confirmed the appropriateness of its reliance on the analyses used to render
its June 5, 1998 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. CFC has paid
Brown, Burke a fee of $25,000 in connection with its engagement. An additional
fee of 0.9% of the aggregate market value of the consideration received by CFC
stockholders, warrantholders and optionholders up to $24 million, plus 5% of
the aggregate market value of the consideration received by CFC stockholders,
warrantholders and optionholders in excess of a base valuation of $24 million
will be payable to Brown, Burke upon consummation of the Merger. Brown, Burke
has agreed that for purposes of computing this additional fee, the aggregate
market value of the total consideration received would not exceed an amount
computed using a valuation of $34.625 per share of ANB Common Stock. Based
upon an assumed market price and value of a share of ANB common stock at the
Effective Time of the Merger of $34.625 (the closing price of ANB common stock
on June 4, 1998) this additional fee would be approximately $899,000. No
compensation payable to Brown, Burke is contingent on the conclusions reached
in the opinion of Brown, Burke. CFC 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.
EFFECT ON CERTAIN EMPLOYEE BENEFIT PLANS OF CFC
CFC Stock Option Plans. Pursuant to the Merger, at the Effective Time, ANB
shall assume the obligations arising under or pursuant to the Community
Financial Corporation 1994 Stock Option Plan (the "1994 CFC Plan") and the
1996 Stock Incentive Plan (the "1996 CFC Option Plan") (collectively, the
"Option Plans"), and ANB shall be vested with the powers, rights and
privileges of CFC under each of the Option Plans. All outstanding options
under the Option Plans to purchase CFC Common Stock (the "CFC Options") shall
be converted into options (the "ANB Options") to acquire the amount of shares
of ANB Common Stock equal to the amount for CFC Options held by each holder
multiplied by the Exchange Ratio (0.351807). The exercise price for such ANB
Options shall depend on whether such options are vested as of the date hereof
(the "Vested Options") or unvested (the "Unvested Options"). The exercise
price for Vested Options shall be equal to the exercise price for each such
Vested Option, divided by the Exchange Ratio (0.351807). At the Effective
Time, certain stockholders of CFC will hold Vested Options providing for the
purchase of additional shares of CFC
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Common Stock totalling 131,000 in the aggregate, which will be converted into
ANB Options to purchase approximately 46,086 shares of ANB Common Stock in the
aggregate. Each of the Unvested Options represents options issued pursuant to
the 1996 CFC Option Plan. A portion of the Unvested Options (options to
purchase 10,000 shares of CFC Common Stock) vest on September 1, 1998 and by
the terms of such Unvested Options, the exercise price is established on the
date of vesting. Pursuant to the terms of the Merger Agreement, the exercise
price for the Unvested Options which vest on September 1, 1998 shall be
determined by multiplying the Exchange Ratio times the "Vesting Date Average
Quoted Price." The Vesting Date Average Quoted Price for such options is
determined by (a) adding the averages of the high and low sales price of one
share of ANB Common Stock as reported on the NASDAQ National Market System on
each of the ten (10) consecutive trading days prior to September 1, 1998, and
(b) dividing such sum by ten (10). The Unvested Options which vest after
September 1, 1998 (options to purchase 20,000 shares of CFC Common Stock)
shall be exercisable at an exercise price equal to the Vesting Date Average
Quoted Price determined based on the vesting date of such options.
Employee Stock Ownership Plan. Pursuant to the Merger Agreement, one of the
conditions of Closing is that CFC shall terminate the Georgia State Bank
Employee Stock Ownership Plan (the "ESOP") prior to or at the Effective Time.
The ESOP owns 38,100 shares of CFC Common Stock. In addition, the ESOP is
indebted to Columbus Bank & Trust for a loan related to the purchase of CFC
Common Stock held by the ESOP in the aggregate principal amount of $79,795
(the "ESOP Loan"). For purposes of approval of the Merger Agreement by the
holders of CFC Common Stock, the ESOP beneficiaries shall be provided the
opportunity to vote the shares of CFC Common Stock allocated to such
beneficiaries at the Annual Meeting (or by Proxy). Any ESOP Shares for which
votes are not received (by proxy or otherwise) at the Annual Meeting shall be
voted by the trustees of the ESOP. The current trustees of the ESOP are Ken
Thigpen, Chief Executive Officer of CFC and Caric Martin, Chief Financial
Officer of CFC.
Pursuant to the terms of the Merger Agreement, at the Effective Time, all of
the shares of CFC Common Stock held by the ESOP shall be converted into the
right to receive 0.351807 shares of ANB Common Stock. In connection with the
termination of the ESOP, following the consummation of the Merger, the ESOP
shall sell enough of the ESOP shares of ANB Common Stock in open market sales
to enable the ESOP to repay the ESOP Loan in full. Following the Effective
Time, the ESOP shall distribute the ESOP shares (as converted into shares of
ANB Common Stock) that have not been sold to repay the ESOP Loan to the ESOP
beneficiaries as allocated to such beneficiaries. The ESOP shares of ANB
Common Stock that are not sold to repay the ESOP Loan shall be allocated to
the beneficiaries of the ESOP on a pro rata basis, based on the allocation
percentages of the ESOP beneficiaries as of the Effective Time.
401(k) Plans. CFC maintains a 401(k) defined contribution plan for its
employees (the "401(k) Plan"). ANB plans to merge the 401(k) Plan into the
401(k) plan maintained by ANB for its employees, unless otherwise required by
law in order to maintain its status as a qualified plan under the Code.
SURRENDER OF CERTIFICATES
Promptly after the Effective Time, AmSouth Bank, acting in the capacity of
exchange agent for ANB (the "Exchange Agent"), will mail to each former holder
of record of CFC Common Stock a form letter of transmittal, together with
instructions and a return mailing envelope (collectively, the "Exchange
Materials"), for the exchange of such holders' CFC Common Stock certificates
for certificates representing shares of ANB Common Stock and cash in lieu of
fractional shares. HOLDERS OF CFC COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE THE EXCHANGE MATERIALS FROM THE EXCHANGE
AGENT.
Upon receipt of the Exchange Materials, former holders of CFC Common Stock
should complete the letter of transmittal in accordance with the instructions
and mail the letter of transmittal together with all stock
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certificates representing shares of CFC Common Stock to the Exchange Agent in
the return envelope provided. Upon receipt of the certificates and related
documentation, ANB will issue, and the Exchange Agent will mail, to such
holder of CFC Common Stock a check in the amount of any payment in respect of
fractional shares of CFC Common Stock payable to the surrendering shareholder
and a certificate representing the number of shares of ANB Common Stock to
which such holder is entitled pursuant to the Merger Agreement. No
certificates of ANB Common Stock and no payment in respect of fractional
shares will be delivered to a holder of CFC Common Stock unless and until such
holder shall have delivered to the Exchange Agent certificates representing
the shares of CFC Common Stock owned by such holder and in respect of which
such holder claims payment is due, or such documentation and security in
respect of lost or stolen certificates as may be required by the Exchange
Agent.
Former shareholders of record of CFC will be entitled to vote after the
Effective Time at any meeting of ANB shareholders the number of whole shares
of ANB Common Stock into which such holders' respective shares of CFC Common
Stock are converted, regardless of whether such holders have exchanged their
certificates representing CFC Common Stock for certificates representing ANB
Common Stock.
Beginning six months after the Effective Time, no dividend or other
distribution payable after the Effective Time with respect to ANB Common Stock
issued to replace CFC Common Stock will be paid to the holder of an
unsurrendered CFC Common Stock certificate until the holder surrenders such
certificate, at which time such holder will be entitled to receive all
previously withheld dividends and distributions, without interest.
After the Effective Time, there will be no transfers on CFC's stock transfer
books of shares of CFC Common Stock issued and outstanding at the Effective
Time. If certificates representing shares of CFC Common Stock are presented
for transfer after the Effective Time, they will be returned to the presenter
together with a form of letter of transmittal and exchange instructions.
Neither ANB nor the Exchange Agent shall be liable to a holder of CFC Common
Stock for any amounts paid or properly delivered in good faith to a public
official pursuant to any applicable abandoned property law.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of ANB and CFC to effect the Merger are subject
to the satisfaction of the following conditions prior to the Effective Time:
(i) shareholder approval of CFC shall have been received;
(ii) all regulatory approvals shall have been received and waiting
periods shall have expired, and no such approval shall be conditioned or
restricted in a manner which, in the opinion of the Board of Directors of
ANB or CFC, materially adversely impacts the Merger so as to render it
inadvisable;
(iii) all consents necessary to avoid a material adverse effect on the
relevant party shall have been obtained;
(iv) no court or regulatory authority shall have taken any action that
restricts, prohibits or makes illegal the transactions provided for in the
Merger Agreement, and no action shall have been instituted seeking to
restrain the Merger which renders its consummation inadvisable;
(v) ANB shall have received a letter, dated as of the Effective Time,
from PricewaterhouseCoopers LLP, concurring with the conclusions of ANB's
and CFC's management that no conditions exist with respect to each company
which would preclude accounting for the Merger as a pooling of interests.
(vi) ANB and CFC shall have received a written opinion of counsel from
Maynard, Cooper & Gale, P.C. to the effect that the Merger will qualify as
a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended;
(vii) the Registration Statement on Form S-4 shall have become effective
under the Securities Act, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding for
that purpose shall have been commenced by the Commission; and
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(viii) ANB and Ken F. Thigpen shall have signed an employment agreement.
The obligations of ANB to effect the Merger are further subject to the
satisfaction or waiver of the following conditions:
(i) the representations and warranties of CFC in the Merger Agreement
shall be true as if made at the Effective Time;
(ii) the agreements and covenants of CFC in the Merger Agreement shall
have been performed and complied with by the Effective Time;
(iii) CFC shall have delivered to ANB certain certificates of its
corporate officers provided for in the Merger Agreement;
(iv) CFC shall have delivered to ANB an opinion of its counsel as
provided in the Merger Agreement;
(v) immediately prior to the Effective Time, CFC and Georgia State Bank
shall each have a minimum net worth (as defined in the Merger Agreement) of
$9,675,000;
(vi) ANB shall have received from Porter Keadle Moore LLP, a comfort
letter dated as of the Effective Time with respect to such matters relating
to the financial statements of CFC as ANB may reasonably request;
(vii) CFC shall have delivered to ANB documentation, in a form reasonably
satisfactory to ANB, amending certain CFC stock option plans in accordance
with the terms of the Merger Agreement; and
(viii) CFC shall have delivered to ANB documentation, in a form
reasonably satisfactory to ANB, that the Georgia State Bank Employee Stock
Ownership Plan has been terminated prior to or at the Effective Time.
The obligations of CFC to effect the Merger are further subject to the
satisfaction or waiver of the following conditions:
(i) the representations and warranties of ANB in the Merger Agreement
shall be true as if made at the Effective Time;
(ii) the agreements and covenants of ANB in the Merger Agreement shall
have been performed and complied with by the Effective Time;
(iii) ANB shall have delivered to CFC certain certificates of its
corporate officers provided for in the Merger Agreement;
(iv) ANB shall have delivered to CFC an opinion of its counsel as
provided in the Merger Agreement;
(v) CFC shall have received from PricewaterhouseCoopers LLP a comfort
letter dated as of the Effective Time with respect to such matters relating
to the financial statements of ANB as CFC may reasonably request;
(vi) CFC shall have received an opinion from Brown, Burke that the
Exchange Ratio is fair to it and its shareholders for a financial point of
view;
(vii) the ANB Common Stock to be issued in the Merger shall have been
qualified as a NASDAQ "National Market System Security"; and
(viii) at the Closing Date, the ANB allowance for loan losses, as defined
in the Merger Agreement, shall not be less than 1.4% of total loans
outstanding at such time.
REGULATORY APPROVALS
The Merger is conditioned upon receipt of the necessary regulatory
approvals. Bank holding companies and banks are regulated extensively under
both federal and state law. ANB is subject to regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve"). The Bank
Holding Company Act requires a bank holding company to obtain the prior
approval of the Federal Reserve before it may acquire substantially all
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of the assets of any bank or ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than five percent of the voting shares of any such bank.
Accordingly, on July 23, 1998, ANB filed an application with the Federal
Reserve pursuant to Section 3 of the Bank Holding Company Act.
In evaluating the Merger, the Federal Reserve must consider, among other
factors, the financial and managerial resources and future prospects of the
institutions and the convenience and needs of the communities to be served.
The relevant statutes prohibit the Federal Reserve from approving the Merger
if (i) it would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any part of the United States or (ii) its effect in any section
of the country may be to substantially lessen competition or to tend to create
a monopoly, or if it would be a restraint of trade in any other manner, unless
the Federal Reserve finds that any anticompetitive effects are outweighed
clearly by the public interest and the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Merger
may not be consummated until the 30th day (which the Federal Reserve may
reduce to 15 days) following the date of the Federal Reserve approval, during
which time the United States Department of Justice may challenge the
transaction on antitrust grounds. The commencement of any antitrust action
would stay the effectiveness of the approval of the Federal Reserve, unless a
court of competent jurisdiction specifically orders otherwise. There can be no
assurance that such regulatory approval will be obtained or as to the timing
of any such approval.
CFC and Georgia State Bank are subject to regulation by the Georgia
Department. Pursuant to the requirements of Section 7-1-606 of the Georgia
Statutes, any proposed change in control, whether direct or indirect, of a
state bank and any proposed merger of two bank holding companies must be
submitted to the Georgia Department in the form of an application for
approval. ANB submitted an application to merge with CFC and to indirectly
acquire Georgia State Bank (through the Merger of CFC with and into ANB) to
the Georgia Department on July 23, 1998. There can be no assurance that such
regulatory approval will be obtained or as to the timing of any such approval.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement requires that each of CFC and ANB shall preserve its
business organization, goodwill, relationships with depositors, customers and
employees and take no action that would adversely affect its ability to
perform under the Merger Agreement. In addition, CFC has agreed that, without
the consent of ANB, it will not:
(i) amend its Articles of Incorporation, Bylaws or other governing
instruments or those of any of its subsidiaries;
(ii) incur additional debt obligations in excess of an aggregate of
$100,000 except in the ordinary course of business;
(iii) repurchase, redeem or otherwise acquire or exchange any shares, or
any securities convertible into any shares of the stock of itself or any of
its subsidiaries or declare or pay any dividend or make any other
distribution in respect of its capital stock;
(iv) except as provided in the Merger Agreement, issue, sell, pledge,
encumber or enter into any contract to issue, sell, pledge or encumber, or
authorize any of the foregoing, any additional shares of CFC Common Stock
or any other capital stock of CFC or any subsidiary, or any options,
warrants, conversion or other rights to acquire any such stock;
(v) adjust, split, combine or reclassify any of its capital stock or that
of any of its subsidiaries, or authorize any of the foregoing, other than
in the ordinary course of business for reasonable and adequate
consideration;
(vi) except as specifically provided in the Merger Agreement, acquire any
direct or indirect equity interest in any entities, other than in
connection with foreclosures in the ordinary course of business and
acquisitions of control by depository institution subsidiaries in a
fiduciary capacity;
31
<PAGE>
(vii) grant any increase in compensation or benefits of the employees or
officers of CFC or any of its subsidiaries, except in accordance with past
practices with respect to employees or enter into, grant or pay bonuses,
severance agreements, or material increases in fees or other compensation
to officers and directors;
(viii) enter into any employment contract without an unconditional right
to terminate without liability;
(ix) adopt any new employee benefit plans or make any material changes to
any existing employee benefit plans other than as required by law or that
is necessary or advisable to maintain the tax qualified status of any such
plan;
(x) make any significant change in any accounting methods or systems of
internal accounting controls, except as appropriate to conform to changes
in regulatory accounting requirements or generally accepted accounting
principles;
(xi) commence any litigation other than in accordance with past practice,
settle any litigation involving any liability for material monetary damages
or, except in the ordinary course of business, modify, amend, terminate,
waive, release, compromise or assign any material rights, contracts or
claims;
(xii) operate its business otherwise than in the ordinary course, or in a
manner not consistent with safe and sound banking practices or applicable
law;
(xiii) fail to file timely any report required to be filed with any
regulatory authorities;
(xiv) make any loan or advance to any shareholder owning 5% or more of
the outstanding shares of CFC Common Stock, director or officer of CFC or
any of its subsidiaries, or any of the members of their immediate families,
except for unfunded loan commitments or renewals of existing loans in
existence on the date of the Merger Agreement;
(xv) cancel without payment in full, or modify any contract relating to,
any loan or other obligation receivable from any shareholder, director,
officer or employee of CFC or any of its subsidiaries or any of their
immediate families;
(xvi) enter into any contract for services or otherwise with any of the
holders of 5% or more of CFC Common Stock, or the directors, officers or
employees of CFC or any of its subsidiaries or any members of their
immediate families;
(xvii) modify, amend or terminate any material contract, except in the
ordinary course of business and for fair consideration;
(xviii) file any application to relocate or terminate the operations of
any of its banking offices or any of its subsidiaries;
(xix) except in accordance with applicable law, change its or any of its
subsidiary's lending, investment, liability management and other material
banking policies in any material respect;
(xx) intentionally take any action reasonably expected to jeopardize or
delay the receipt of any regulatory approval required to consummate the
Merger; or
(xxi) take any action that would cause the transactions provided for in
the Merger Agreement to be subject to requirements imposed by any anti-
takeover provision of the GBCC, and CFC shall take all necessary steps
within its control to exempt (or ensure the continued exemption of) the
transactions provided for in the Merger Agreement from any anti-takeover
law.
ANB has agreed that, without the consent of CFC, it will not:
(i) fail to file timely any report required to be filed with any
regulatory authorities, including the SEC; or
(ii) take any action that would cause the ANB Common Stock to cease to be
traded on the NASDAQ, except for certain exceptions specified in the Merger
Agreement.
Each party has also agreed to give written notice to the other promptly upon
becoming aware of the occurrence of any event which is likely to constitute a
Material Adverse Effect within the meaning given to such
32
<PAGE>
term in the Merger Agreement or constitute a breach of any of its
representations, warranties or covenants contained in the Merger Agreement and
to use its reasonable efforts to remedy any such condition or breach.
WAIVER AND AMENDMENT; TERMINATION; TERMINATION FEE
Prior to the Effective Time, either ANB or CFC may waive or extend the time
for the compliance or fulfillment by the other of any and all of its
obligations under the Merger Agreement and may, to the extent permitted by
law, amend the Merger Agreement in writing with the approval of the Board of
Directors of each of CFC and ANB.
The Merger Agreement may be terminated at any time prior to the Effective
Time, as follows: (i) by mutual consent, (ii) in the event of a breach of a
representation or warranty or covenant or agreement by the non-breaching party
under certain circumstances, (iii) by either party (provided that such
terminating party is not in material breach of any material obligation in the
Merger Agreement), in the event any required regulatory approval is denied or
not obtained or the shareholders of CFC fail to approve the Merger, (iv) by
either party, in the event there is a material adverse effect on the business,
operations or financial conditions of the other party that is not remedied,
(v) by either party, in the event any of the conditions precedent to the
Merger cannot be satisfied or fulfilled or the Merger is not consummated by
December 14, 1998, and such failure was not the fault of the terminating
party; (vi) by ANB, if the holders of greater than 7.5% of the outstanding
shares of CFC Common Stock properly assert their dissenters' rights under the
GBCC; or (vii) by CFC, if a majority of the disinterested members of the Board
of Directors of CFC shall have determined to enter into an agreement with
respect to an acquisition or merger transaction proposal which it considers
superior to the Merger, provided that if CFC terminates the Merger Agreement
under such circumstances of a superior acquisition or merger proposal, CFC
shall pay to ANB a termination fee of $750,000.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall become void and have no effect, except that the
confidentiality requirements and termination fee provisions shall survive such
termination and such termination will not relieve a breaching party from
liability for an uncured willful breach of the representation, warranty,
covenant or agreement giving rise to the termination.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The Merger Agreement provides that from and after the Effective Time, the
ANB Board of Directors will consist of the thirteen (13) current directors of
ANB and one of either Roy E. Barnes or W. Ray Barnes, both of whom are current
directors of CFC, to be chosen at the discretion of CFC. All such persons are
to serve in accordance with the bylaws of ANB.
All current ANB officers will continue to serve ANB in accordance with the
bylaws of ANB after the Effective Time. The Merger Agreement further provides
that, pursuant to the terms of an employment agreement, after the Effective
Time, Ken F. Thigpen will continue to serve as Chief Executive Officer of
Georgia State Bank. All directors and officers of each of the subsidiaries of
ANB after the Effective Time will continue to serve in accordance with the
terms of the bylaws of each such subsidiary. ANB intends that most of the
personnel at Georgia State Bank will remain with Georgia State Bank in their
current capacity following the Merger. See "The Merger--Interests of Certain
Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the current directors of ANB and one of either Roy E. Barnes or W.
Ray Barnes, both of whom are current directors of CFC, to be chosen at the
discretion of CFC, will serve as directors of ANB after the Effective Time. As
set forth above under "--Management and Operations After the Merger," certain
officers of ANB, CFC and their subsidiaries will continue to serve as officers
after the Effective Time. No director or executive officer of ANB has any
material direct or indirect financial interest in CFC or the Merger, except as
a director, executive officer or shareholder of ANB or its subsidiaries.
33
<PAGE>
In the normal course of business, Georgia State Bank makes loans to
directors and officers of CFC, including loans to certain related persons and
entities. Such loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other customers, and, in the opinion of management of CFC,
do not involve more than the normal risk of collectibility. As of March 31,
1998, the amount of these loans (including amounts available under lines of
credit) by Georgia State Bank to CFC directors and officers was 2.96% of CFC's
total loans.
A condition precedent to the obligations set forth in the Merger Agreement
is that Ken F. Thigpen will, as of the Effective Time, enter into an
employment agreement (the "Employment Agreement") whereby Mr. Thigpen agrees,
among other things, to serve as Chief Executive Officer of Georgia State Bank
for a period of three years, unless earlier terminated pursuant to the terms
of the Employment Agreement. Mr. Thigpen will receive annual compensation of
not less than One Hundred Ninety Thousand Dollars ($190,000) for the term of
the Employment Agreement and certain other fringe benefits. Reference should
be made to a copy of the form of the Employment Agreement which is included
herewith as Exhibit B to the Merger Agreement, which is included as Appendix A
to this Proxy Statement.
FEDERAL INCOME TAX CONSEQUENCES
Neither ANB nor CFC has requested or will receive an advance ruling from the
Internal Revenue Service as to the tax consequences of the Merger. Maynard,
Cooper & Gale, P.C., counsel for ANB, has delivered opinions to ANB and CFC
that, for federal income tax purposes, under current law, assuming that the
Merger will take place as described in the Merger Agreement and that certain
factual matters represented by ANB and CFC (including the representation that
CFC shareholders will maintain sufficient equity ownership interests in ANB
after the Merger) are true and correct at the time of consummation of the
Merger, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and ANB and CFC will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
Assuming that the Merger will take place as described in the Merger
Agreement and that certain factual matters represented by ANB and CFC
(including the representation that CFC shareholders will maintain sufficient
equity ownership interests in ANB after the Merger) are true and correct at
the time of consummation of the Merger, then, in the opinion of Maynard,
Cooper & Gale, P.C., the following will be the material federal income tax
consequences of the Merger: (i) no gain or loss will be recognized by ANB or
CFC in the Merger; (ii) the shareholders of CFC will recognize no gain or loss
upon the exchange of their CFC Common Stock solely for shares of ANB Common
Stock; (iii) the basis of the ANB Common Stock received by the CFC
shareholders in the proposed transaction will, in each instance, be the same
as the basis of the CFC Common Stock surrendered in exchange therefor; (iv)
the holding period of the ANB Common Stock received by the CFC shareholders
will, in each instance, include the period during which the CFC Common Stock
surrendered in exchange therefor was held, provided that the CFC Common Stock
was held as a capital asset on the date of the exchange; (v) the payment of
cash to CFC shareholders in lieu of fractional share interests of ANB Common
Stock will be treated for federal income tax purposes as if the fractional
shares were distributed as part of the exchange and then were redeemed by ANB;
these cash payments will be treated as having been received as distributions
in full payment in exchange for the stock redeemed as provided in Code Section
302(a) of the Code; and (vi) where solely cash is received by an ANB or CFC
shareholder in exchange for his ANB or CFC Common Stock pursuant to the
exercise of dissenters' rights, such cash will be treated as having been
received in redemption of his ANB or CFC Common Stock, subject to the
provisions and limitations of Section 302 of the Code.
THE DISCUSSION SET FORTH ABOVE IS BASED UPON THE OPINION OF MAYNARD, COOPER
& GALE, P.C., AND APPLIES ONLY TO CFC SHAREHOLDERS WHO HOLD CFC COMMON STOCK
AS A CAPITAL ASSET, AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS CFC
SHAREHOLDERS, IF ANY, WHO RECEIVED THEIR CFC COMMON STOCK UPON EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND CFC SHAREHOLDERS
34
<PAGE>
THAT ARE INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS,
CORPORATIONS, TRUSTS, FOREIGN PERSONS, PERSONS SUBJECT TO THE ALTERNATIVE
MINIMUM TAX, OR PERSONS SUBJECT TO THE GOLDEN PARACHUTE PROVISIONS OF THE
CODE. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER OR ANY TAX CONSEQUENCES OF A SUBSEQUENT TRANSACTION INVOLVING AND
COMMON STOCK, INCLUDING ANY REDEMPTION OR TRANSFER OF AND COMMON STOCK. THIS
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH CFC
SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
ANB will account for the Merger as a pooling-of-interests transaction in
accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of CFC Common Stock acquired for
cash pursuant to the exercise of dissenters' rights or in lieu of fractional
shares not exceed 10% of the outstanding shares of CFC Common Stock. Under
this accounting treatment, assets and liabilities of CFC will be added to
those of ANB at their recorded book values, and the shareholders' equity of
the two companies will be combined in ANB's consolidated balance sheet.
Financial statements of ANB issued after the Effective Time of the Merger will
be restated to reflect the consolidated operations of ANB and CFC as if the
Merger had taken place prior to the periods covered by the financial
statements. The receipt of a letter from PricewaterhouseCoopers LLP
independent accountants, concurring with the conclusions of ANB's and CFC's
management that no conditions exist with respect to each company that would
preclude accounting for the Merger as a pooling of interests, is a condition
to the consummation of the Merger.
EXPENSES AND FEES
The Merger Agreement provides that each of the parties will bear and pay all
costs and expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including filing, registration and
application fees, printing and mailing fees and expenses, and fees and
expenses of their respective accountants and counsel.
RESALES OF ANB COMMON STOCK
The shares of ANB Common Stock issued pursuant to the Merger Agreement will
be freely transferrable under the Securities Act, except for shares issued to
any shareholder who may be deemed to be an "affiliate" (generally including,
without limitation, directors, certain executive officers and beneficial
owners of 10% or more of a class of capital stock) of CFC for purposes of Rule
145 under the Securities Act as of the date of the CFC Meetings or for
purposes of applicable interpretations regarding pooling-of-interests
accounting treatment. Affiliates may not sell their shares of ANB Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act
and until such time as financial results covering at least 30 days of combined
operations of ANB and CFC after the Merger have been published. ANB may place
restrictive legends on certificates representing ANB Common Stock issued to
all persons who are deemed "affiliates" of CFC under Rule 145. This Proxy
Statement does not cover resales of ANB Common Stock received by any person
who may be deemed to be an affiliate of CFC.
35
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF CONDITION
The following unaudited Pro Forma Combined Condensed Consolidated Statement
of Condition combines the historical consolidated statements of condition of
ANB and CFC giving effect to the Merger, which will be accounted for as a
pooling of interests, as if it had been effective March 31, 1998, after giving
effect to the pro forma adjustments. For a description of pooling of interests
accounting treatment, see "THE MERGER--Accounting Treatment." This financial
data should be read in conjunction with the historical consolidated financial
statements, including the respective notes thereto, of CFC which are included
herein as Appendix C, and of ANB which are incorporated by reference in this
Proxy Statement. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," and "Appendix C." This pro forma financial
information is not necessarily indicative of the actual financial position
that would have occurred had the Merger been consummated on March 31, 1998,
nor is it necessarily indicative of the future financial position.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF CONDITION
AS OF MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
ANB CFC ADJUSTMENTS COMBINED
---------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............. $ 40,193 $ 5,613 $ 45,806
Investments.............. 231,167 28,263 259,430
Loans, net of allowance
for loan losses......... 851,309 66,159 917,468
Premises and equipment... 32,538 3,245 35,783
Intangibles, net......... 8,603 -- 8,603
Other assets............. 117,512 20,395 137,907
---------- -------- ----------
Total assets ........ $1,281,322 $123,675 $ -- $ -- $1,404,997
========== ======== ====== ====== ==========
LIABILITIES
Deposits................. $ 967,685 $103,638 $1,071,323
Short-term borrowings.... 27,000 8,785 35,785
Other liabilities........ 166,452 1,736 168,188
Long-term debt........... 19,576 -- -- -- 19,576
---------- -------- ------ ------ ----------
Total liabilities.... 1,180,713 114,159 -- -- 1,294,872
STOCKHOLDERS' EQUITY
Common stock............. 8,648 6,616 6,616(1) 931(1) 9,579
Additional paid-in
capital................. 61,551 1,897 1,897(1) 7,582(1) 69,133
Retained earnings........ 29,830 1,044 138(2) 30,736
Unearned restricted stock
........................ (69) (69)
ESOP unearned shares..... (83) (83)
Accumulated other
comprehensive income,
net of tax ............. 649 42 -- -- 691
---------- -------- ------ ------ ----------
Total stockholders'
equity.............. 100,609 9,516 8,651 8,513 109,987
---------- -------- ------ ------ ----------
Total liabilities and
stockholders'
equity.............. $1,281,322 $123,675 $8,651 $8,513 $1,404,859
========== ======== ====== ====== ==========
Capital ratios:
Average equity to
average assets........ 7.73% 8.28% 7.77%
Leverage............... 7.16 8.70 7.42
Tier 1 risk-based
capital............... 9.53 12.60 9.84
Total risk-based
capital............... 10.78 13.80 11.09
</TABLE>
36
<PAGE>
- --------
(1) To record the issuance of approximately 931,073 shares of ANB Common Stock
in exchange for all of the outstanding common shares of CFC Common Stock.
For the purpose of these pro forma selected consolidated financial data,
it is assumed that 931,073 shares of ANB Common Stock will be issued in
consummating the Merger. This figure is calculated by multiplying the
exchange ratio by the number of CFC common shares actually outstanding at
March 31, 1998. It does not include shares of CFC Common Stock issued by
CFC after March 31, 1998. The Merger is expected to be accounted for as a
pooling of interests. See "THE MERGER--Terms of the Merger."
<TABLE>
<CAPTION>
OUTSTANDING
SHARES
-----------
<S> <C> <C>
CFC outstanding shares........................... 2,646,545
Conversion ratio, as agreed upon................. 0.351807
----------
ANB shares to be issue........................... 931,073
Par value of 931,073 shares issued at $1.00 per
share........................................... $ 931,073
Shares issued at par value....................... $ 931,073
Total capital stock of CFC....................... 8,513,523
----------
Excess recorded as an increase to additional
paid-in capital................................. 7,582,450
-----------
8,513,523
To eliminate CFC capital stock:
Common stock at par value....................... (6,616,363)
Additional paid-in capital...................... (1,897,160)
-----------
(8,513,523)
-----------
Net change in equity.......................... $ --
===========
</TABLE>
(2) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited Pro Forma Combined Condensed Consolidated Statements
of Income present the combined consolidated statements of income of ANB and
CFC assuming the companies had been combined for each period presented on a
pooling of interest accounting basis, after giving effect to the pro forma
adjustments. For a description of pooling of interests accounting treatment,
see "THE MERGER--Accounting Treatment." This financial data should be read in
conjunction with the historical consolidated financial statements, including
the respective notes thereto, of ANB, which are incorporated by reference in
this Proxy Statement, and of CFC, included herein as Appendix C. See
"AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE,"
and "Appendix C." This pro forma financial information is not necessarily
indicative of the actual operating results that would have occurred had the
Merger been consummated as of the beginning of the periods presented, nor is
it necessarily indicative of future operating results.
37
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL (1) PRO
-------------- --------------- FORMA
ANB CFC DEBIT CREDIT COMBINED
------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
Interest income........................ $23,432 $2,246 $ -- $ -- $25,678
Interest expense....................... 11,839 959 -- -- 12,798
------- ------ ------- ----- -------
Net interest income.................... 11,593 1,287 -- -- 12,880
Provision for loan losses ............. 265 10 -- -- 275
Noninterest income..................... 6,559 390 -- -- 6,949
Noninterest expense.................... 12,511 994 10 -- 13,515
------- ------ ------- ----- -------
Income before income taxes............. 5,376 673 (10) -- 6,039
Provision for income taxes............. 1,625 229 -- -- 1,854
------- ------ ------- ----- -------
Income before minority interest in
earnings of consolidated subsidiary... 3,751 444 (10) -- 4,185
Minority interest in earnings of
consolidated subsidiary............... 3 -- -- -- 3
------- ------ ------- ----- -------
Net income--dilutive................... $ 3,748 $ 444 $ (10) $ -- $ 4,182
======= ====== ======= ===== =======
Earnings per common share--dilutive.... $ 0.42 $ 0.15 $ 0.42
======= ====== =======
Average common shares outstanding--
dilutive.............................. 8,960 2,981 (2,981) 1,049 10,009
======= ====== ======= ===== =======
</TABLE>
- --------
(1) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------- ADJUSTMENTS PRO FORMA
ANB CFC (1) COMBINED
------- ------ --------------- ---------
<S> <C> <C> <C> <C> <C>
Interest income....................... $21,650 $1,753 $ -- $ -- $23,403
Interest expense...................... 10,084 690 -- -- 10,774
------- ------ -------- ----- -------
Net interest income .................. 11,566 1,063 -- -- 12,629
Provision for loan losses ............ 486 -- -- -- 486
Noninterest income.................... 4,483 306 -- -- 4,789
Noninterest expense................... 10,888 909 10 -- 11,807
------- ------ -------- ----- -------
Income before income taxes............ 4,675 460 (10) -- 5,125
Provision for income taxes............ 1,547 75 -- -- 1,622
------- ------ -------- ----- -------
Income before minority interest in
earnings of consolidated subsidiary.. 3,128 385 (10) -- 3,503
Minority interest in earnings of
consolidated subsidiary.............. 3 -- -- -- 3
------- ------ -------- ----- -------
Net income--dilutive.................. $ 3,125 $ 385 $ (10) $ -- $ 3,500
======= ====== ======== ===== =======
Earnings per common share--dilutive... $ 0.35 $ 0.13 $ 0.35
======= ====== =======
Average common shares outstanding--
dilutive ............................ 8,877 2,904 (2,904) 1,022 9,899
======= ====== ======== ===== =======
</TABLE>
- --------
(1) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
38
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------- ADJUSTMENTS PRO FORMA
ANB CFC (1) COMBINED
------- ------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Interest income........................ $90,388 $7,774 $ -- $ -- $98,162
Interest expense ...................... 42,840 3,116 -- -- 45,956
------- ------ ------- ----- -------
Net interest income ................... 47,548 4,658 -- -- 52,206
Provision for loan losses ............. 2,988 150 -- -- 3,138
Noninterest income..................... 18,039 1,359 -- -- 19,398
Noninterest expense.................... 45,461 4,020 40 -- 49,521
------- ------ ------- ----- -------
Income before income taxes............. 17,138 1,847 (40) -- 18,945
Provision for income taxes............. 5,458 211 -- -- 5,669
------- ------ ------- ----- -------
Income before minority interest in
earnings of consolidated subsidiary... 11,680 1,636 (40) -- 13,276
Minority interest in earnings of
consolidated subsidiary............... 12 -- -- -- 12
------- ------ ------- ----- -------
Net income--dilutive................... $11,668 $1,636 $ (40) $ -- $13,264
======= ====== ======= ===== =======
Earnings per common share--dilutive.... $ 1.31 $ 0.56 $ 1.34
======= ====== =======
Average common shares outstanding--
dilutive ............................. 8,884 2,909 (2,909) 1,023 9,907
======= ====== ======= ===== =======
</TABLE>
- --------
(1) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ANB CFC ADJUSTMENTS (1) COMBINED
------- ------ -------------------------
<S> <C> <C> <C> <C> <C>
Interest income....................... $83,180 $6,372 $ $ $89,552
Interest expense...................... 38,246 2,596 -- -- 40,842
------- ------ -------- ------ -------
Net interest income................... 44,934 3,776 -- -- 48,710
Provision for loan losses............. 885 -- -- -- 885
Noninterest income.................... 17,426 999 -- -- 18,425
Noninterest expense................... 44,053 3,523 50 -- 47,626
------- ------ -------- ------ -------
Income before income taxes............ 17,422 1,252 (50) -- 18,624
Provision for income taxes............ 5,281 -- -- -- 5,281
------- ------ -------- ------ -------
Income before minority interest in
earnings of consolidated subsidiary.. 12,141 1,252 (50) -- 13,343
Minority interest in earnings of
consolidated Subsidiary.............. 14 -- -- -- 14
------- ------ -------- ------ -------
Net income--dilutive.................. $12,127 $1,252 $ (50) $ -- $13,329
======= ====== ======== ====== =======
Earnings per common share--dilutive... $ 1.38 $ 0.44 $ 1.37
======= ====== =======
Average common shares outstanding--
dilutive............................. 8,756 2,852 (2,852) 1,003 9,759
======= ====== ======== ====== =======
</TABLE>
- --------
(1) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
39
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------- ADJUSTMENTS PRO FORMA
ANB CFC (1) COMBINED
------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Interest income......................... $53,067 $5,867 $ -- $ -- $58,934
Interest expense ....................... 26,555 2,307 -- -- 28,862
------- ------ ------ ----- -------
Net interest income .................... 26,512 3,560 -- -- 30,072
Provision for loan losses .............. 1,016 30 -- -- 1,046
Noninterest income...................... 9,186 851 -- -- 10,037
Noninterest expense..................... 26,849 3,342 38 -- 30,229
------- ------ ------ ----- -------
Income before income taxes.............. 7,833 1,039 (38) -- 8,834
Provision for income taxes.............. 901 -- -- -- 901
------- ------ ------ ----- -------
Income before minority interest in
earnings of consolidated subsidiary.... 6,932 1,039 (38) -- 7,933
Minority interest in earnings of
consolidated Subsidiary................ 650 -- -- -- 650
------- ------ ------ ----- -------
Net income--dilutive.................... $ 6,282 $1,039 $ (38) $ -- $ 7,283
======= ====== ====== ===== =======
Earnings per common share--dilutive..... $ 1.10 $ 0.39 $ 1.23
======= ====== =======
Average common shares outstanding--
dilutive .............................. 4,955 2,695 (2,695) 948 5,903
======= ====== ====== ===== =======
</TABLE>
- --------
(1) Includes amounts necessary to conform the recognition of compensation
expense related to stock options to that of ANB.
40
<PAGE>
DESCRIPTION OF ANB CAPITAL STOCK
GENERAL
The authorized capital stock of ANB currently consists of 17,500,000 shares
of ANB Common Stock, par value $1.00 per share, and 100,000 shares of
preferred stock, par value $1.00 per share (the "ANB Preferred Stock"). The
following is a summary description of ANB's capital stock.
COMMON STOCK
Holders of shares of ANB Common Stock are entitled to receive such dividends
as may from time to time be declared by the ANB Board out of funds legally
available therefor. Holders of ANB Common Stock are entitled to one vote per
share on all matters on which the holders of ANB Common Stock are entitled to
vote and do not have cumulative voting rights. Holders of ANB Common Stock
have no preemptive, conversion, redemption or sinking fund rights. In the
event of a liquidation, dissolution or winding-up of ANB, holders of ANB
Common Stock are entitled to share equally and ratably in the assets of ANB,
if any, remaining after the payment of all debts and liabilities of ANB and
the liquidation preference of any outstanding Preferred Stock. The outstanding
shares of ANB Common Stock are, and the shares of ANB Common Stock offered by
ANB hereby when issued, will be fully paid and nonassessable. The rights,
preferences and privileges of holders of ANB Common Stock are subject to any
class or series of ANB Preferred Stock that ANB may issue in the future.
PREFERRED STOCK
The ANB Certificate of Incorporation, as amended, (the "Certificate")
provides that the Board of Directors is authorized without further action by
the holders of the ANB Common Stock to provide for the issuance of shares of
ANB Preferred Stock in one or more classes or series and to fix the
designations, powers, preferences and relative participating options and other
rights, qualifications, limitations and restrictions thereof, including the
dividend rate, conversion rights, voting rights, redemption price and
liquidation preference, and to fix the number of shares to be included in any
such class or services. Any share of ANB Preferred Stock so issued may rank
senior to the ANB Common Stock with respect to the payment of dividends or
amounts upon liquidation, dissolution, or winding-up, or both. In addition,
any such shares of ANB Preferred Stock may have class or series voting rights.
Upon completion of this Merger, ANB will not have any shares of ANB Preferred
Stock outstanding. Issuances of ANB Preferred Stock, while providing ANB with
flexibility in connection with general corporate purposes, may, among other
things, have an adverse effect on the rights of holders of ANB Common Stock,
and in certain circumstances such issuances could have the effect of
decreasing the market price of the ANB Common Stock. The ANB Board, without
stockholder approval, may issue ANB Preferred Stock with voting or conversion
rights which could adversely affect the voting power of the holders of the ANB
Common Stock. ANB has no present plan to issue any shares of ANB Preferred
Stock.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the ANB Certificate, the ANB Bylaws and the DGCL
summarized in the following paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders and may make removal of management more
difficult.
Authorized but Unissued Stock
The authorized but unissued shares of ANB Common Stock and ANB Preferred
Stock will be available for future issuance without stockholder approval.
These additional shares may be utilized for a variety of corporate purposes
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved ANB Common Stock and ANB Preferred Stock
41
<PAGE>
may enable the Board of Directors to issue shares to persons friendly to
current management which could render more difficult or discourage any attempt
to obtain control of ANB by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of ANB's management.
Limitations on Shareholder Action by Written Consent and Limitations on
Calling Shareholder Meetings
The ANB Certificate of Incorporation and ANB Bylaws prohibit stockholder
action by written consent in lieu of a meeting and provide that stockholder
action can be taken only at an annual or special meeting of stockholders. The
ANB Bylaws provide that subject to the rights of holders of any series of ANB
Preferred Stock to elect additional directors under specified circumstances,
special meetings of stockholders can be called only by the ANB Board or the
Chairman of the ANB Board. Shareholders will not be permitted to call a
special meeting of stockholders. Such provision may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the ANB Board or the Chairman of the ANB
Board.
Section 203 of the Delaware Corporation Law
Subject to certain exclusions summarized below, Section 203 of the DGCL
("Section 203") prohibits any "Interested stockholder" from engaging in a
"Business Combination" with a Delaware corporation for three years following
the date such person became an Interested stockholder. "Interested
stockholder" generally includes: (a)(i) any person who is the beneficial owner
of 15% or more of the outstanding voting stock of the corporation or (ii) any
person who is an affiliate or associate of the corporation and who was the
beneficial owner of 15% or more of the outstanding voting stock of the
corporation at any time within three years before the date on which such
person's status as an Interested stockholder is determined; and (b) the
affiliates and associates of such person. Subject to certain exceptions, a
"Business Combination" includes (i) any merger or consolidation of the
corporation or a majority-owned subsidiary of the corporation; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets of
the corporation or a majority-owned subsidiary of the corporation having an
aggregate market value equal to 10% of more of either the aggregate market
value of all assets of the corporation determined on a consolidated basis or
the aggregate market value of all the outstanding stock of the corporation;
(iii) any transaction that results in the issuance or transfer by the
corporation or a majority-owned subsidiary of the corporation of any stock of
the corporation or the subsidiary to the Interested stockholder except
pursuant to a transaction that effects a pro rata distribution to all
stockholders of the corporation; (iv) any transaction involving the
corporation or a majority-owned subsidiary of the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series or securities convertible into the stock of any class or series of the
corporation or the subsidiary that is owned by the Interested stockholder; and
(v) any receipt by the Interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees, pledges
or other financial benefits provided by or through the corporation or a
majority-owned subsidiary of the corporation.
Section 203 does not apply to a Business Combination if (i) before a person
became an Interested stockholder, the board of directors of the corporation
approved either the transaction in which the Interested stockholder became an
Interested stockholder or the Business Combination; (ii) upon consummation of
the transaction that resulted in the person becoming an Interested
stockholder, the Interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (other
than certain excluded shares); or (iii) following a transaction in which the
person became an Interested stockholder the Business Combination is (a)
approved by the board of directors of the corporation and (b) authorized at a
regular or special meeting of stockholders (and not by written consent) by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting stock of the corporation not owned by the Interested stockholder.
42
<PAGE>
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of CFC Common Stock will be exchanging
shares of CFC, a Georgia corporation governed by the GBCC, CFC's Articles of
Incorporation, and CFC's Bylaws, for shares of ANB, a Delaware corporation
governed by the DGCL and ANB's Certificate and ANB's Bylaws. Certain
significant differences exist between the rights of CFC shareholders and those
of ANB shareholders. The differences deemed material by CFC and ANB are
summarized below. The following discussion is necessarily general; it is not
intended to be a complete statement of all differences affecting the rights of
shareholders and their respective entities, and it is qualified in its
entirety by reference to the GBCC and the DGCL, as well as to ANB's
Certificate and Bylaws and CFC's Articles and Bylaws.
CHARTER AND BYLAW PROVISIONS
ANB's Certificate and Bylaws contain certain provisions which may make ANB a
less attractive target for an acquisition of control by anyone who does not
have the support of ANB's Board of Directors and shareholders. Such provisions
include, among other things, (a) the limitation that shareholder action cannot
be taken without a meeting and (b) the ability of the ANB Board of Directors
to issue preferred stock and to fix the designation, preferences and other
rights of such preferred stock. See "Description of ANB Common Stock." CFC's
Articles of Incorporation and Bylaws do not contain any provisions designated
as antitakeover measures.
The foregoing summary is qualified in its entirety by reference to ANB's
Certificate and Bylaws, which are available upon written request from ANB and
which are on file with the Commission, and to the Articles of Incorporation
and Bylaws of CFC, which are available upon request from CFC. See "Available
Information"; "Incorporation of Certain Documents by Reference."
SHAREHOLDER APPROVAL OF MERGERS
The DGCL permits a merger to become effective without the approval of the
surviving corporation's shareholders provided certain requirements are met.
Under the DGCL, if the articles of incorporation of the surviving corporation
do not change following the merger, the amount of the surviving corporation's
common stock to be issued or delivered under the plan of merger does not
exceed 20% of the total shares of outstanding voting stock immediately prior
to the acquisition, and the board of directors of the surviving corporation
adopts a resolution approving the plan of merger, no shareholder approval is
required.
The GBCC permits a merger without shareholder approval if (1) the articles
of incorporation of the surviving or acquiring corporation will not differ,
(2) each share of stock of the surviving or acquiring corporation outstanding
immediately before the effective date of the merger will be an identical
outstanding or reacquired share immediately after the merger, and (3) the
number and kind of shares outstanding immediately after the merger, plus the
number and kind of shares issuable as a result of the merger and by conversion
of securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will not exceed the total number and
kind of shares of the surviving or acquiring corporation authorized by the
articles of incorporation immediately before the merger.
Where shareholder approval is required under either the GBCC or the DGCL, a
merger can generally be approved by a majority vote of the outstanding shares
of capital stock of each class entitled to vote thereon, unless the
certificate or articles of incorporation require a greater vote. If the
proposed merger or other business combination were to involve an "interested
person" or "affiliated transaction," however, both the GBCC and the DGCL
impose supermajority approval requirements with certain qualifications.
Neither the ANB Certificate nor CFC's Articles contain any supermajority
requirements. See "--Antitakeover Legislation."
DISSENTERS' RIGHTS
Under the GBCC, a shareholder is entitled to dissent and obtain payment of
the fair value of his shares in the event of, among other things, (a)
consummation of a plan of merger to which the corporation is a party, if
43
<PAGE>
either (i) shareholder approval is required and the shareholder is entitled to
vote on the merger or (ii) the corporation is a subsidiary that is owned 90%
by and is merged into its parent; (b) 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; (c) consummation
of a sale or exchange of substantially all of the property of the corporation
if shareholder approval is required (but not including a sale pursuant to a
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); (d) an amendment to the
Articles of Incorporation that materially and adversely affects rights in
respect of the dissenter's shares in specified ways; or (e) any corporate
action taken pursuant to a shareholder vote to the extent that the Articles of
Incorporation provide that dissenters' rights shall apply. CFC's Articles and
Bylaws do not provide any additional requirements. See "The Merger--
Dissenters' Rights."
Under the DGCL, a shareholder has the right, in connection with certain
mergers or consolidations, to dissent from certain corporate transactions and
receive the fair market value (excluding any appreciation or depreciation as a
consequence or in expectation of the transaction) of his shares in cash in
lieu of the consideration he otherwise would have received in the transaction.
Such fair value is determined by the Delaware Court of Chancery if a petition
for appraisal is timely filed. In addition, a Delaware corporation may, but is
not required to, provide in its certificate of incorporation that appraisal
rights shall be available to shareholders in certain other events regarding
which appraisal rights are not otherwise available. No such provision is
included in ANB's Certificate.
Under the DGCL, appraisal rights will not be available to shareholders of a
corporation (unless the certificate of incorporation provides otherwise, which
the ANB Certificate does not) if the shares are listed on a national
securities exchange or quoted on the NASDAQ National Market or held of record
by more than 2,000 shareholders and shareholders are permitted by the terms of
the merger or consolidation to accept in exchange for their shares: (a) shares
of stock of the surviving or resulting corporation; (b) shares of stock of
another corporation listed on a national securities exchange or held of record
by more than 2,000 shareholders; (c) cash in lieu of fractional shares of such
stock; or (d) any combination of the consideration listed in (a) through (c)
above. In addition, appraisal rights will not be available to shareholders of
a Delaware corporation in a merger if such corporation is the surviving
corporation and no vote of its shareholders is required. See "--Shareholder
Approval of Mergers."
SHAREHOLDERS MEETINGS AND VOTING
Special Meetings. Under the GBCC, a special meeting of shareholders of a
Georgia corporation may be called by the holders of shares entitled to cast
not less than 25% of all shares entitled to vote at the meeting, unless a
different percentage is provided in the articles of incorporation. CFC's
Bylaws provide that special meetings of shareholders may be called only by the
Chairman of the Board, the President, the Board of Directors or at the request
of holders of not less than 25% of its outstanding stock entitled to vote at
the meeting.
Under the DGCL, shareholders of Delaware corporations do not have a right to
call special meetings unless such right is conferred upon the shareholders in
the corporation's certificate of incorporation or bylaws. ANB's Certificate
does not confer the right to its shareholders to call a special shareholders
meeting.
Actions Without a Meeting. Under the GBCC and the DGCL, the shareholders may
take action without a meeting if a consent in writing to such action is signed
by the shareholders having the minimum number of votes that would be necessary
to take such action at a meeting, unless prohibited in the articles or
certificate of incorporation. Neither CFC's Articles nor its Bylaws prohibit
such action by written consent. ANB's Certificate denies shareholder action by
written consent.
Election and Removal of Directors. Under the GBCC and the DGCL, the
directors of a corporation shall be elected by a plurality of the votes cast
by the holders of shares entitled to vote in the election of directors at a
meeting of shareholders at which a quorum is present, unless the articles or
certificate of incorporation provides
44
<PAGE>
for cumulative voting. Cumulative voting means that a shareholder may multiply
the number of votes he or she is entitled to cast (i.e., the number of shares
he or she owns) by the number of directors for whom he or she is entitled to
vote and cast the product for a single candidate or distribute the product
among two or more candidates. Neither CFC's Articles nor ANB's Certificate
provide for cumulative voting. See "Description of ANB Common Stock."
Under the GBCC, and if cumulative voting is not authorized, as in the case
of CFC, once a director has been elected, he or she may be removed if the
number of votes cast to remove him is greater than the number of votes cast
not to remove him, unless the articles of incorporation provide that directors
may be removed only for cause. CFC's Articles do not contain such a provision.
Under the DGCL, unless the certificate of incorporation provides otherwise, in
the case of a corporation whose board of directors is staggered, shareholders
may effect a removal of a director only for cause. ANB's Certificate does not
provide for a classified or staggered Board.
Voting on Other Matters. Under the GBCC and the DGCL, an amendment to the
articles or certificate of incorporation requires the approval of the holders
of at least a majority of the outstanding shares of the corporation entitled
to vote thereon, unless otherwise specified in the articles of incorporation.
Neither ANB's Certificate nor CFC's Articles or Bylaws contains a provision
increasing this voting requirement.
Under both the GBCC and the DGCL, a corporation may sell, lease, exchange or
otherwise dispose of all, or substantially all, of its property and assets
(with or without the goodwill), otherwise than in the usual and regular course
of its business, only with the approval of the holders of a majority of all of
the outstanding shares of the corporation entitled to vote thereon, unless the
certificate or articles of incorporation or bylaws require a greater vote.
CFC's Articles and Bylaws do not require a greater vote. ANB's Certificate
does not require a greater vote.
Under both the GBCC and the DGCL, the dissolution of a corporation must be
approved by the holders of a majority of the corporation's stock entitled to
vote thereon, unless the articles or certificate of incorporation requires the
vote of a larger portion of the outstanding stock. CFC's Articles do not
require a greater vote. ANB's Certificate does not require a greater vote.
DIVIDENDS
The GBCC provides that a board of directors may from time to time make
distributions to its stockholders, subject to restrictions in its articles of
incorporation, provided that no distribution may be made if, after giving it
effect, (1) the corporation would not be able to pay its debts as they become
due in the usual course of business, or (2) the corporation's total assets
would be less than the sum of its total liabilities plus (unless the articles
of incorporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved, at the time of the distribution to satisfy
the preferential rights under dissolution of stockholders whose preferential
rights are superior to those receiving the distribution. In addition to these
limitations, there are various statutory limitations on the ability of Georgia
State Bank to pay dividends to CFC, which is the primary source of funds from
which CFC may declare dividends to the CFC shareholders.
The DGCL provides that dividends may be declared from the corporation's
surplus or, if there is no surplus, from its net profits (not only out of
surplus) for the fiscal year in which the dividend is declared and the
preceding fiscal year. Dividends may not be declared, however, if the
corporation's capital has been diminished to an amount less than the aggregate
amount of all capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets. In addition,
substantially all of the funds available for the payment of dividends by ANB
are derived from the Banks, and there are various statutory limitations on the
ability of the Banks to pay dividends to ANB. See "Incorporation of Certain
Documents by Reference."
Holders of ANB Common Stock are entitled to receive dividends ratably when,
as and if declared by ANB's Board of Directors from assets legally available
therefor, after payment of all dividends on preferred stock, if any is
outstanding.
45
<PAGE>
PREEMPTIVE RIGHTS
Under both the GBCC and the DGCL, shareholders do not possess preemptive
rights as to the issuance of additional or treasury securities by the
corporation, unless the corporation's certificate or articles of incorporation
provide otherwise. Neither CFC's Articles nor the ANB Certificate provide for
preemptive rights.
LIQUIDATION RIGHTS
Generally under both the GBCC and the DGCL, shareholders are entitled to
share ratably in the distribution of assets upon the dissolution of their
corporation. Preferred shareholders typically do not participate in the
distribution of assets of a dissolved corporation beyond their established
contractual preferences. Once the rights of preferred shareholders have been
fully satisfied, common shareholders are entitled to the distribution of any
remaining assets.
As of the date hereof, no CFC Preferred Stock has been issued by CFC.
Holders of ANB Common Stock are entitled to receive their pro rata portion of
the remaining assets of ANB after the holders of ANB Preferred Stock, if any,
have been paid in full any sums to which they may be entitled. As of the date
hereof, no ANB Preferred Stock has been issued by ANB. Pursuant to ANB's
Certificate, the ANB Board has discretion to set liquidation preferences for
ANB's Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
CFC. The GBCC provides that the articles of incorporation, bylaws, contract
or resolution approved or ratified by the shareholders may authorize a
corporation to indemnify a director made a party to a proceeding, including a
proceeding brought by or in the right of the corporation. The GBCC further
provides that a corporation may not indemnify a director for any liability
incurred in a proceeding in which the director is adjudged liable to the
corporation or is subjected to injunctive relief in favor of the corporation
for (1) any appropriation, in violation of the director's duties, of any
business opportunity of the corporation, (2) acts or omissions which involve
intentional misconduct or a knowing violation of law, (3) liability under
Section 14-2-832 of the GBCC (providing for liability for unlawful
distributions), and (4) any transaction from which the director received an
improper personal benefit. CFC's Articles provide that no director shall be
personally liable for monetary damages to CFC or its shareholders for breach
of the duty of care or any other duty as a director except that such liability
shall not be limited in those cases where indemnification of directors is
prohibited as enumerated above. CFC's Articles also provide that the limits on
the liability of a director will be extended without shareholder action
(unless required by law) to reflect any amendments to the GBCC authorizing the
further limitation of liability. CFC's Bylaws require the corporation to
indemnify its directors to the fullest extent permitted by the GBCC and
authorize the Board of Directors to cause the corporation to indemnify
officers, employees, and agents of the corporation to the same extent. The
Bylaws also authorize the Board of Directors to cause the corporation to
indemnify certain directors, officers or agents of CFC acting on behalf of a
subsidiary of the corporation. CFC's Bylaws contain a provision that a
successor corporation in a merger shall be liable to the person indemnified
under CFC's Bylaws on the same terms and conditions and to the same extent as
CFC. The Bylaws provide for additional indemnification of directors and
officers by action of the Board of Directors without shareholder approval to
the full extent permitted under Georgia law.
ANB. Delaware law permits a corporation to set limits on the extent of a
director's liability. Under the ANB Certificate, a director will not be liable
to ANB or its shareholders for monetary damages for any breach of fiduciary
duty as a director, except for (a) breach of a director's duty of loyalty, (b)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) an unlawful payment of dividends or an
unlawful stock purchase or redemption, or (d) any transaction from which the
director derived any improper personal benefit. The ANB Certificate authorizes
the indemnification of ANB's directors, officers and others to the fullest
extent permitted by law. Delaware law permits a corporation to indemnify its
officers, directors, employees and agents if such person acted in good faith
and in a manner he reasonably believed to be
46
<PAGE>
in or not opposed to the best interests of the corporation. Indemnification is
not allowed under Delaware law, absent a court order to the contrary, if the
officer, director, employee or agent seeking indemnification has been finally
adjudged to be liable to the corporation.
ANTITAKEOVER LEGISLATION
Affiliated Transactions and Certain Business Combinations
The DGCL prohibits a corporation from entering into certain "business
combinations" between the corporation and an "interested stockholder"
(generally defined as any person who is the beneficial owner of more than 15%
of the outstanding voting shares of the corporation), unless the corporation's
Board of Directors has previously approved either (a) the business combination
in question or (b) the stock acquisition by which such interested
stockholder's beneficial ownership interest reached 15%. The prohibition lasts
for three years from the date the interested stockholder's beneficial
ownership reached 15%. Notwithstanding the preceding, the DGCL allows a
corporation to enter into a business combination with an interested
stockholder if: (a) the business combination is approved by the corporation's
Board of Directors and is authorized by an affirmative vote of at least two-
thirds of the outstanding voting stock of the corporation which is not owned
by the interested stockholder; or (b) such interested stockholder owned at
least 85% of the outstanding voting stock of the corporation. The statute also
provides that the restrictions contained therein shall not apply to any
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed thereby. The ANB Certificate does not contain such
a provision.
The GBCC contains a similar affiliated party combination provision if the
corporation adopts a bylaw opting in to such provision. CFC has not adopted
such a bylaw.
Although certain of the specific differences between the voting and other
rights of CFC's shareholders and ANB's shareholders are discussed above, the
foregoing summary is not intended to be a complete statement of the
comparative rights of such shareholders under Georgia and Delaware law, or the
rights of such persons under the respective charters and Bylaws of ANB and
CFC. Nor is the identification of certain specific differences meant to
indicate that other differences do not exist. The foregoing summary is
qualified in its entirety by reference to the particular requirements of the
GBCC and the DGCL and the specific provisions of ANB's Certificate and Bylaws
and CFC's Articles of Incorporation and Bylaws.
CERTAIN INFORMATION CONCERNING ANB
GENERAL
ANB is a registered bank holding company subject to supervision and
regulation by the Federal Reserve and is a corporation organized under the
laws of the State of Delaware. Its main office is located at 1927 First Avenue
North, Birmingham, Alabama 35203 (Telephone Number: (205) 583-3600). ANB is
currently the parent of three national banks, National Bank of Commerce of
Birmingham (Birmingham, Alabama and the Birmingham metropolitan area), First
Citizens Bank N.A. (Talladega, Alabama) and Citizens & Peoples Bank, N.A.
(Pensacola, Florida); three state member banks, Alabama Exchange Bank
(Tuskegee, Alabama), Bank of Dadeville (Dadeville, Alabama) and First Gulf
Bank (Baldwin County, Alabama), and two state nonmember banks, First American
Bank (Decatur, Alabama) and Public Bank (St. Cloud, Florida) (collectively,
the "Banks"). In addition, ANB is the ultimate parent entity of one securities
brokerage firm, NBC Securities, Inc. (Birmingham, Alabama); one receivables
factoring company, Corporate Billing, Inc. (Decatur, Alabama); and one
insurance agency, Ashland Insurance, Inc. (Ashland, Alabama).
At March 31, 1998, ANB had total assets of approximately $1.28 billion,
total deposits of approximately $967.7 million, total net loans of
approximately $838.4 million and total shareholders' equity of approximately
$100.6 million. Additional information about ANB is included in documents
incorporated by reference in this
47
<PAGE>
Proxy Statement. See "Summary--Selected Consolidated Financial Data,"
"Available Information" and "Incorporation of Certain Documents by Reference."
RECENT DEVELOPMENTS
On June 3, 1998, ANB announced the completion of the merger of Public Bank
Corporation ("PBC"), headquartered in St. Cloud, Florida, with and into ANB.
At March 31, 1998, PBC had total assets of approximately $52 million. PBC's
banking subsidiary, Public Bank, serves its customer base through two offices
located in St. Cloud and Kissimmee, Florida.
On July 15, 1998, ANB announced its earnings (unaudited) and certain other
financial information (unaudited) for the second quarter and six months ended
June 30, 1998. ANB reported second quarter 1998 net income of $4.15 million
and earnings per common share of $0.44 (diluted) and $0.45 (basic). This
compares with net income of $3.04 million and earnings per common share of
$0.32 (diluted) and $0.33 (basic) for the 1997 second quarter. Second quarter
1998 return on average assets and return on average equity were 1.21 percent
and 15.37 percent, respectively. Net income for the first six months of 1998
was $8.12 million, or $0.86 (diluted) and $0.88 (basic) per share. This
compares with net income of $6.37 million and earnings per common share of
$0.67 (diluted) and $0.70 (basic) for the first six months of 1997. First six
months of 1998 return on average assets and return on average equity were 1.19
percent and 15.18 percent, respectively. Total assets were $1.35 billion and
total loans were $903.3 million at June 30, 1998. Total deposits were $1.05
billion and stockholders' equity was $109.3 million at June 30, 1998.
CERTAIN INFORMATION CONCERNING CFC
DESCRIPTION OF BUSINESS
General. CFC was organized under the laws of Georgia on June 1, 1988, and is
a registered bank holding company. All of CFC's activities are conducted by
its wholly-owned subsidiary, Georgia State Bank, which was organized as a
Georgia banking corporation in 1986. Georgia State Bank is a community-
oriented commercial bank that serves two counties, with particular emphasis on
retail banking, and offers such customary banking services as consumer and
commercial checking accounts, NOW accounts, savings accounts, certificates of
deposit, lines of credit and money transfers. Georgia State Bank finances
commercial and consumer transactions, makes secured and unsecured loans, and
provides a variety of other banking services.
At March 31, 1998, CFC had total consolidated assets of approximately $123
million, total consolidated deposits of approximately $103 million and total
consolidated shareholders' equity of approximately $9 million. CFC's principal
executive offices are located at 620 Fontaine Rd SW, Mableton, Georgia 30126,
and its telephone number at that address is (770) 941-2100.
Markets. CFC conducts general banking activities through the Georgia State
Bank primarily in Cobb County, Georgia and to a lesser extent in Paulding
County. Customers of the Georgia State Bank are primarily consumers and small
businesses.
Deposits. Georgia State Bank offers a full range of depository accounts and
services to both consumers and businesses. At March 31, 1998, Georgia State
Bank's deposits, totaling an aggregate of approximately $104 million,
consisted of approximately $19 million in non-interest-bearing deposits (18%
of total deposits); approximately $9 million in interest-bearing demand
deposits (9% of total deposits); approximately $19 million in savings and
money market deposits (18% of total deposits); approximately $37 million in
time deposits in amounts less than $100,000 (36% of total deposits); and
approximately $20 million in time deposits of $100,000 or more (19% of total
deposits).
Loans. Georgia State Bank makes both secured and unsecured loans to
individuals, firms and corporations, and both consumer and commercial lending
operations include various types of credit for its customers. Secured
48
<PAGE>
loans include first and second real estate mortgage loans. Georgia State Bank
also makes direct installment loans to consumers on both a secured and
unsecured basis.
Lending Policy. The current lending strategy of Georgia State Bank is to
make loans only to local customers or to national or international firms doing
business locally. Unsecured loans normally will not be made to persons who do
not reside or work in Georgia State Bank's primary trade areas. Secured loans
can be made to customers outside Georgia State Bank's trade areas who are well
established and have net worth and collateral to support the loan. Real estate
loans usually are made only when such loans are secured by real property
located in Cobb County, and to a lesser extent by real property located in
Paulding County.
Georgia State Bank provides each lending officer with written guidelines for
lending activities. Lending authority is delegated by the Board of Directors
of Georgia State Bank to loan officers, each of whom is limited in the amount
of secured and unsecured loans which he or she can make to a borrower.
Employees. As of March 31, 1998, Georgia State Bank had 49 full-time
employees and 13 part-time employees. CFC has no salaried employees. Georgia
State Bank is not a party to any collective bargaining agreement, and
management of Georgia State Bank believes that the employee relations at
Georgia State Bank are good.
Competition. The banking business is highly competitive. Georgia State Bank
competes with other banks, many of which are substantially larger and have
greater financial resources than Georgia State Bank. In particular, Georgia
State Bank competes with 26 other banks in Cobb County. Georgia State Bank
also competes with other financial service organizations, including savings
and loan associations and finance companies, insurance companies, credit
unions and certain governmental agencies. To the extent that Georgia State
Bank must maintain non-interest-earning reserves against deposits, it may be
at a disadvantage when compared with other financial institutions and the
organizations that are not required to maintain reserves against substantially
similar sources of funds. Further, the deregulation of banks, savings and loan
associations and other financial institutions and the increased competition
from investment bankers and brokers and other financial service organizations
has had a significant impact on the competitive environment in which Georgia
State Bank operates.
Properties. The executive offices of CFC and the main banking office of
Georgia State Bank are located in a 14,000 square-foot facility at 620
Fontaine Road, Mableton, Georgia. Georgia State Bank has 3 other offices
located in Powder Springs, Austell and Hiram, Georgia.
Legal Proceedings. There are no material pending proceedings to which CFC is
a party or of which any of its properties are subject; nor are there material
proceedings known to CFC to be contemplated by any governmental authority; nor
are there material proceedings known to CFC, pending or contemplated, in which
any director, officer or affiliate or any principal security holder of CFC, or
any associate of any of the foregoing, is a party or has an interest adverse
to CFC.
INFORMATION ABOUT VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Market Price and Dividends. There is no established public trading market
for the CFC Common Stock. As of the Record Date, CFC Common Stock was held by
holders of record. CFC paid dividends on its common stock of $.05 per
share during 1997. No dividends were paid by CFC during 1996. No dividends
have been declared or paid by CFC during 1998. See "Summary--Market Prices"
and "Risk Factors--Restrictions on Dividends."
Security Ownership of Certain Beneficial Owners and Management. The
following table sets forth, as of the Record Date, (i) the names and addresses
of each beneficial owner of more than 5% of CFC Common Stock known to the
Board of Directors of CFC, showing the amount and nature of such beneficial
ownership, (ii) the names of each director and executive officer of CFC and
the number of shares of CFC Common Stock owned
49
<PAGE>
beneficially by each of them, and (iii) the number of shares of CFC Common
Stock owned beneficially by all directors and executive officers as a group.
Ownership of CFC Common Stock by its directors and certain executive
officers as follows:
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME POSITION WITH CFC POSITION WITH BANK OF SHARES OUTSTANDING
- ---- ------------------- ------------------------- --------- -----------
<S> <C> <C> <C> <C>
Roy E. Barnes........... Director Director 618,516 20.22%
W. Ray Barnes........... Chairman Chairman 288,238 9.42%
Thomas J. Browning...... Director, Secretary Director, Secretary 16,783 *
Ray H. Collier.......... Director Director 40,000 1.31%
Paul Y. Cuthbertson..... Director Director 157,688 5.15%
Claxton Eugene Eubanks.. Director Director 65,926 2.16%
C. Freeman Poole........ Director, Treasurer Director, Treasurer 41,702 1.36%
Mildred A. Reeves....... Director Director 92,800 3.03%
Ken F. Thigpen.......... Director & CEO Director, President & CEO 125,000(1) 4.09%
Stephen P. Thompson..... Director Director 98,000 3.20%
R. Truman Travis........ Director Director 13,169 *
Caric Martin............ CFO Controller 99,200(1) 3.24%
Dennis Perrin........... None Senior Loan Officer 67,250(1) 2.20%
--------- ------
Total.................... 1,724,272 56.36%
========= ======
Directors and executive officers as a group...........................
</TABLE>
- --------
* Indicates less than 1%.
(1) Share totals for Messrs. Thigpen, Martin and Perrin include options to
purchase 50,000, 31,000 and 15,000 shares, respectively, of CFC Common
Stock exercisable within sixty days of the date of this Proxy Statement.
The persons listed above will receive the same Exchange Ratio as the other
CFC Shareholders for each share of CFC Common Stock held at the Effective
Time.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CFC
The following discussion and financial information are presented to aid in
an understanding of the current financial position and results of operations
of CFC and should be read in conjunction with the Audited Financial Statements
and Notes thereto included herein at Appendix C. CFC is the parent holding
company of Georgia State Bank, and it has no operations of consequence other
than the ownership of its subsidiary. The emphasis of this discussion will be
on the three month periods ending March 31, 1998 and 1997 and the years 1997,
1996, and 1995.
At March 31, 1998, CFC had consolidated assets of approximately $123.7
million and operated four banking locations in Cobb and Paulding Counties,
through Georgia State Bank. CFC's primary business is banking; therefore,
loans and investments are the principal source of income.
This discussion contains certain forward looking statements with respect to
the financial condition, results of operation and business of CFC and Georgia
State Bank related, among other things to: trends or uncertainties which will
impact future operating results, liquidity and capital resources, and the
relationship between those trends or uncertainties and nonperforming loans and
other loans; the effect of the market's perception of future inflation and
real returns and the monetary policies of the Federal Reserve on short and
long term interest rates; and the effect of interest rate changes on liquidity
and interest rate sensitivity management. These forward-looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities:
(a) difficulty integrating the operations of CFC and ANB; and
(b) general economic conditions, either nationally or in Georgia, are
less favorable than expected.
FINANCIAL CONDITION
Average Assets and Liabilities
During the three months ended March 31, 1998 average assets increased $24.7
million, or 29.1%, from the three months ended March 31, 1997. From 1996 to
1997 average assets increased $16.4 million, or 21.2%. From 1995 to 1996
average assets increased $8.9 million, or 13.1%. The primary emphasis of CFC's
growth strategy is in the lending area.
During the three months ended March 31, 1998 average deposits increased
$18.8 million, or 25.1%, compared with the three months ended March 31, 1997.
From 1996 to 1997 average deposits increased $12.9 million, or 18.6%. From
1995 to 1996 average deposits increased $7.3 million, or 11.8%. CFC carried no
foreign loans or deposits in any period discussed.
51
<PAGE>
The following table depicts CFC's average balance sheets for the three
months ending March 31, 1998 and 1997 and for the years ending December 31,
1997, 1996, and 1995:
AVERAGE BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------
1998 1997 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.......... $ 4,798 $ 3,712 $ 4,397 $ 3,282 $ 2,660
Funds sold....................... 7,607 1,147 3,384 4,133 3,516
Securities....................... 25,683 23,797 25,026 21,037 18,966
Loans, net of unearned income.... 67,063 52,619 56,665 45,932 41,302
Allowance for loan losses........ (1,251) (1,147) (1,114) (904) (807)
-------- ------- ------- ------- -------
Loans, net of allowance for loan
losses.......................... 65,812 51,472 55,551 45,028 40,495
Premises and equipment........... 3,255 3,003 3,180 2,198 1,432
Other assets..................... 2,238 1,597 1,930 1,427 1,133
-------- ------- ------- ------- -------
Total assets................. $109,393 $84,728 $93,468 $77,105 $68,202
======== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Deposits:
Demand deposits................ $ 17,291 $13,798 $15,376 $11,853 $10,500
Interest-bearing transaction
accounts...................... 9,614 7,182 10,487 9,679 9,867
Savings and money market
deposits...................... 15,925 15,772 15,153 12,397 10,970
Time deposits.................. 50,990 38,228 41,234 35,408 30,695
-------- ------- ------- ------- -------
Total deposits............... 93,820 74,980 82,250 69,337 62,032
-------- ------- ------- ------- -------
Funds purchased.................. 149 308 250 20 33
Short-term debt.................. 4,843 937 1,875 167
Long-term debt...................
Accrued interest and other
liabilities..................... 1,527 1,167 1,259 1,097 789
Stockholders' equity............. 9,054 7,336 7,834 6,484 5,348
-------- ------- ------- ------- -------
Total liabilities and
stockholders' equity........ $109,393 $84,728 $93,468 $77,105 $68,202
======== ======= ======= ======= =======
</TABLE>
LOANS
Net loans, at December 31, 1997, were $65.3 million, an increase from $51.0
million at December 31, 1996. At December 31, 1997, commercial and financial
loans represented 9.6% of total loans, real estate-mortgage and construction
loans represented 81.3% of total loans, and consumer loans represented 9.1% of
total loans.
At March 31, 1998, for asset and liability management purposes, of the
outstanding loans, $40.6 million or 60.3% of total loans, net of unearned
interest, mature within one year or may be repriced within one year due to a
variable rate arrangement.
52
<PAGE>
The table immediately below shows the classification of loans by major
category at December 31, 1997, 1996, 1995, 1994, and 1993. The second table
depicts maturities of selected loan categories for loans maturing after one
year.
COMPOSITION OF LOAN PORTFOLIO
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural ...... $ 6,290 9.59% $ 4,862 9.48% $ 3,337 7.78% $ 3,818 9.42% $ 3,101 8.48%
Real estate:
Construction........... 12,081 18.42 8,470 16.53 5,636 13.13 5,274 13.01 1,668 4.56
Mortgage--residential.. 14,343 21.87 10,189 19.88 9,499 22.13 9,085 22.42 10,265 28.08
Mortgage--commercial... 1,777 2.71 -- -- -- -- 5 .01 27 .07
Mortgage--other ....... 25,127 38.30 23,639 46.13 21,154 49.27 19,426 47.94 17,955 49.12
Consumer................ 5,974 9.11 4,087 7.98 3,301 7.69 2,919 7.20 3,541 9.69
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total gross loans...... 65,592 100.00% 51,247 100.00% 42,927 100.00% 40,527 100.00% 36,557 100.00%
====== ====== ====== ====== ======
Unearned income......... (251) (234) (165) (168) (156)
------- ------- ------- ------- -------
Total loans, net of
unearned income....... 65,341 51,013 42,762 40,359 36,401
Allowance for loan
losses................. (1,233) (1,139) (847) (781) (768)
------- ------- ------- ------- -------
Total net loans........ $64,108 $49,874 $41,915 $39,578 $35,633
======= ======= ======= ======= =======
</TABLE>
LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE
ONE YEAR OR LESS YEARS OVER FIVE YEARS TOTAL
---------------- ------------- --------------- -------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural....... $ 2,508 $3,099 $ 683 $ 6,290
Real estate--
construction........... 11,632 449 -- 12,081
Real estate--mortgage... 5,891 9,857 25,499 41,247
Consumer................ 975 4,718 281 5,974
</TABLE>
CFC's rollover/renewal policy consists of a re-evaluation of maturing loans
to determine whether such loans will be renewed (or rolled over) and, if so,
at what amount, rate and maturity.
53
<PAGE>
INVESTMENT SECURITIES
The following table summarizes securities available for sale for the periods
presented.
SECURITIES AVAILABLE FOR SALE
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ---------------
COST MARKET COST MARKET
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury.................................. $ 6,007 $ 6,024 $ 5,483 $ 5,510
U.S. Government Agencies....................... 15,082 15,174 11,482 11,511
State and political subdivisions............... 1,268 1,292 561 558
Mortgage backed securities..................... 3,147 3,160 4,092 4,075
Other.......................................... 798 735 767 700
------- ------- ------- -------
Total........................................ $26,302 $26,385 $22,385 $22,354
======= ======= ======= =======
</TABLE>
The maturities and weighted average yields of securities available for sale
at December 31, 1997, are presented in the following table using the average
stated contractual maturities.
SECURITIES AVAILABLE FOR SALE MATURITY DISTRIBUTION AND YIELDS
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS OTHER SECURITIES
---------------- ----------------- ---------------- ---------------- ----------------
AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1)
------ --------- ------- --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........... $1,995 5.70% $ 4,029 5.96% $ -- -- % $-- -- % $-- -- %
U.S. Government
Agencies............... 4,499 5.91 10,175 6.61 500 7.10 -- -- -- --
State and political
subdivisions........... -- -- 408 4.42 716 4.61 168 4.65 -- --
Mortgage backed
securities............. 902 4.84 2,258 6.35 -- -- -- -- -- --
Equity securities....... -- -- -- -- -- -- -- -- 735 6.66
------ ------- ------ ---- ----
Total.................. $7,396 5.73% $16,870 6.37% $1,216 5.67% $168 4.65% $735 6.66%
====== ==== ======= ==== ====== ==== ==== ==== ==== ====
</TABLE>
- --------
(1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without
giving effect to the disallowance for Federal income tax purposes of
interest related to certain tax-exempt assets.
DEPOSITS
Except for savings and money market deposits, between 1996 and 1997, CFC
experienced growth in each type of deposit as shown in the table below. Non-
interest bearing demand deposits increased by $5.2 million, or 44.8% from
year-end 1996 to year-end 1997. Interest bearing demand deposits increased
$1.1 million or 12.1%, and time deposits increased $8.0 million, or 21.1%
during the same period. All categories of deposits increased from year-end
1995 to year-end 1996, including an increase of $626,000, or 5.6%, in non-
interest bearing deposits and an increase of $9.9 million, or 18.8%, in total
interest-bearing deposits.
CFC has maintained and strengthened a stable base of non-interest bearing
demand deposits despite consumer trends toward interest bearing deposits. At
December 31, 1996, non-interest bearing demand deposits were 15.8% of total
deposits and by 1997 this ratio had increased to 19.5%.
54
<PAGE>
The table below summarizes deposits of CFC for the dates indicated:
DEPOSITS
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand.................. $16,961 19.46% $11,713 15.81% $11,087 17.43% $12,452 20.79% $ 7,062 13.13%
NOW..................... 9,882 11.34 8,818 11.90 8,398 13.20 9,466 15.81 11,122 20.68
Savings and money
market................. 14,571 16.72 15,813 21.34 10,895 17.13 11,407 19.05 11,063 20.57
Time less than $100,000. 35,438 40.67 31,696 42.78 29,185 45.87 23,998 40.08 23,097 42.94
Time greater than
$100,000............... 10,291 11.81 6,056 8.17 4,054 6.37 2,559 4.27 1,444 2.68
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total deposits......... $87,143 100.00% $74,096 100.00% $63,619 100.00% $59,882 100.00% $53,788 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
The following table reflects maturities of time-deposits of $100,000 or more
at December 31, 1997. Time deposits include both certificates of deposit and
time deposit open accounts. Deposits of $10.3 million in this category
represented 11.8% of total deposits at year-end 1997. Management does not
actively pursue these deposits as a means to fund interest earning assets, and
as a result, rates paid on these deposits do not differ from rates paid on
smaller denomination certificates of deposit.
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME
DEPOSITS OF $100,000 OR MORE
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------
AFTER ONE AFTER SIX
WITHIN THROUGH AFTER THREE THROUGH AFTER
ONE THREE THROUGH SIX TWELVE TWELVE
MONTH MONTHS MONTHS MONTHS MONTHS TOTAL
------ --------- ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or more..... $1,132 $1,189 $1,727 $4,089 $2,154 $10,291
====== ====== ====== ====== ====== =======
</TABLE>
CAPITAL RESOURCES
Shareholders' equity increased by $723,000 to $9.5 million at March 31, 1998
from $8.8 million at year-end 1997. The increase is primarily attributable to
net income of $444,000 and the exercise of stock warrants totaling $266,000.
The Federal Reserve and the FDIC require that bank holding companies and
banks have a minimum of Tier I capital equal to not less than 4% of risk
adjusted assets and total capital equal to not less than 8% of risk adjusted
assets. Tier I capital consists of common shareholders' equity. Tier II
capital includes reserves for loan losses up to 1.25% of risk adjusted assets.
Tier I capital was $9.2 million at March 31, 1998, and total (Tier I plus
Tier II) capital was $10.1 million at March 31, 1998. Tier I and total capital
ratios were 12.60% and 13.80%, respectively, at March 31, 1998. Both ratios
were above the regulatory minimums.
55
<PAGE>
ANALYSIS OF CAPITAL
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ----------------------
1998 1997 1996 1995
--------- ------ ------ ------
<S> <C> <C> <C> <C>
Tier 1 Capital............................... $ 9,163 $8,651 $6,996 $5,849
Tier 2 Capital............................... 912 829 693 566
------- ------ ------ ------
Total qualifying capital (1)............... $10,075 $9,480 $7,689 $6,415
======= ====== ====== ======
Tier 1 risk-based capital ratio (4.00%
required minimum)........................... 12.60% 13.10% 12.60% 12.91%
Total risk-based capital ratio (8.00%
required minimum)........................... 13.80 14.30 13.90 14.16
Tier 1 leverage ratio (4.00% required
minimum).................................... 8.70 7.90 8.40 8.25
</TABLE>
- --------
(1) Does not include $327,000, $404,000, $446,000 and $281,000 of the
Company's allowance for loan losses at March 31, 1998 and December 31,
1997, 1996 and 1995, respectively, in excess of 1.25% of risk-adjusted
total assets.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, which is the difference between interest income earned
on earning assets and the interest expense paid on interest-bearing
liabilities, is the largest component of a bank's earnings. Net interest
income increased by $224,000, or 21.1%, in the three months ended March 31,
1998 ("the 1998 three months") compared with the three months ended March 31,
1997 ("the 1997 three months"). Average earning assets increased by $22.8
million, or 29.4%, in the 1998 three months compared to the 1997 three months.
During the 1998 three months this increase in earning assets was partly funded
by a volume increase of $19.1 million, or 30.6%, in average interest-bearing
liabilities. Despite the increase in net interest income during the 1998 three
months compared with the 1997 three months, the net interest spread and net
interest margin decreased by 36 and 35 basis points, respectively. The decline
in the net interest spread and net interest margin is primarily attributable
to increased reliance on time deposits as a proportion of overall funding
because time deposits are the highest cost interest-bearing liability. The
following analyzes net interest income, weighted average yields on earning
assets and weighted average rates paid on interest-bearing liabilities.
56
<PAGE>
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS AND RATES)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1998 1997
------------------------ -----------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans (1) (3) ............... $ 67,063 $1,756 10.47% $52,619 $1,357 10.32%
Securities:
Taxable .................... 23,886 370 6.20 23,237 374 6.44
Tax exempt ................. 1,797 30 6.68 560 9 6.43
Funds sold .................. 7,607 100 5.26 1,147 16 5.58
-------- ------ ------- ------
Total earning assets (2) .. 100,353 2,256 8.99 77,563 1,756 9.06
-------- ------ ------- ------
Cash and due from banks ...... 4,798 3,712
Premises and equipment ....... 3,255 3,003
Other assets ................. 2,238 1,597
Allowance for loan losses .... (1,251) (1,147)
-------- -------
Total assets .............. $109,393 $84,728
======== =======
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing transaction
accounts ................... $ 9,614 34 1.41 $ 7,182 25 1.39
Savings deposits ............ 15,925 121 3.04 15,772 116 2.94
Time deposits ............... 50,990 737 5.78 38,228 532 5.57
Funds purchased ............. 149 2 5.37 308 4 5.19
Other short-term borrowings . 4,843 65 5.37 937 13 5.55
-------- ------ ------- ------
Total interest-bearing
liabilities .............. 81,521 959 4.71 62,427 690 4.42
-------- ------ ----- ------- ------ -----
Demand deposits .............. 17,291 13,798
Accrued interest and other
liabilities ................. 1,527 1,167
Stockholders' equity ......... 9,054 7,336
-------- -------
Total liabilities and
stockholders' equity ..... $109,393 $84,728
======== =======
Net interest spread .......... 4.28% 4.64%
===== =====
Net interest income/margin on
a taxable equivalent basis .. 1,297 5.17% 1,066 5.50%
===== =====
Tax equivalent adjustment (2). 10 3
------ ------
Net interest income/margin ... $1,287 5.13% $1,063 5.48%
====== ===== ====== =====
</TABLE>
- --------
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based on the assumed rate of 34%, and do
not give effect to the disallowance for Federal income tax purposes of
interest expense related to tax-exempt assets.
(3) Fees in the amount of $147,000 and $93,000 are include in interest and
fees on loans for the 1998 three months are the 1997 three months,
respectively.
Net interest income increased $882,000 in 1997 compared to 1996, an increase
of 23.4%. Increased loan volume was the primary reason for the growth in net
interest income. Average earning assets increased by $14.0 million, or 19.7%,
during 1997 as compared with 1996. During 1997, average interest-bearing
liabilities increased $11.3 million, or 19.6%. During 1997, compared with
1996, the net interest spread and net interest margin both increased 17 basis
points due to an increase in average loans as a percentage of total average
earning assets because the yield on loans is higher than any other earning
asset.
57
<PAGE>
From 1995 to 1996, net interest income increased $216,000, or 6.1%. Average
earnings assets increased by $7.3 million, or 11.5%, from 1995 to 1996. During
1996, average interest-bearing liabilities increased $6.1 million, or 11.8%,
from 1995. Competition for both lending and funding resulted in a 26 and 27
basis point reduction, respectively, in CFC's net interest spread and net
interest margin. Presented below is an analysis of net interest income,
weighted average yields on earning assets and weighted average rates paid on
interest-bearing liabilities for 1997, 1996, and 1995.
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS AND RATES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans (1) (3).......... $56,665 $5,990 10.57% $45,932 $4,821 10.50% $41,302 $4,497 10.89%
Securities:
Taxable................ 24,152 1,540 6.38 20,710 1,312 6.34 18,966 1,167 6.15
Tax exempt............. 874 61 6.98 327 22 6.73 -- -- --
Funds sold............. 3,384 203 6.00 4,133 224 5.42 3,516 203 5.77
------- ------ ------- ------ ------- ------
Total earning assets
(2).................. 85,075 7,794 9.16 71,102 6,379 8.97 63,784 5,867 9.20
------- ------ ------- ------ ------- ------
Cash and due from banks. 4,397 3,282 2,660
Premises and equipment.. 3,180 2,198 1,432
Other asset............. 1,930 1,427 1,133
Allowance for loan
losses................. (1,114) (904) (807)
------- ------- -------
Total assets.......... $93,468 $77,105 $68,202
======= ======= =======
LIABILITIES:
Interest-bearing
liabilities:
Interest-bearing
transaction accounts.. $10,487 153 1.46 $ 9,679 155 1.60 $ 9,867 193 1.96
Savings and money
market deposits....... 15,153 461 3.04 12,397 363 2.93 10,970 317 2.89
Time deposits.......... 41,234 2,377 5.76 35,408 2,069 5.84 30,695 1,795 5.85
Funds purchased ....... 250 17 6.80 20 1 5.00 33 2 6.06
Other short-term
borrowings............ 1,875 108 5.76 167 8 4.79 -- -- --
------- ------ ------- ------ ------- ------ -----
Total interest-bearing
liabilities.......... 68,999 3,116 4.52 57,671 2,596 4.50 51,565 2,307 4.47
------- ------ ----- ------- ------ ----- ------- ------ -----
Demand deposits......... 15,376 11,853 10,500
Accrued interest and
other liabilities...... 1,259 1,097 789
Stockholders' equity.... 7,834 6,484 5,348
------- ------- -------
Total liabilities and
stockholders' equity. $93,468 $77,105 $68,202
======= ======= =======
Net interest spread..... 4.64% 4.47% 4.73%
===== ===== =====
Net interest
income/margin on a
taxable equivalent
basis.................. 4,678 5.50% 3,783 5.32% 3,560 5.58%
===== ===== =====
Tax equivalent
adjustment (2)......... 20 7 --
------ ------ ------
Net interest
income/margin.......... $4,658 5.48% $3,776 5.31% $3,560 5.58%
====== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based on the assumed rate of 34%, and do
not give effect to the disallowance for Federal income tax purposes of
interest expense related to tax-exempt assets.
(3) Fees in the amount of $456,000, $370,000 and $332,000 are included in
interest and fees on loans for 1997, 1996, and 1995, respectively.
58
<PAGE>
The percentage of earning assets funded by interest-bearing liabilities also
affects CFC's net interest income. CFC's earning assets are funded by
interest-bearing liabilities, noninterest-bearing demand deposits and
stockholders' equity. The net return on earning assets funded by noninterest-
bearing demand deposits and stockholders' equity exceeds the net return on
earning assets funded by interest-bearing liabilities. CFC maintains a
relatively consistent percentage of earning assets that are funded by
noninterest-bearing liabilities. During the 1998 three months, 18.8% of CFC's
average earning assets were funded by non interest-bearing liabilities
compared with 19.3% in the 1997 three months. In 1997, 19.6% of CFC's average
earning assets were funded by non interest-bearing liabilities as opposed to
18.2% in 1996. The earning assets funded by non interest-bearing liabilities
had a positive impact on the net interest income for each period.
The following tables set forth the effect which varying levels of earning
assets and interest-bearing liabilities and the applicable rates had on
changes in net interest income for the 1998 three months and for the years
ended 1997 and 1996. For the purposes of these tables, changes which are not
solely attributable to volume or rates are allocated to volume and rates on a
pro rata basis.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1998 COMPARED TO 1997
VARIANCE DUE TO
-----------------------
VOLUME YIELD/RATE TOTAL
------ ---------- -----
<S> <C> <C> <C>
EARNING ASSETS:
Loans.................................................. $379 $ 20 $399
Securities:
Taxable.............................................. 10 (14) (4)
Tax exempt........................................... 21 -- 21
Funds sold............................................. 85 (1) 84
---- ---- ----
Total interest income.............................. 495 5 500
INTEREST-BEARING LIABILITIES:
Interest-bearing transaction accounts.................. 9 -- 9
Savings and money market deposits...................... 1 4 5
Time deposits.......................................... 184 21 205
Funds purchased........................................ (2) -- (2)
Other short-term borrowings............................ 52 -- 52
---- ---- ----
Total interest expense............................. 244 25 269
---- ---- ----
Net interest income on a taxable equivalent basis.. $251 $(20) 231
==== ====
Taxable equivalent adjustment.......................... (7)
----
Net interest income.................................... $224
====
</TABLE>
59
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995
VARIANCE DUE TO VARIANCE DUE TO
------------------------- -----------------------
VOLUME YIELD/RATE TOTAL VOLUME YIELD/RATE TOTAL
------ ---------- ------ ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans ...................... $1,137 $ 32 $1,169 $490 $(166) $324
Securities:
Taxable .................. 220 8 228 108 37 145
Tax exempt ............... 38 1 39 22 -- 22
Funds sold ................. (44) 23 (21) 34 (13) 21
------ ---- ------ ---- ----- ----
Total interest income .. 1,351 64 1,415 654 (142) 512
Interest-bearing
liabilities:
Interest-bearing transaction
accounts .................. 13 (15) (2) (4) (34) (38)
Savings and money market
deposits .................. 84 14 98 42 4 46
Time deposits .............. 336 (28) 308 277 (3) 274
Funds purchased ............ 16 -- 16 (1) -- (1)
Other short-term borrowings
........................... 98 2 100 8 -- 8
------ ---- ------ ---- ----- ----
Total interest expense . 547 (27) 520 322 (33) 289
------ ---- ------ ---- ----- ----
Net interest income on a
taxable equivalent
basis ................. $ 804 $ 91 895 $332 $(109) 223
====== ==== ==== =====
Taxable equivalent
adjustment ................ (13) (7)
------ ----
Net interest income ........ $ 882 $216
====== ====
</TABLE>
INTEREST SENSITIVITY
CFC monitors and manages the pricing and maturity of its assets and
liabilities in order to diminish the potential adverse impact that changes in
interest rates could have on net interest income. The principal monitoring
technique employed by CFC is the measurement of the interest sensitivity
"gap," which is the positive or negative dollar difference between assets and
liabilities that are subject to interest rate repricing within a given period
of time. Interest rate sensitivity can be managed by repricing assets and
liabilities, selling securities available for sale, replacing an asset or
liability at maturity or by adjusting the interest rate during the life of an
asset or liability.
CFC evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, and sources and prices of off-
balance sheet commitments in order to decrease interest sensitivity risk. CFC
uses computer simulations to measure the net income effect of various interest
rate scenarios. The modeling reflects interest rate changes and the related
impact on net income over specified periods of time.
60
<PAGE>
The following table illustrates CFC's interest rate sensitivity at March 31,
1998, assuming the relevant assets and liabilities are collected and paid,
respectively, based upon historical experience rather than their stated
maturities.
INTEREST SENSITIVITY ANALYSIS
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------------------------------
AFTER ONE AFTER THREE
WITHIN THROUGH THROUGH
ONE THREE TWELVE WITHIN ONE GREATER THAN
MONTH MONTHS MONTHS YEAR ONE YEAR TOTAL
------- --------- ----------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans (1) ............. $11,162 $20,767 $ 8,679 $ 40,608 $26,785 $ 67,393
Securities (2) ........ -- 1,685 7,424 9,109 18,844 27,953
Funds sold ............ 18,055 -- -- 18,055 -- 18,055
------- ------- -------- -------- ------- --------
Total interest-
earning assets ..... $29,217 $22,452 $ 16,103 $ 67,772 $45,629 $113,401
Liabilities:
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits ...... $ -- $ -- $ 9,392 $ 9,392 $ -- $ 9,392
Savings deposits ..... 18,969 -- -- 18,969 -- 18,969
Time deposits (3) .... 4,820 9,839 33,028 47,687 9,139 56,826
Funds purchased ....... -- -- -- -- -- --
Short-term borrowings . 8,785 -- -- 8,785 -- 8,785
------- ------- -------- -------- ------- --------
Total interest-
bearing liabilities. $32,574 $ 9,839 $ 42,420 $ 84,833 $ 9,139 $ 93,972
------- ------- -------- -------- ------- --------
Period gap ............. $(3,357) $12,613 $(26,317) $(17,061) $36,490
======= ======= ======== ======== =======
Cumulative gap ......... $(3,357) $ 9,256 $(17,061) $(17,061) $19,429 $ 19,429
======= ======= ======== ======== ======= ========
Ratio of cumulative gap
to total earning
assets................. (2.96)% 8.16% (15.04)% (15.04)% 17.13%
</TABLE>
- --------
(1) Excludes nonaccrual loans of $5,000.
(2) Excludes investment equity securities of $310,000.
(3) Excludes matured certificates which have not been redeemed by the customer
and on which no interest is accruing.
MARKET RISK
CFC's earnings are dependent on its net interest income which is the
difference between interest income earned on all existing assets, primarily
loans and securities, and interest paid on all interest bearing liabilities,
primarily deposits. Market risk is the risk of loss from adverse changes in
market prices and rates. CFC's market risk arises primarily from inherent
interest rate risk in its lending, investing and deposit gathering activities.
CFC seeks to reduce its exposure to market risk through actively monitoring
and managing its interest rate risk. Management relies upon static "gap"
analysis to determine the degree of mismatch in the maturity and repricing
distribution of interest earning assets and interest bearing liabilities which
quantifies, to a large extent, the degree of market risk inherent in CFC's
balance sheet. Gap analysis is further augmented by simulation analysis to
evaluate the impact of varying levels of prevailing interest rates and the
sensitivity of specific earning assets and interest bearing liabilities to
changes in those prevailing rates. Simulation analysis consists of evaluating
the impact on net interest income given changes from 200 basis points below to
200 basis points above the current prevailing rates. Management makes certain
assumptions as to the effect varying levels of interest rates have on certain
earning assets and interest-bearing liabilities. Such assumptions consider
both historical experience and consensus estimates of outside sources.
61
<PAGE>
With respect to the primary earning assets, loans and securities, certain
features of individual types of loans introduce uncertainty as to their
expected performance at varying levels of interest rates. In some cases,
imbedded options exist whereby the borrower may elect to repay the obligation
at any time. These imbedded prepayment options make anticipating the
performance of those instruments difficult given changes in prevailing rates.
At December 31, 1997, essentially every loan, net of unearned income,
(totaling $65.3 million, or 64.7% of total assets), carried such imbedded
options. Management believes that assumptions used in its simulation analysis
about the performance of financial instruments with such imbedded options are
appropriate. However, the actual performance of these financial instruments
may differ from management's estimates due to several factors, including the
diversity and sophistication of the customer base, the general level of
prevailing interest rates and the relationship to their historical levels, and
general economic conditions. The difference between those assumptions and
actual results, if significant, could cause the actual results to differ from
those indicated by the simulation analysis.
Deposits totaled $87.1 million, or 86.3%, of total assets at December 31,
1997. Since deposits are the primary funding source for earning assets, the
associated market risk is considered by management in its simulation analysis.
Generally, it is anticipated that deposits will be sufficient to support
funding requirements. However, the rates paid for deposits at varying levels
of prevailing interest rates have a significant impact on net interest income
and therefore, must be quantified by CFC in its simulation analysis.
Specifically, CFC's spread, the difference between the rates earned on earning
assets and rates paid on interest bearing-liabilities, is generally higher
when prevailing rates are higher. As prevailing rates reduce, the spread tends
to compress, with severe compression at very low prevailing interest rates.
This characteristic is called "spread compression" and adversely effects net
interest income in the simulation analysis when anticipated prevailing rates
are reduced from current rates. Management relies upon historical experience
to estimate the degree of spread compression in its simulation analysis.
Management believes that such estimates of possible spread compression are
reasonable. However, if the degree of spread compression varies from that
expected, the actual results could differ from those indicated by the
simulation analysis.
The following table illustrates the results of simulation analysis used by
CFC to determine the extent to which market risk would have affected the net
interest margin if prevailing interest rates differed from actual rates during
1997. Because of the inherent use of estimates and assumptions in the
simulation model used to derive this information, the actual results for 1997
and, certainly, the future impact of market risk on CFC's net interest margin,
may differ from that found in the table.
MARKET RISK
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
CHANGE FROM
NET INTEREST 1997 NET INTEREST
CHANGE IN PREVAILING INTEREST RATES INCOME AMOUNT INCOME AMOUNT
----------------------------------- ------------- -----------------
<S> <C> <C>
+ 200 basis points........................ $4,740 1.76%
+ 100 basis points........................ 4,699 0.88
0 basis points........................ 4,658 --
- 100 basis points ....................... 4,493 (3.54)
- 200 basis points........................ 4,329 (7.06)
</TABLE>
PROVISIONS AND ALLOWANCE FOR LOAN LOSSES
Throughout the year CFC management estimates the likely level of future
losses to determine whether the allowance for loan losses is adequate to
absorb losses in the existing portfolio. The allowance for loan losses is a
valuation allowance which quantifies this estimate. Management's judgment as
to the amount of anticipated losses on existing loans involves the
consideration of current and anticipated economic conditions and their
potential effects on specific borrowers; results of examinations of the loan
portfolio by regulatory agencies; and management's internal review of the loan
portfolio. In determining the collectibility of certain loans, CFC
62
<PAGE>
management also considers the fair value of any underlying collateral. The
amounts ultimately realized may differ from the carrying value of these assets
due to economic, operating or other conditions beyond CFC's control.
While it is possible that in particular periods CFC may sustain losses which
are substantial relative to the allowance for loan losses, it is the judgment
of CFC management that the allowance for loan losses reflected in the
consolidated statements of condition is adequate to absorb estimated losses
which may exist in the current loan portfolio.
Management reviews the loan portfolio and determines the adequacy of the
allowance at each month end. Appropriate adjustments to the allowance are made
through the provision for loan losses.
The table below sets forth certain information with respect to CFC's average
loans, allowance for loan losses, charge-offs and recoveries for the 1998
three months and each of the five years in the period ended December 31, 1997.
ALLOWANCE FOR LOAN LOSSES
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
THREE MONTHS
MARCH 31, 1998 YEAR ENDED DECEMBER 31,
-------------- -------------------------------------------
1998 1997 1996 1995 1994 1993
-------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding
at end of period, net
of unearned income..... $67,398 $65,341 $51,013 $42,762 $40,359 $36,401
======= ======= ======= ======= ======= =======
Average amount of loans
outstanding, net of
unearned income........ $67,063 $56,665 $45,932 $41,302 $37,913 $35,075
======= ======= ======= ======= ======= =======
Allowance for loan
losses at beginning of
period................. $ 1,233 $ 1,139 $ 847 $ 781 $ 768 $ 709
Charge-offs:
Commercial, financial
and agricultural..... -- 111 40 80 255 45
Real estate--mortgage. -- -- 31 -- 51 133
Consumer.............. 37 49 -- 35 65 82
------- ------- ------- ------- ------- -------
Total charge-offs... 37 160 71 115 371 260
------- ------- ------- ------- ------- -------
Recoveries:
Commercial, financial
and agricultural..... 18 74 326 111 236 173
Real estate--mortgage. -- 1 2 7 6 1
Consumer.............. 15 29 35 33 30 45
------- ------- ------- ------- ------- -------
Total recoveries.... 33 104 363 151 272 219
------- ------- ------- ------- ------- -------
Net charge-offs
(recoveries)....... 4 56 (292) (36) 99 41
Provision for loan
losses................. 10 150 -- 30 112 100
------- ------- ------- ------- ------- -------
Allowance for loan
losses at period-end... $ 1,239 $ 1,233 $ 1,139 $ 847 $ 781 $ 768
======= ======= ======= ======= ======= =======
Allowance for loan
losses to period-end
loans.................. 1.84% 1.89% 2.23% 1.98% 1.94% 2.11%
Net charge-offs
(recoveries) to average
loans.................. 0.02 0.10 (0.64) (0.09) 0.26 0.12
</TABLE>
At March 31, 1998 and year-end 1997 the allowance for loan losses was $1.2
million as compared to $1.1 million at year-end 1996 and $847,000 at year-end
1995. The allowance at March 31, 1998 to ending loans was 1.84%, and this
ratio has been relatively consistent from year to year since 1995. The
allowance was considered adequate at March 31, 1998.
63
<PAGE>
CFC experienced net charge-offs of $4,000 and $56,000 in the 1998 three
months and 1997, respectively. Net recoveries were received totaling $292,000
and $36,000 in 1996 and 1995, respectively.
NONPERFORMING ASSETS
Nonperforming assets are loans on a non-accrual basis, accruing loans 90
days or more past due, restructured loans, and other real estate owned. At
March 31, 1998, nonperforming assets totaled $5,000. There were no
nonperforming assets at year-end 1997. At year-end 1996 and 1995,
nonperforming assets were $171,000 and $379,000, respectively. The following
table summarizes nonperforming assets for the periods indicated:
NONPERFORMING ASSETS
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ----------------------------------------
1998 1997 1996 1995 1994 1993
------------ ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans........ $ 5 $ -- $ 162 $ 309 $ -- $ --
Restructured loans...... -- -- -- -- -- 1,889
Loans past due 90 days
or more and still
accruing............... -- -- 9 -- -- --
---------- ----- ------- ------- ------- ------
Total nonperforming
loans................ 5 -- 171 309 -- 1,889
Other real estate owned. -- -- -- 70 290 1,258
---------- ----- ------- ------- ------- ------
Total nonperforming
assets............... $ 5 $ -- $ 171 $ 379 $ 290 $3,147
========== ===== ======= ======= ======= ======
Allowance for loan
losses to period-end
loans.................. 1.84% 1.89% 2.23% 1.98% 1.94% 2.11%
Allowance for loan
losses to period-end
nonperforming loans.... 24,780.00 -- 666.08 274.11 -- 40.66
Allowance for loan
losses to period-end
nonperforming assets .. 24,780.00 -- 666.08 223.48 269.31 24.40
Net charge-offs
(recoveries) to average
loans.................. 0.02 0.10 (0.64) (0.09) 0.26 0.12
Nonperforming assets to
period-end loans and
foreclosed property.... 0.01 -- 0.34 0.88 0.71 8.36
Nonperforming loans to
period-end loans....... 0.01 -- 0.34 0.72 -- 5.19
</TABLE>
In accordance with regulatory standards, loans are classified as non-accrual
when the collection of principal or interest is 90 days or more past due or
when, in management's judgment, such principal or interest will not be
collectible in the ordinary course of business, unless in the opinion of
management the loan is both adequately secured and in the process of
collection.
CFC has identified loans totaling approximately $1.8 million or 2.60% of the
loan portfolio at March 31, 1998, through the Georgia State Bank's internal
loan evaluation program in which some concern exists about the borrower's
ability to comply with present repayment terms. These loans are not included
as non-performing assets and are categorized as "watch" for internal
evaluation purposes only. These credits, however, were considered in
determining the adequacy of the allowance for possible loan losses and, while
current, are regularly monitored for changes with a particular industry or
general economic trends which could cause the borrowers severe financial
difficulties. CFC management does not expect a significant loss in any of
these loans.
64
<PAGE>
NONINTEREST INCOME
Total noninterest income increased $84,000 or 27.5% from the 1997 three
months to the 1998 three months and $360,000 from 1996 to 1997. Increases
occurred in all major categories of noninterest income. The following table
depicts major sources of noninterest income for the periods indicated:
NONINTEREST INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------- -------------------------
1998 1997 1997 1996 1995
---- ---- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts........ $221 $170 $ 783 $ 636 $ 570
Investment services income................. -- -- -- -- --
Trust fees................................. -- -- -- -- --
Origination and sale of mortgage loans..... 72 70 287 196 160
Securities gains (losses).................. -- -- 6 -- (5)
Other...................................... 97 66 283 167 126
---- ---- --------- ------- -------
Total noninterest income................. $390 $306 $ 1,359 $ 999 $ 851
==== ==== ========= ======= =======
</TABLE>
NONINTEREST EXPENSE
Total noninterest expense increased $85,000 from the 1997 three months to
the 1998 three months, or 9.4%. Total noninterest expense increased $497,000,
or 14.1%, from 1996 to 1997. The following table summarizes noninterest
expenses for the periods indicated:
NONINTEREST EXPENSE
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------- -----------------------
1998 1997 1997 1996 1995
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits............... $548 $517 $ 2,158 $ 1,805 $ 1,578
Net occupancy expense........................ 127 112 525 420 348
Postage and freight.......................... 11 15 75 76 70
Printing and reproduction.................... 24 30 102 93 69
Banking assessments.......................... 2 1 10 -- 88
Data processing expenses..................... 88 53 228 181 146
Legal and professional fees.................. 16 8 113 98 103
Loss on disposition of other real estate
owned....................................... -- -- -- -- 109
Other ....................................... 178 173 809 850 831
---- ---- ------- ------- -------
Total noninterest expense.................. $994 $909 $ 4,020 $ 3,523 $ 3,342
==== ==== ======= ======= =======
</TABLE>
INCOME TAXES, INFLATION AND OTHER ISSUES
Income tax expense was $229,000 during the 1998 three months compared to
$75,000 during the 1997 three months, for an effective rate of 34.0% and
16.3%, respectively. Income tax expense was $211,000 in 1997, for an effective
rate of 11.4%. There was no tax expense for 1996, 1995, 1994 or 1993. The
absence of a tax expense and a lower-than-expected effective rate prior to
1998 is attributable to net operating loss carryforwards available to CFC
which were fully utilized by year-end 1997.
65
<PAGE>
Because CFC's assets and liabilities are essentially monetary in nature, the
effect of inflation on CFC's assets differs greatly from that of most
commercial and industrial companies. Inflation can have an impact on the
growth of total assets in the banking industry and the resulting need to
increase capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also can have a significant
effect on other expenses, which tend to rise during periods of general
inflation. Management believes, however, that CFC's financial results are
influenced more by its ability to react to changes in interest rates than by
inflation.
Except as discussed in this Management's Discussion and Analysis, CFC
management is not aware of any trends, events or uncertainties that will have
or that are reasonably likely to have a material effect on liquidity, capital
resources or operations. Management is not aware of any current
recommendations by regulatory authorities which, if implemented, would have
such an effect.
ELECTION OF DIRECTORS
The second item of business to be considered at the Annual Meeting is the
election of eleven directors of CFC to serve as directors until the Effective
Time of the Merger or until the successors of such directors have been elected
and qualified. All of the nominees are presently directors of CFC and also
serve on the Board of Directors of Georgia State Bank.
The table below sets forth certain information about the nominees, including
the nominees' position with CFC and Georgia State Bank and their principal
occupation. It is the intention of the persons named in the accompanying Proxy
to vote for the election of the nominees identified below. If any nominee is
unable or fails to accept nomination of election (which is not anticipated),
the person named in the Proxy will vote for the election of his stead of such
other person as management may recommend.
<TABLE>
<CAPTION>
POSITIONS WITH CFC
NAME AND GEORGIA STATE BANK(1) PRINCIPAL OCCUPATION
---- ------------------------- --------------------
<S> <C> <C>
Roy E. Barnes Director Attorney, Georgia State Representative
W. Ray Barnes Chairman of the Board and Director General Manager, W.C. Barnes Store
Thomas J. Browning Director Attorney
Ray H. Collier Director Furniture Sales
Paul Y. Cuthbertson Director President--Marietta Optical Co.
C. Eugene Eubanks Director Pharmacist
C. Freeman Poole Director Retired
Mildred A. Reeves Director Real Estate
Ken F. Thigpen President, CEO President & CEO/Company & Bank
Stephen P. Thompson Director Financial Consultant, Georgia State Senator
R. Truman Travis Director Automobile Sales
</TABLE>
- --------
(1) Each person holds the office listed with both CFC and the Bank.
THE BOARD OF DIRECTORS OF CFC RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF
THE ELEVEN NOMINEES NAMED ABOVE.
LEGAL MATTERS
The legality of the ANB Common Stock to be issued in the Merger will be
passed upon by Maynard, Cooper & Gale, P.C., Birmingham, Alabama ("Maynard,
Cooper"). As of July 21, 1998, attorneys in the law firm of Maynard, Cooper
owned an aggregate of 34,274 Shares of ANB Common Stock.
Certain legal matters in connection with the Merger will be passed upon for
CFC by Kilpatrick Stockton, LLP, Atlanta, Georgia.
Maynard, Cooper has rendered an opinion with respect to the federal tax
consequences of the Merger. See "The Merger--Federal Income Tax Consequences."
66
<PAGE>
EXPERTS
The consolidated financial statements of ANB as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 1996, incorporated herein
by reference in this Proxy Statement, have been incorporated herein in
reliance on the report, which includes an explanatory paragraph regarding the
combination and restatement of the 1995 financial statements and the 1996
change in accounting method for stock-based compensation of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated statements of income, changes in shareholders' equity and
cash flows of ANB for the year ended December 31, 1995, incorporated by
reference in this Proxy Statement have been incorporated herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, to the
extent indicated in their report thereon and in part on the report of Ernst &
Young LLP, independent auditors. The financial statements referred to above
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The consolidated financial statements of CFC as of December 31, 1997, 1996
and 1995 and for each of the three years ended December 31, 1997 have been
included herein in reliance on the report of Porter Keadle Moore LLP,
independent certified public accountants, given upon the authority of such
firm as experts in accounting and auditing.
67
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMMUNITY FINANCIAL CORPORATION
AND
ALABAMA NATIONAL BANCORPORATION
DATED AS OF
JUNE 8, 1998
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger...................................................................... 1
1.2 Time and Place of Closing................................................... 2
1.3 Effective Time.............................................................. 2
ARTICLE 2
TERMS OF MERGER
---------------
2.1 Certificate of Incorporation................................................ 2
2.2 Bylaws...................................................................... 2
2.3 Directors................................................................... 2
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares........................................................ 3
3.2 Anti-Dilution Provisions.................................................... 4
3.3 Shares Held by CFC.......................................................... 4
3.4 Dissenting Stockholders..................................................... 4
3.5 Fractional Shares........................................................... 5
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures......................................................... 5
4.2 Rights of Former CFC Stockholders........................................... 6
4.3 Lost or Stolen Certificates................................................. 6
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CFC
-------------------------------------
5.1 Organization, Standing and Power........................................... 7
5.2 Authority; No Breach By Agreement.......................................... 7
5.3 Capital Stock.............................................................. 8
5.4 CFC Subsidiaries........................................................... 9
5.5 Financial Statements....................................................... 9
5.6 Absence of Undisclosed Liabilities......................................... 10
5.7 Absence of Certain Changes or Events....................................... 10
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.8 Tax Matters................................................................ 10
5.9 Loan Portfolio; Documentation and Reports.................................. 11
5.10 Assets; Insurance.......................................................... 12
5.11 Environmental Matters...................................................... 13
5.12 Compliance with Laws....................................................... 14
5.13 Labor Relations; Employees................................................. 14
5.14 Employee Benefit Plans..................................................... 14
5.15 Material Contracts......................................................... 17
5.16 Legal Proceedings.......................................................... 17
5.17 Reports.................................................................... 17
5.18 Statements True and Correct................................................ 18
5.19 Accounting, Tax and Regulatory Matters..................................... 18
5.20 Offices.................................................................... 19
5.21 Data Processing Systems.................................................... 19
5.22 Intellectual Property...................................................... 19
5.23 Administration of Trust Accounts........................................... 19
5.24 Broker's Fees.............................................................. 19
5.25 Regulatory Approvals....................................................... 19
5.26 Opinion of Counsel......................................................... 20
5.27 Takeover Laws.............................................................. 20
5.28 Year 2000.................................................................. 20
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ANB
-------------------------------------
6.1 Organization, Standing and Power........................................... 20
6.2 Authority; No Breach By Agreement.......................................... 20
6.3 Capital Stock.............................................................. 21
6.4 Financial Statements....................................................... 22
6.5 Absence of Undisclosed Liabilities......................................... 22
6.6 Absence of Certain Changes or Events....................................... 22
6.7 Compliance with Laws....................................................... 23
6.8 Material Contracts......................................................... 23
6.9 Legal Proceedings.......................................................... 23
6.10 Reports.................................................................... 23
6.11 Statements True and Correct................................................ 24
6.12 Accounting, Tax and Regulatory Matters..................................... 24
6.13 1934 Act Compliance........................................................ 24
6.14 Regulatory Approvals....................................................... 25
6.15 Opinion of Counsel......................................................... 25
6.16 Year 2000.................................................................. 25
6.17 Notes and Obligations...................................................... 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Covenants of Both Parties.................................................. 26
7.2 Covenants of CFC........................................................... 26
7.3 Covenants of ANB........................................................... 29
7.4 Adverse Changes in Condition............................................... 29
7.5 Reports.................................................................... 29
7.6 Acquisition Proposals...................................................... 30
7.7 NASDAQ Qualification....................................................... 30
7.8 Directors' and Officers' Indemnification and D & O Policy Coverage......... 30
ARTICLE 8
ADDITIONAL AGREEMENTS
---------------------
8.1 Regulatory Matters......................................................... 30
8.2 Access to Information...................................................... 32
8.3 Efforts to Consummate...................................................... 33
8.4 CFC Stockholders' Meeting.................................................. 33
8.5 Certificates of Objections................................................. 33
8.6 Press Releases............................................................. 34
8.7 Expenses................................................................... 34
8.8 Failure to Close........................................................... 34
8.9 Fairness Opinion........................................................... 35
8.10 Accounting and Tax Treatment............................................... 35
8.11 Agreement of Affiliates.................................................... 35
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 Conditions to Obligations of Each Party.................................... 36
9.2 Conditions to Obligations of ANB........................................... 37
9.3 Conditions to Obligations of CFC........................................... 39
ARTICLE 10
TERMINATION
-----------
10.1 Termination................................................................ 40
10.2 Effect of Termination...................................................... 42
10.3 Non-Survival of Representations and Covenants.............................. 42
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Definitions............................................................... 42
11.2 Entire Agreement.......................................................... 51
11.3 Amendments................................................................ 51
11.4 Waivers................................................................... 51
11.5 Assignment................................................................ 52
11.6 Notices................................................................... 52
11.7 Brokers and Finders....................................................... 52
11.8 Governing Law............................................................. 53
11.9 Counterparts.............................................................. 53
11.10 Captions.................................................................. 53
11.11 Enforcement of Agreement.................................................. 53
11.12 Severability.............................................................. 53
11.13 Singular/Plural; Gender................................................... 53
</TABLE>
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<PAGE>
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 8, 1998 by and between COMMUNITY FINANCIAL CORPORATION ("CFC"),
a corporation organized and existing under the laws of the State of Georgia,
with its principal office located in Mableton, Georgia, and ALABAMA NATIONAL
BANCORPORATION ("ANB"), a corporation organized and existing under the laws of
the State of Delaware, with its principal office located in Birmingham, Alabama.
PREAMBLE
--------
The Boards of Directors of CFC and ANB are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective stockholders. This Agreement provides for the merger of CFC with and
into ANB. At the effective time of such merger, the outstanding shares of the
capital stock of CFC shall be converted into the right to receive shares of the
common stock of ANB (except as provided herein). As a result, stockholders of
CFC shall become stockholders of ANB, and ANB shall continue to conduct the
business and operations of CFC. The transactions described in this Agreement
are subject to the approvals of the stockholders of CFC, the Georgia Department
of Banking and Finance and the Board of Governors of the Federal Reserve System,
and the satisfaction of certain other conditions described in this Agreement.
It is the intention of the parties to this Agreement that the merger (i) for
federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code and (ii) for accounting
purposes shall qualify for treatment as a "pooling of interests."
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, CFC shall be merged with and into ANB in accordance with the
provisions of Section 252 of the DGCL and Section 14-2-1107 of the GBCC and with
the effect provided in Sections 259 and 261 of the DGCL (the "Merger"). ANB
shall be the Surviving Corporation resulting from the Merger and shall continue
to be governed by the Laws of the State of Delaware. The
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<PAGE>
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the ANB Board and the CFC Board.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00 A.M.
-------------------------
on the date that the Effective Time occurs (or the immediately preceding day if
the Effective Time is earlier than 9:00 A.M.), or at such other date and time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The place of Closing shall be at the offices of
Maynard, Cooper & Gale, P.C., Birmingham, Alabama, or such other place as may be
mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions provided for in
--------------
this Agreement shall become effective: (i) on the date and at the time that the
later of the following shall occur: (A) the Certificate of Merger reflecting the
Merger shall be accepted for filing by the Secretary of State of Delaware, and
(B) the Articles of Merger reflecting the Merger shall be accepted for filing by
the Secretary of State of Georgia, or (ii) on such date and at such time
subsequent to the date and time established pursuant to subsection 1.3(i) above
as may be specified by the Parties in the Certificate of Merger and Articles of
Merger (provided that such subsequent date and time shall not be later than a
time on the 30th day after the date that the Certificate of Merger is filed)
(the "Effective Time"). Subject to the terms and conditions hereof, unless
otherwise mutually agreed upon in writing by the chief executive officers or
chief financial officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the last business day of the
month in which the later of the following occurs: (i) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving the
Merger, and (ii) the date on which the stockholders of CFC approve this
Agreement, to the extent such approval is required by applicable Law.
ARTICLE 2
TERMS OF MERGER
---------------
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of ANB
----------------------------
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation immediately following the Effective
Time.
2.2 BYLAWS. The Bylaws of ANB in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation immediately
following the Effective Time, until otherwise amended or repealed.
2.3 DIRECTORS. The directors of the Surviving Corporation from and after
---------
the Effective Time shall consist of the thirteen (13) incumbent directors of ANB
and one of either Roy E. or W. Ray Barnes, in the sole discretion of CFC, each
of whom is currently a director of CFC.
A-7
<PAGE>
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of the holders thereof, the shares of the constituent corporations shall be
converted as follows:
(A) Each share of ANB Common 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 CFC Common Stock (excluding shares held by any CFC
Company, other than in a fiduciary capacity or as a result of debts previously
contracted, and excluding shares held by stockholders who perfect their
dissenters' rights of appraisal as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for the right to receive .351807 shares of
ANB Common Stock (the "Exchange Ratio").
(C) Certain stockholders of CFC hold Vested CFC Options providing for the
for the purchase of an aggregate of 131,000 additional shares of CFC Common
Stock. At the Effective Time, and by virtue of the Merger and without any action
on the part of the holders thereof, each Vested CFC Option issued and
outstanding immediately prior to the Effective Time shall be converted at the
Effective Time into the right to receive substitute stock options (the "ANB
Options") providing for the purchase of shares of ANB Common Stock, the number
and exercise price of which shall be determined in accordance with the formula
set forth in subsection 3.1(b) above for the conversion of CFC Common Stock.
More specifically, each Vested CFC Option issued and outstanding immediately
prior to the Effective Time representing the right to purchase a share of CFC
Common Stock shall be converted into an ANB Option to purchase .351807 shares of
ANB Common Stock at a price equal to the exercise price for the Vested CFC
Option at issue multiplied by a fraction, the numerator of which is one and the
denominator of which is .351807. The other terms and conditions of the ANB
Options issued in connection herewith shall be substantially similar to those
applicable to the Vested CFC Options, including without limitation the duration
of such options.
(D) Assuming that no holders of CFC Common Stock exercise their rights
under the Dissenter Provisions, the holders of CFC Common Stock (including
individuals holding Vested CFC Options) shall receive in the aggregate,
approximately 1,122,333 shares of ANB Common Stock.
(E) Members of the Advisory Board hold Advisory Board Options providing
for the purchase of an aggregate of 30,000 additional shares of CFC Common
Stock. As of the date of this Agreement, the rights of the holders of Advisory
Board Options have not yet vested, and the exercise price of the shares of CFC
Common Stock subject to such options has not yet been determined. By their
terms, the Advisory Board Options vest ratably as of September 1, 1998, 1999 and
2000 (i.e. 10,000 shares each September 1), and the exercise price is determined
as
A-8
<PAGE>
of each such vesting date with reference to the then current market price of CFC
Common Stock.
(i) With respect to any portion of the Advisory Board Options that
vest prior to the Effective Time, each such vested Advisory Board Option
shall be converted at the Effective Time into the right to receive ANB
Options in accordance with the formula set forth in Section 3.1(b), subject
to the terms and conditions of Section 9.2(g) hereof; and
(ii) with respect to Advisory Board Options that are not vested as of
the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, each such unvested Advisory Board Option
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive ANB Options providing for the purchase
of shares of ANB Common Stock, (A) the number of which shall be determined
in accordance with the formula set forth in Section 3.1(b) above, and (B)
the exercise price for each share of ANB Common Stock subject to such ANB
Option shall not be determined until the respective vesting dates
applicable thereto. As of the respective vesting date for such ANB Options,
the exercise price shall be determined by (x) adding the averages of the
high and low sales price of one share of ANB Common Stock as reported on
the NASDAQ National Market System on each of the ten (10) consecutive
trading days ending on the trading day prior to the date that the right of
such option holder has vested (i.e. September 1, 1998, 1999 or 2000) and
(y) dividing such sum by ten (10) (the "Vesting Date Average Quoted
Price").
Subject to Section 9.2(g) hereof, the other terms and conditions of the ANB
Options issued in connection herewith shall be substantially similar to those
applicable to the Advisory Board Options, including without limitation the
vesting schedules and duration of such options.
3.2 ANTI-DILUTION PROVISIONS. In the event CFC changes the number of
------------------------
shares of CFC Common Stock issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend or similar recapitalization with
respect to such stock and the record date therefor shall be prior to the
Effective Time, the Exchange Ratio shall be proportionately adjusted. In the
event ANB changes the number of shares of ANB Common Stock issued and
outstanding prior to the Effective Time as a result of a stock split, stock
dividend or similar recapitalization with respect to such stock and the record
date therefor shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY CFC. Each of the shares of CFC Common Stock held by
------------------
any CFC Company, other than in a fiduciary capacity or as a result of debts
previously contracted, shall be canceled and retired at the Effective Time and
no consideration shall be issued in exchange therefor.
3.4 DISSENTING STOCKHOLDERS. Any holder of shares of CFC Common Stock who
-----------------------
perfects his dissenters' rights of appraisal in accordance with and as
contemplated by Sections 14-2-1320 through 14-2-1327 of the GBCC (the "Dissenter
Provisions") shall be entitled
A-9
<PAGE>
to receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, however, that no such payment shall be made to any
dissenting stockholder unless and until such dissenting stockholder has complied
with the applicable provisions of the GBCC and surrendered to the Surviving
Corporation the certificate or certificates representing the shares for which
payment is being made; provided, further, nothing contained in this Section 3.4
shall in any way limit the right of ANB to terminate this Agreement and abandon
the Merger under Section 10.1(i). In the event that after the Effective Time a
dissenting stockholder of CFC fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, the Surviving
Corporation shall issue and deliver the consideration to which such holder of
shares of CFC Common Stock is entitled under this Article 3 (without interest)
upon surrender by such holder of the certificate or certificates representing
shares of CFC Common Stock held by him.
3.5 FRACTIONAL SHARES. No certificates or scrip representing fractional
-----------------
shares of ANB Common Stock shall be issued upon the surrender of certificates
for exchange; no dividend or distribution with respect to ANB Common Stock shall
be payable on or with respect to any fractional share; and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of ANB. In lieu of any such fractional share, ANB shall pay to
each former stockholder of CFC who otherwise would be entitled to receive a
fractional share of ANB Common Stock an amount in cash (without interest)
determined by multiplying (a) the Average Quoted Price by (b) the fraction of a
share of ANB Common Stock to which such holder would otherwise be entitled.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving
-------------------
Corporation shall cause the Exchange Agent to mail to the former stockholders of
CFC appropriate transmittal materials (which shall specify that delivery shall
be effected, and risk of loss and title to the certificates theretofore
representing shares of CFC Common Stock shall pass, only upon proper delivery of
such certificates to the Exchange Agent). After the Effective Time, each holder
of shares of CFC Common Stock (other than shares to be canceled pursuant to
Section 3.3 of this Agreement or as to which dissenters' rights of appraisal
have been perfected as provided in Section 3.4 of this Agreement) issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1 of this Agreement, together with all undelivered dividends or
distributions with respect to such shares (without interest thereon) pursuant to
Section 4.2 of this Agreement. To the extent required by Section 3.5 of this
Agreement, each holder of shares of CFC Common Stock issued and outstanding at
the Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
ANB Common Stock to which such holder may be otherwise entitled (without
interest). The Surviving Corporation shall not be obligated to deliver the
consideration to which any
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<PAGE>
former holder of CFC Common Stock is entitled as a result of the Merger until
such holder surrenders his certificate or certificates representing the shares
of CFC Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates for CFC Common Stock so surrendered shall be duly
endorsed as the Exchange Agent may require. Any other provision of this
Agreement notwithstanding, neither the Surviving Corporation nor the Exchange
Agent shall be liable to a holder of CFC Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property Law.
4.2 RIGHTS OF FORMER CFC STOCKHOLDERS. At the Effective Time, the stock
---------------------------------
transfer books of CFC shall be closed as to holders of CFC Common Stock
immediately prior to the Effective Time, and no transfer of CFC Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1 of this Agreement,
each certificate theretofore representing shares of CFC Common Stock ("CFC
Certificate"), other than shares to be canceled pursuant to Section 3.3 of this
Agreement or as to which dissenters' rights of appraisal have been perfected as
provided in Section 3.4 of this Agreement, shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 and 3.5 of this Agreement in exchange therefor. To the
extent permitted by Law, former stockholders of record of CFC Common Stock shall
be entitled to vote after the Effective Time at any meeting of Surviving
Corporation stockholders the number of whole shares of ANB Common Stock into
which their respective shares of CFC Common Stock are converted, regardless of
whether such holders have exchanged their CFC Certificates for certificates
representing ANB Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by the
Surviving Corporation on the ANB Common Stock, the record date for which is at
or after the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement.
Notwithstanding the preceding sentence, any person holding any CFC Certificate
at or after six (6) months after the Effective Time (the "Cutoff") shall not be
entitled to receive any dividend or other distribution payable after the Cutoff
to holders of ANB Common Stock, which dividend or other distribution is
attributable to such person's ANB Common Stock represented by said CFC
Certificate held after the Cutoff, until such person surrenders said CFC
Certificate for exchange as provided in Section 4.1 of this Agreement. However,
upon surrender of such CFC Certificate, both the ANB Common Stock certificate
(together with all such undelivered dividends or other distributions, without
interest) and any undelivered cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such CFC Certificate.
4.3 LOST OR STOLEN CERTIFICATES. If any holder of CFC Common Stock
---------------------------
convertible into the right to receive shares of ANB Common Stock is unable to
deliver the CFC Certificate that represents CFC Common Stock, the Exchange
Agent, in the absence of actual notice that any such shares have been acquired
by a bona fide purchaser, shall deliver to such holder the shares of ANB Common
Stock to which the holder is entitled for such shares upon presentation of the
following: (a) evidence to the reasonable satisfaction of ANB that any such CFC
Certificate has been lost, wrongfully taken or destroyed; (b) such security or
indemnity as may be reasonably requested by ANB to indemnify and hold ANB and
the Exchange Agent harmless;
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<PAGE>
and (c) evidence satisfactory to ANB that such person is the owner of the shares
theretofore represented by each CFC Certificate claimed by the holder to be
lost, wrongfully taken or destroyed and that the holder is the person who would
be entitled to present such CFC Certificate for exchange pursuant to this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CFC
-------------------------------------
CFC hereby represents and warrants to ANB as follows:
5.1 ORGANIZATION, STANDING AND POWER. CFC is a corporation duly
--------------------------------
organized, validly existing and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets and to incur its
Liabilities. CFC is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CFC. CFC has delivered to ANB complete and correct copies of its
Articles of Incorporation and Bylaws and the articles of incorporation, bylaws
and other, similar governing instruments of each of its Subsidiaries, in each
case as amended through the date hereof.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(A) CFC has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions provided for herein. The execution, delivery and performance of
this Agreement and the consummation of the transactions provided for herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action on the part of CFC, subject to the approval of this Agreement
by the holders of a majority of the outstanding shares of CFC Common Stock.
Subject to such requisite stockholder approval and required regulatory consents,
this Agreement represents a legal, valid and binding obligation of CFC,
enforceable against CFC in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(B) Neither the execution and delivery of this Agreement by CFC, nor the
consummation by CFC of the transactions provided for herein, nor compliance by
CFC with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of CFC's Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any
A-12
<PAGE>
Consent pursuant to, or result in the creation of any Lien on any Asset of any
CFC Company under, any Contract or Permit of any CFC Company, or, (iii) subject
to receipt of the requisite approvals referred to in Section 9.1(b) of this
Agreement, violate any Law or Order applicable to any CFC Company or any of
their respective Assets.
(C) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFC, no notice to, filing with or Consent of, any public body or authority is
necessary for the consummation by CFC of the Merger and the other transactions
contemplated in this Agreement.
5.3 CAPITAL STOCK.
-------------
(A) The authorized capital stock of CFC consists of 10,000,000 shares of
CFC Common Stock, of which 2,664,614 shares are issued and outstanding. All of
the issued and outstanding shares of capital stock of CFC are duly and validly
issued and outstanding and are fully paid and nonassessable under the GBCC. None
of the outstanding shares of capital stock of CFC has been issued in violation
of any preemptive rights of the current or past stockholders of CFC. Pursuant to
the terms of the CFC 1994 Stock Option Plan and the CFC 1996 Stock Incentive
Plan, as of the date of this Agreement there are outstanding (i) vested,
currently exercisable options ("Vested CFC Options") with the right to purchase
a total of 131,000 shares of CFC Common Stock and (ii) unvested, unpriced
options ("Advisory Board Options") which, when fully vested, will represent the
right to purchase a total of 30,000 shares of CFC Common Stock, as more fully
set forth in Schedule 5.3 attached hereto. None of the Advisory Board Options
------------
shall vest solely as a result of, or in connection with, the Merger. There are
currently outstanding warrants ("CFC Warrants") with the right to purchase a
total of 394,580 shares of CFC Common Stock as more fully set forth in Schedule
--------
5.3 attached hereto. CFC Warrants to purchase a total of 394,580 shares of CFC
- ---
Common Stock are now exercisable. Each of the CFC Warrants expires on or prior
to June 30, 1998.
(B) Except as set forth in Section 5.3(a) of this Agreement, there are no
shares of capital stock or other equity securities of CFC outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of CFC or
contracts, commitments, understandings or arrangements by which CFC is or may be
bound to issue additional shares of its capital stock or options, warrants or
rights to purchase or acquire any additional shares of its capital stock. CFC
has no liability for dividends declared or accrued, but unpaid, with respect to
any of its capital stock.
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<PAGE>
5.4 CFC SUBSIDIARIES.
----------------
(A) The CFC Subsidiaries include Georgia State Bank ("CFC Bank"). CFC Bank
is a state non-member bank, duly organized, validly existing and in good
standing under the laws of the State of Georgia. Each of the CFC Subsidiaries
has the corporate power and authority necessary for it to own, lease and operate
its Assets and to incur its Liabilities and to carry on its business as now
conducted. Each CFC Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the states of the United
States and foreign jurisdictions where the character of its Assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
for jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CFC. Each CFC Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder.
(B) The authorized and issued and outstanding capital stock of each CFC
Subsidiary is set forth on Schedule 5.4. CFC or CFC Bank owns all of the issued
------------
and outstanding shares of capital stock of each CFC Subsidiary. No equity
securities of any CFC Subsidiary are or may become required to be issued by
reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of any such
Subsidiary, and there are no Contracts by which any CFC Subsidiary is bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or by which any
CFC Company is or may be bound to transfer any shares of the capital stock of
any CFC Subsidiary. There are no Contracts relating to the rights of any CFC
Company to vote or to dispose of any shares of the capital stock of any CFC
Subsidiary. All of the shares of capital stock of each CFC Subsidiary held by a
CFC Company are fully paid and nonassessable under the applicable corporation
Law of the jurisdiction in which such Subsidiary is incorporated and organized
and are owned by the CFC Company free and clear of any Lien. No CFC Subsidiary
has any liability for dividends declared or accrued, but unpaid, with respect to
any of its capital stock.
5.5 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.5 are copies of
-------------------- ------------
all CFC Financial Statements and CFC Call Reports for periods ended prior to the
date hereof, and CFC will deliver to ANB promptly copies of all CFC Financial
Statements and CFC Call Reports prepared subsequent to the date hereof. The CFC
Financial Statements (as of the dates thereof and for the periods covered
thereby) (a) are or, if dated after the date of this Agreement, will be in
accordance with the books and records of the CFC Companies, which are or will
be, as the case may be, complete and correct and which have been or will have
been, as the case may be, maintained in accordance with good business practices,
and (b) present or will present, as the case may be, fairly the consolidated
financial position of the CFC Companies as of the dates indicated and the
consolidated results of operations, changes in stockholders' equity and cash
flows of the CFC Companies for the periods indicated, in accordance with GAAP
(subject to exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial statements,
to normal recurring year-end adjustments that are not
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<PAGE>
material in amount or effect). The CFC Call Reports have been prepared in
material compliance with the rules and regulations of the respective federal or
state banking regulator with which they were filed.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No CFC Company has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFC, except Liabilities accrued or
reserved against in the consolidated balance sheets of CFC as of December 31,
1997, included in the CFC Financial Statements or reflected in the notes
thereto. No CFC Company has incurred or paid any Liability since December 31,
1997, except for such Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFC.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
------------------------------------ --------
5.7, since March 31, 1998, to CFC's Knowledge, (i) there have been no events,
- ---
changes or occurrences in the business of CFC that have had, or which management
of CFC believes, are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFC or its Subsidiaries, (ii) the CFC
Companies have not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of CFC provided in Article 7 of this Agreement, and
(iii) no fact or condition exists with respect to CFC's business which
management of CFC believes will cause a Material Adverse Effect on CFC or its
Subsidiaries in the future.
5.8 TAX MATTERS.
-----------
(A) All Tax returns required to be filed by or on behalf of any of the CFC
Companies have been timely filed or requests for extensions have been timely
filed, granted and have not expired for periods ended on or before December 31,
1997, and all returns filed are complete and accurate in all material respects.
All Taxes shown as due on filed returns have been paid. There is no audit
examination, deficiency, refund Litigation or matter in controversy pending, or
to the Knowledge of CFC, threatened, with respect to any Taxes that might result
in a determination that would have, individually or in the aggregate, a Material
Adverse Effect on CFC, except as reserved against in the CFC Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been fully paid.
(B) None of the CFC Companies has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(C) To CFC's Knowledge, adequate provision for any Taxes due or to become
due for any of the CFC Companies for the period or periods through and including
the date of the
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<PAGE>
respective CFC Financial Statements has been made and is reflected on such CFC
Financial Statements.
(D) Deferred Taxes of the CFC Companies have been provided for in
accordance with GAAP.
5.9 LOAN PORTFOLIO; DOCUMENTATION AND REPORTS.
-----------------------------------------
(A) Except as disclosed in Schedule 5.9(a), none of the CFC Companies is a
---------------
creditor as to any written or oral loan agreement, note or borrowing arrangement
including, without limitation, leases, credit enhancements, commitments and
interest-bearing assets (the "Loans"), other than Loans the unpaid principal
balance of which does not exceed $25,000 per Loan or $50,000 in the aggregate,
under the terms of which the obligor is, as of the date of this Agreement, over
90 days delinquent in payment of principal or interest or in default of any
other material provisions. Except as otherwise set forth in Schedule 5.9(a),
---------------
none of the CFC Companies is a creditor as to any Loan, including without
limitation any loan guaranty, to any director, executive officer or 10%
stockholder thereof, or to the Knowledge of CFC, any Person, corporation or
enterprise controlling, controlled by or under common control of any of the
foregoing. Except as provided in the CFC Allowance (as defined below), all of
the Loans held by any of the CFC Companies were solicited, originated and exist
in material compliance with all applicable CFC loan policies, except for
deviations from such policies that (a) have been approved by current management
of CFC, in the case of Loans with an outstanding principal balance that exceeds
$25,000 or (b) in the judgment of CFC, will not adversely effect the ultimate
collectibility of such Loan. Except as set forth in Schedule 5.9(a), none of the
---------------
CFC Companies holds any Loans in the original principal amount in excess of
$25,000 per Loan or $50,000 in the aggregate that since January 1, 1995 have
been classified by any bank examiner, whether regulatory or internal, as other
loans Specifically Mentioned, Special Mention, Substandard, Doubtful, Loss,
Classified, Criticized, Credit Risk Assets, concerned loans or words of similar
import. The allowance for possible loan or credit losses (the "CFC Allowance")
shown on the consolidated balance sheets of CFC included in the most recent CFC
Financial Statements dated prior to the date of this Agreement was, and the CFC
Allowance shown on the consolidated balance sheets of CFC included in the CFC
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for losses relating
to or inherent in the loan and lease portfolios (including accrued interest
receivables) of the CFC Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the CFC
Companies as of the dates thereof, except where the inadequacy of such Allowance
does not have a Material Adverse Effect on CFC.
(B) The documentation relating to each Loan made by any CFC Company and to
all security interests, mortgages and other liens with respect to all collateral
for loans is adequate for the enforcement of the material terms of such Loan,
security interest, mortgage or other lien,
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<PAGE>
except for inadequacies in such documentation which will not, individually or in
the aggregate, have a Material Adverse Effect on CFC and except as provided in
the CFC Allowance.
(C) Each of the CFC Companies has timely filed all material reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since December 31, 1992 with
(i) the FRB, (ii) the FDIC and (iii) any state regulatory authority ("State
Regulator") (collectively "Regulatory Authorities") and all other material
reports and statements required to be filed by it since December 31, 1992,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, the FRB, the
FDIC or any State Regulator, and has paid all fees and assessments due and
payable in connection therewith. Except as set forth in Schedule 5.9(c) and as
---------------
otherwise provided herein, and except for normal examinations conducted by
Regulatory Authorities in the regular course of the business of the CFC
Companies, to the Knowledge of CFC, no Regulatory Authority has initiated any
proceeding or, to the Knowledge of CFC, investigation into the business or
operations of any CFC Company since December 31, 1991. Except as set forth in
Schedule 5.9(c), there is no unresolved violation, criticism or exception by any
- ---------------
Regulatory Authority with respect to any report or any examinations of any CFC
Company.
5.10 ASSETS; INSURANCE. The CFC Companies have marketable title, free and
-----------------
clear of all Liens, to all of their respective Assets. One of the CFC Companies
has good and marketable fee simple title to the real property described in
Schedule 5.10(a) and has an enforceable leasehold interest in the real property
- ----------------
described in Schedule 5.10(b), if any. All tangible properties used in the
----------------
businesses of the CFC Companies are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
CFC's past practices. All Assets that are material to CFC's business on a
consolidated basis, held under leases or subleases by any of the CFC Companies
are held under valid Contracts enforceable in accordance with their respective
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other Laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect and there is not under any such Contract
any Default or claim of Default by CFC or CFC Bank or, to the Knowledge of CFC,
by any other party to the Contract. The policies of fire, theft, liability and
other insurance maintained with respect to the Assets or businesses of the CFC
Companies provide adequate coverage under current industry practices against
loss or Liability, and the fidelity and blanket bonds in effect as to which any
of the CFC Companies is a named insured are reasonably sufficient. Schedule
--------
5.10(c) contains a list of all such policies and bonds maintained by any of the
- -------
CFC Companies. The Assets of the CFC Companies include all assets required to
operate the business of the CFC Companies as now conducted.
A-17
<PAGE>
5.11 ENVIRONMENTAL MATTERS.
---------------------
(A) To the Knowledge of CFC, each CFC Company, its Participation
Facilities and its Loan Properties are, and have been, in compliance with all
Environmental Laws, except for violations that are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CFC.
(B) There is no Litigation pending or, to the Knowledge of CFC,
threatened before any court, governmental agency or authority or other forum in
which any CFC Company or any of its Participation Facilities has been or, with
respect to threatened Litigation, may be named as a defendant (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or (ii)
relating to the release into the environment of any Hazardous Material (as
defined below), whether or not occurring at, on, under or involving a site
owned, leased or operated by any CFC Company or any of its Participation
Facilities, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CFC.
(C) There is no Litigation pending or, to the Knowledge of CFC,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or CFC with respect to such Loan Property) has
been or, with respect to threatened Litigation, may be named as a defendant or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on, under or
involving a Loan Property, except for such Litigation pending or threatened that
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFC.
(D) To the Knowledge of CFC, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CFC.
(E) To the Knowledge of CFC, during the period of (i) any CFC Company's
ownership or operation of any of its respective current properties, (ii) any CFC
Company's participation in the management of any Participation Facility or (iii)
any CFC Company's holding of a security interest in a Loan Property, there have
been no releases of Hazardous Material in, on, under or affecting such
properties, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CFC. Prior to the period of (i) any
CFC Company's ownership or operation of any of its respective current
properties, (ii) any CFC Company's participation in the management of any
Participation Facility, or (iii) any CFC Company's holding of a security
interest in a Loan Property, to the Knowledge of CFC, there were no releases of
Hazardous Material or oil in, on, under or affecting any such property,
Participation Facility or Loan Property, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFC.
A-18
<PAGE>
5.12 COMPLIANCE WITH LAWS. CFC is duly registered as a bank holding
--------------------
company under the BHC Act. Each CFC Company has in effect all Permits necessary
for it to own, lease or operate its Assets and to carry on its business as now
conducted, except for those Permits the absence of which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFC, and there has occurred no Default under any such Permit. Except as may be
disclosed on Schedule 5.12, none of the CFC Companies:
-------------
(A) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations that are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFC; or
(B) has received any notification or communication from any agency or
department of federal, state or local government or any Regulatory Authority or
the staff thereof (i) asserting that any CFC Company is not in compliance with
any of the Laws or Orders that such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFC, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on CFC, or
(iii) requiring any CFC Company to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any board resolution or similar undertaking, that
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management or the
payment of dividends.
5.13 LABOR RELATIONS; EMPLOYEES.
--------------------------
(A) No CFC Company is the subject of any Litigation asserting that it or
any other CFC Company has committed an unfair labor practice (within the meaning
of the National Labor Relations Act or comparable state Law) or seeking to
compel it or any other CFC Company to bargain with any labor organization as to
wages or conditions of employment, nor is there any strike or other labor
dispute involving any CFC Company, pending or threatened, nor to its Knowledge,
is there any activity involving any CFC Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
(B) Schedule 5.13(b) contains a true and complete list showing the names
----------------
and current annual salaries of all current executive officers of each of the CFC
Companies and lists for each such person the amounts paid, payable or expected
to be paid as salary, bonus payments and other compensation for 1996, 1997 and
1998. Schedule 5.13(b) also sets forth the name and offices held by each officer
----------------
and director of each of the CFC Companies.
5.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) Schedule 5.14 lists, and CFC has delivered or made available to ANB
prior to the execution of this Agreement copies of, all pension, retirement,
profit-sharing, deferred
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<PAGE>
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other incentive plan, all other written or unwritten employee programs,
arrangements or agreements, all medical, vision, dental or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including, without limitation, "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in
whole or in part by, or contributed to by any CFC Company or Affiliate thereof
for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "CFC Benefit
Plans"). Any of the CFC Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "CFC ERISA Plan." Each CFC ERISA Plan which is also a "defined benefit
plan" (as defined in Section 414(j) of the Internal Revenue Code) is referenced
to herein as an "CFC Pension Plan". No CFC Pension Plan is or has been a multi-
employer plan within the meaning of Section 3(37) of ERISA.
(B) All CFC Benefit Plans and the administration thereof are in
compliance with the applicable terms of ERISA, the Internal Revenue Code and any
other applicable Laws, the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CFC. Each
CFC ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and CFC is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of CFC, no CFC Company has engaged in a transaction with respect to
any CFC Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any CFC Company to a tax or penalty
imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFC. There are no actions, suits,
arbitrations or claims, including any investigations or audits by the Internal
Revenue Service or any other governmental authority, pending (other than routine
claims for benefits) or threatened against, any CFC Benefit Plan or any CFC
Company with regard to any CFC Benefit Plan, any trust which is a part of any
CFC Benefit Plan, any trustee, fiduciary, custodian, administrator or other
person or entity holding or controlling assets of any CFC Benefit Plan, and no
basis to anticipate any such action, suit, arbitration, claim, investigation or
audit exists.
(C) No CFC ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, and the fair market value of the assets of any such plan exceeds the
plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of
ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Since the date
of the most recent actuarial valuation, there has been (i) no material change in
the financial position of any CFC Pension Plan, (ii) no change in the actuarial
assumptions with respect to any CFC Pension Plan, (iii) no increase in benefits
under any CFC Pension Plan as a result of plan amendments or changes in
applicable Law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFC or to materially adversely affect
the
A-20
<PAGE>
funding status of any such plan. Neither any CFC Pension Plan nor any "single-
employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any CFC Company, or the single-employer plan of any
entity which is considered one employer with CFC under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or not
waived) (an "ERISA Affiliate") has an "accumulated funding deficiency" within
the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on CFC. No CFC
Company has provided, or is required to provide, security to a CFC Pension Plan
or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(D) No Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any CFC Company with respect to any ongoing, frozen
or terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on CFC. No CFC Company has incurred any withdrawal Liability with respect
to a multi-employer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate), which Liability is
reasonably likely to have a Material Adverse Effect on CFC. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any CFC Pension Plan or by any ERISA Affiliate within the 12-month period
ending on the date hereof.
(E) No CFC Company has any obligations for retiree health and life
benefits under any of the CFC Benefit Plans, and there are no restrictions on
the rights of such CFC Company to amend or terminate any such plan without
incurring any Liability thereunder, which Liability is reasonably likely to have
a Material Adverse Effect on CFC.
(F) Neither the execution and delivery of this Agreement nor the
consummation of the transactions provided for herein will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any CFC Company from any CFC Company under any CFC Benefit Plan or otherwise,
(ii) increase any benefits otherwise payable under any CFC Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit, where such payment, increase or acceleration is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CFC.
(G) With respect to all CFC Benefit Plans (whether or not subject to ERISA
and whether or not qualified under Section 401(a) of the Internal Revenue Code),
all contributions due (including any contributions to any trust account or
payments due under any insurance policy) previously declared or otherwise
required by Law or contract to have been made and any employer contributions
(including any contributions to any trust account or payments due under any
insurance policy) accrued but unpaid as of the date hereof will be paid by the
time required by Law or contract. All contributions made or required to be made
under any CFC Benefit Plan have been made and such contributions meet the
requirements for deductibility under the Internal
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<PAGE>
Revenue Code, and all contributions which are required and which have not been
made have been properly recorded on the books of CFC.
5.15 MATERIAL CONTRACTS. Except as set forth on Schedule 5.15, none of the
------------------ -------------
CFC Companies, nor any of their respective Assets, businesses or operations, is
a party to, or is bound or affected by, or receives benefits under, (i) any
employment, severance, termination, consulting or retirement Contract with any
Person; (ii) any Contract relating to the borrowing of money by any CFC Company
or the guarantee by any CFC Company of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, trade payables and Contracts relating to borrowings or
guarantees made and letters of credit); (iii) any Contract relating to
indemnification or defense of any director, officer or employee of any of the
CFC Companies or any other Person; (iv) any Contract with any labor union; (v)
any Contract relating to the disposition or acquisition of any interest in any
business enterprise; (vi) any Contract relating to the extension of credit to,
provision of services for, sale, lease or license of Assets to, engagement of
services from, or purchase, lease or license of Assets from, any 5% stockholder,
director or officer of any of the CFC Companies, any member of the immediate
family of the foregoing or, to the Knowledge of CFC, any related interest (as
defined in Regulation O promulgated by the FRB) ("Related Interest") of any of
the foregoing; (vii) any Contract (A) which limits the freedom of any of the CFC
Companies to compete in any line of business or with any Person or (B) which
limits the freedom of any other Person to compete in any line of business with
any CFC Company; (viii) any Contract providing a power of attorney or similar
authorization given by any of the CFC Companies, except as issued in the
ordinary course of business with respect to routine matters; or (ix) any
Contract (other than deposit agreements and certificates of deposits issued to
customers entered into in the ordinary course of business and letters of credit)
that involves the payment by any of the CFC Companies of amounts aggregating
$15,000 or more in any twelve-month period (together with all Contracts referred
to in Sections 5.10 and 5.14(a) of this Agreement, the "CFC Contracts"). None of
the CFC Companies is in Default under any CFC Contract. All of the indebtedness
of any CFC Company for money borrowed is prepayable at any time by such CFC
Company without penalty or premium.
5.16 LEGAL PROCEEDINGS. Except as set forth on Schedule 5.16, there is no
----------------- -------------
Litigation instituted or pending, or, to the Knowledge of CFC, threatened (or
unasserted but considered probable of assertion and which if asserted would have
at least a reasonable probability of an unfavorable outcome) against any CFC
Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CFC, nor are there any Orders of any Regulatory Authorities, other
governmental authorities or arbitrators outstanding against any CFC Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFC.
5.17 REPORTS. Since January 1, 1995, or the date of organization if later,
-------
each CFC Company has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (i) any Regulatory Authorities or (ii) any applicable state securities
or banking authorities (except, in the case of state securities
A-22
<PAGE>
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFC). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all material respects, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.18 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument or
---------------------------
other writing furnished or to be furnished by any CFC Company or any Affiliate
thereof to ANB pursuant to this Agreement, including the Exhibits and Schedules
hereto, or any other document, agreement or instrument referred to herein,
contains or will contain any untrue statement of material fact or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CFC Company or any Affiliate
thereof for inclusion in the documents to be prepared by ANB in connection with
the transactions provided for in this Agreement, including without limitation
(i) documents to be filed with the SEC, including without limitation the
Registration Statement on Form S-4 of ANB registering the shares of ANB Common
Stock to be offered to the holders of CFC Common Stock, and all amendments
thereto (as amended, the "S-4 Registration Statement") and the Proxy Statement
and Prospectus in the form contained in the S-4 Registration Statement, and all
amendments and supplements thereto (as amended and supplemented, the "Proxy
Statement/Prospectus"), (ii) filings pursuant to any state securities and blue
sky Laws, and (iii) filings made in connection with the obtaining of Consents
from Regulatory Authorities, in the case of the S-4 Registration Statement, at
the time the S-4 Registration Statement is declared effective pursuant to the
1933 Act, in the case of the Proxy Statement/Prospectus, at the time of the
mailing thereof and at the time of the meeting of stockholders to which the
Proxy Statement/Prospectus relates, and in the case of any other documents, the
time such documents are filed with a Regulatory Authority and/or at the time
they are distributed to stockholders of ANB or CFC, contains or will contain any
untrue statement of a material fact or fails to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
documents that any CFC Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
provided for herein will comply as to form in all material respects with the
provisions of applicable Law.
5.19 ACCOUNTING, TAX AND REGULATORY MATTERS . No CFC Company or any
--------------------------------------
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for pooling-of-
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b)
of this Agreement or result in the
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<PAGE>
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
5.20 OFFICES. The headquarters of each CFC Company and each other office,
-------
branch or facility maintained and operated by each CFC Company (including
without limitation representative and loan production offices and operations
centers) and the locations thereof are listed on Schedule 5.20. Except as set
-------------
forth on Schedule 5.20, none of the CFC Companies maintains any other office or
-------------
branch or conducts business at any other location, or has applied for or
received permission to open any additional office or branch or to operate at any
other location.
5.21 DATA PROCESSING SYSTEMS. Except as set forth in Schedule 5.21, the
----------------------- -------------
electronic data processing systems and similar systems utilized in processing
the work of each of the CFC Companies, including both hardware and software (a)
are supplied by a third party provider; (b) satisfactorily perform the data
processing function for which they are presently being used; and (c) are wholly
within the possession and control of one of the CFC Companies or its third party
provider such that physical access to all software, documentation, passwords,
access codes, backups, disks and other data storage devices and similar items
readily can be made accessible to and delivered into the possession of ANB or
ANB's third party provider.
5.22 INTELLECTUAL PROPERTY. One of the CFC Companies owns or possesses
---------------------
valid and binding licenses and other rights to use without payment all material
patents, copyrights, trade secrets, trade names, service marks and trademarks
used in its business; and none of the CFC Companies has received any notice of
conflict with respect thereto that asserts the rights of others. The CFC
Companies have in all material respects performed all the obligations required
to be performed by them and are not in default in any material respect under any
contract, agreement, arrangement or commitment relating to any of the foregoing.
Schedule 5.22 lists all of the trademarks, trade names, licenses and other
- -------------
intellectual property used to conduct the businesses of the CFC Companies.
5.23 ADMINISTRATION OF TRUST ACCOUNTS. CFC Bank possesses but does not
--------------------------------
exercise trust powers.
5.24 BROKER'S FEES. CFC has retained the CFC Financial Advisor to serve as
-------------
its broker and, as of the Effective Time, shall incur a liability to the CFC
Financial Advisor in an amount not to exceed $888,000 (the "Broker's Fee") in
connection with the Merger. Other than the CFC Financial Advisor and the
Broker's Fee, neither CFC nor any of its Subsidiaries nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions provided for in this Agreement.
5.25 REGULATORY APPROVALS. CFC knows of no reason why all requisite
--------------------
regulatory approvals should not or cannot be obtained.
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<PAGE>
5.26 OPINION OF COUNSEL. CFC has no Knowledge of any facts that would
------------------
preclude issuance of the opinion of counsel referred to in Section 9.2(d).
5.27 TAKEOVER LAWS. CFC has taken all action required to be taken by it in
-------------
order to exempt this Agreement and the transactions provided for hereby, and
this Agreement and the transactions provided for hereby are exempt from, the
requirements of any "moratorium", "control share", "fair price", "business
combination" or other anti-takeover laws and regulations (collectively,
"Takeover Laws") of the State of Georgia, including Sections 14-2-1111 and 14-2-
1132 of the GBCC.
5.28 YEAR 2000. Except as disclosed in Schedule 5.28, CFC represents and
--------- -------------
warrants that all material computer software and hardware necessary for the
conduct of its business (the "Software") is designed to be used prior to,
during, and after the calendar year 2000 A.D., and that the Software will
operate during each such time period without material error relating to the year
2000, specifically including any error relating to, or the product of, date data
which represents or references different centuries or more than one century.
Except as disclosed in Schedule 5.28, CFC further represents and warrants that
-------------
the Software accepts, calculates, sorts, extracts and otherwise processes date
inputs and date values, and returns and displays date values, in a consistent
manner regardless of the dates used, whether before, on, or after January 1,
2000.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ANB
-------------------------------------
ANB hereby represents and warrants to CFC as follows:
6.1 ORGANIZATION, STANDING AND POWER. ANB is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets and to incur its
Liabilities. ANB is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ANB. ANB has delivered to CFC complete and correct copies of its
Certificate of Incorporation and Bylaws and the articles of incorporation,
bylaws and other, similar governing instruments of each of its Subsidiaries, in
each case as amended through the date hereof.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(A) ANB has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions provided for
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<PAGE>
herein. The execution, delivery and performance of this Agreement and the
consummation of the transactions provided for herein, including the Merger, have
been duly and validly authorized by all necessary corporate action on the part
of ANB. Subject to required regulatory consents, this Agreement represents a
legal, valid and binding obligation of ANB, enforceable against ANB in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(B) Neither the execution and delivery of this Agreement by ANB, nor the
consummation by ANB of the transactions provided for herein, nor compliance by
ANB with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of ANB's Certificate of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any ANB Company under, any
Contract or Permit of any ANB Company, where failure to obtain such Consent is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ANB, or, (iii) subject to receipt of the requisite approvals referred
to in Section 9.1(b) of this Agreement, violate any Law or Order applicable to
any ANB Company or any of their respective Assets.
(C) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB, no notice to, filing with or Consent of, any
public body or authority is necessary for the consummation by ANB of the Merger
and the other transactions contemplated in this Agreement.
6.3 CAPITAL STOCK. The authorized capital stock of ANB, as of the date of
-------------
this Agreement, consists of (i) 17,500,000 shares of ANB Common Stock, of which
8,648,120 shares are issued and outstanding (as a result of the consummation of
the merger of Public Bank Corporation with and into ANB on May 29, 1998, ANB
will issue up to an additional 550,000 shares of ANB Common Stock), and (ii)
100,000 shares of preferred stock, $1.00 par value per share, none of which is
issued and outstanding. All of the issued and outstanding shares of ANB Common
Stock are, and all of the shares of ANB Common Stock to be issued in exchange
for shares of CFC Common Stock upon consummation of the Merger, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the DGCL. None of the
outstanding shares of ANB Common Stock has been, and none of the shares of ANB
Common Stock to be issued in exchange for shares of CFC Common Stock upon
consummation of the Merger will be, issued in violation of any preemptive rights
of the current or past stockholders of ANB. ANB has granted options to purchase
no more than 411,037 shares of ANB Common Stock under the ANB Stock Plan. On
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<PAGE>
April 25, 1996, the ANB Board terminated the ANB Stock Plans. In addition, in
1996, ANB adopted a Performance Share Plan and a Deferred Compensation Plan for
Directors who are not Employees of ANB, pursuant to which additional shares of
ANB Common Stock have been and will continue to be awarded or issued, as the
case may be. Schedule 6.3 contains a description of each of these plans,
------------
including without limitation the number of shares reserved, the number of shares
currently awarded and the potential future obligation with respect thereto.
6.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.4 are copies of
-------------------- ------------
all ANB Financial Statements and ANB Regulatory Reports for periods ended prior
to the date hereof and ANB will deliver to CFC promptly copies of all ANB
Financial Statements and ANB Regulatory Reports prepared subsequent to the date
hereof. The ANB Financial Statements (as of the dates thereof and for the
periods covered thereby) (i) are or, if dated after the date of this Agreement,
will be in accordance with the books and records of the ANB Companies, which are
or will be, as the case may be, complete and correct and which have been or will
have been, as the case may be, maintained in accordance with good business
practices, and (ii) present or will present, as the case may be, fairly the
consolidated financial position of the ANB Companies as of the dates indicated
and the consolidated and the consolidated results of operations, changes in
stockholders' equity, and cash flows of the ANB Companies for the periods
indicated, in accordance with GAAP (subject to exceptions as to consistency
specified therein or as may be indicated in the notes thereto or, in the case of
interim financial statements, to normal year-end adjustments that are not
material in amount or effect). The ANB Regulatory Reports have been prepared in
material compliance with the rules and regulations of the FRB.
6.5 ABSENCE OF UNDISCLOSED LIABILITIES. No ANB Company has any Liabilities
----------------------------------
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB, except Liabilities accrued or reserved against in the
consolidated balance sheets of ANB as of March 31, 1998 included in the ANB
Financial Statements or reflected in the notes thereto. No ANB Company has
incurred or paid any Liability since March 31, 1998, except for such Liabilities
incurred or paid in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on ANB.
6.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
------------------------------------ --------
6.6, since March 31, 1998 to ANB's Knowledge, (i) there have been no events,
- ---
changes or occurrences that have had, or which the management of ANB believes
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB, (ii) the ANB Companies have not taken any action, or
failed to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of ANB
provided in Article 7 of this Agreement, and (iii) no fact or condition exists
with respect to ANB's business which management of ANB believes will cause a
Material Adverse Effect on ANB or its Subsidiaries in the future.
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<PAGE>
6.7 COMPLIANCE WITH LAWS. ANB is duly registered as a bank holding
--------------------
company under the BHC Act. Each ANB Company has in effect all Permits necessary
for it to own, lease or operate its Assets and to carry on its business as now
conducted, except for those Permits the absence of which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
ANB, and there has occurred no Default under any such Permit. Except as may be
disclosed on Schedule 6.7, none of the ANB Companies:
------------
(A) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations that are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB; or
(B) has received any notification or communication from any agency or
department of federal, state or local government or any Regulatory Authority or
the staff thereof (i) asserting that any ANB Company is not in compliance with
any of the Laws or Orders that such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ANB, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on ANB, or
(iii) requiring any ANB Company to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any board resolution or similar undertaking, that
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management or the
payment of dividends.
6.8 MATERIAL CONTRACTS. ANB has filed as an exhibit to its annual report
------------------
on Form 10-K each Contract required to be so filed under the 1934 Act and the
rules and regulations promulgated thereunder. None of the ANB Companies is in
Default under any ANB Contract, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
ANB. All of the indebtedness of any ANB Company for money borrowed is prepayable
at any time by such ANB Company without penalty or premium.
6.9 LEGAL PROCEEDINGS. Except as set forth on Schedule 6.9, there is no
----------------- ------------
Litigation instituted or pending, or, to the Knowledge of ANB, threatened (or
unasserted but considered probable of assertion and which if asserted would have
at least a reasonable probability of an unfavorable outcome) against any ANB
Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ANB, nor are there any Orders of any Regulatory Authorities, other
governmental authorities or arbitrators outstanding against any ANB Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB.
6.10 REPORTS. Since January 1, 1993, or the date of organization if later,
-------
each ANB Company has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q,
Forms 8-K, and proxy statements, (ii) other Regulatory
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<PAGE>
Authorities, and (iii) any applicable state securities or banking authorities
(except, in the case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
6.11 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument or
---------------------------
other writing furnished or to be furnished by any ANB Company or any Affiliate
thereof to CFC pursuant to this Agreement, the Exhibits or Schedules hereto, or
any other document, agreement or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the information supplied or
to be supplied by any ANB Company or any Affiliate thereof for inclusion in the
Proxy Statement/Prospectus to be mailed to CFC's stockholders in connection with
the CFC Stockholders' Meeting, and any other documents to be filed by an ANB
Company or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions provided for herein, will, at the respective
time such documents are filed, and with respect to the Proxy
Statement/Prospectus, when first mailed to the stockholders of CFC, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the CFC
Stockholders' Meeting be false or misleading with respect to any material fact,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the CFC
Stockholders' Meeting. All documents that any ANB Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions provided for herein will comply as to form in all material
respects with the provisions of applicable Law.
6.12 ACCOUNTING, TAX AND REGULATORY MATTERS. No ANB Company or any
--------------------------------------
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for pooling-of-
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b)
of this Agreement or result in the imposition of a condition or restriction of
the type referred to in the last sentence of such Section.
6.13 1934 ACT COMPLIANCE. The Proxy Statement/Prospectus will comply in
-------------------
all material respects with applicable provisions of the 1933 Act and the 1934
Act and the rules and regulations thereunder.
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<PAGE>
6.14 REGULATORY APPROVALS. ANB knows of no reason why all requisite
--------------------
regulatory approvals should not or cannot be obtained.
6.15 OPINION OF COUNSEL. ANB has no Knowledge of any facts that would
------------------
preclude issuance of the opinion of counsel referred to in Section 9.3(d).
6.16 YEAR 2000. Except as set forth on Schedule 6.16, ANB represents and
--------- -------------
warrants that all material computer software and hardware necessary for the
conduct of its business (the "Software") is designed to be used prior to, during
and after the calendar year 2000 A.D., and that the Software will operate during
each such time period without material error relating to the year 2000,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century. Except
as disclosed in Schedule 6.16, ANB further represents and warrants that the
-------------
Software accepts, calculates, sorts, extracts and otherwise processes date
inputs and date values, and returns and displays date values, in a consistent
manner regardless of the dates used, whether before, on, or after January 1,
2000.
6.17 NOTES AND OBLIGATIONS.
---------------------
(A) Except as set forth in Schedule 6.17(a) or as provided for in the
----------------
allowance for possible loan or credit losses (the "ANB Allowance"), to the
Knowledge of ANB, all notes receivable or other obligations owned by ANB or due
to it shown in the ANB Financial Statements and any such notes receivable and
obligations on the date hereof and on the Closing Date are and will be genuine,
legal, valid and collectible obligations of the respective makers thereof and
are not and will not be subject to any offset or counterclaim. Except as set
forth in Schedule 6.17(a) or as provided in the ANB Allowance, all such notes
----------------
and obligations are evidenced by written agreements. All such notes and
obligations were entered into by ANB in the ordinary course of its business and
in compliance with all applicable Laws.
(B) ANB has established an allowance for loan losses (the "ANB Allowance
for Loan Losses") in the ANB Financial Statements and as of the date of this
Agreement and will establish an allowance for loan losses as of the Closing Date
which, in the opinion of ANB management, is adequate to cover anticipated losses
which might result from such items as the insolvency or default of borrowers or
obligors on such loans or obligations, defects in the notes or evidences of
obligation (including losses of original notes or instruments), offsets or
counterclaims properly chargeable to such reserve, or the availability of legal
or equitable defenses which might preclude or limit the ability of ANB to
enforce the note or obligation, and the representations set forth in subsection
(a) above are qualified in their entirety by the aggregate of such allowance for
loan losses.
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<PAGE>
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 COVENANTS OF BOTH PARTIES.
-------------------------
(A) Unless the prior written consent of the other Party shall have been
obtained, and except as otherwise expressly provided for herein, each Party
shall and shall cause each of its Subsidiaries to (i) preserve intact its
business organization, goodwill, relationships with depositors, customers and
employees, and Assets and maintain its rights and franchises, and (ii) take no
action, except as required by applicable Law, which would (A) adversely affect
the ability of any Party to obtain any Consents required for the transactions
provided for herein without imposition of a condition or restriction of the type
referred to in the last sentences of Section 9.1(b) or 9.1(c) of this Agreement
or (B) adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
(B) During the period from the date of this Agreement to the Effective
Time, each of ANB and CFC shall cause its Designated Representative (and, if
necessary, representatives of any of its Subsidiaries) to confer on a regular
and frequent basis with the Designated Representative of the other Party hereto
and to report on the general status of its and its Subsidiaries' ongoing
operations. Each of ANB and CFC shall permit the other Party hereto to make such
investigation of its business or properties and its Subsidiaries and of their
respective financial and legal conditions as the investigating Party may
reasonably request. Each of ANB and CFC shall promptly notify the other Party
hereto concerning (a) any material change in the normal course of its or any of
its Subsidiaries' businesses or in the operation of their respective properties
or in their respective conditions; (b) any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or the institution or the threat of any material Litigation
involving it or any of its Subsidiaries; and (c) the occurrence or impending
occurrence of any event or circumstance that would cause or constitute a breach
of any of the representations, warranties or covenants contained herein; and
each of ANB and CFC shall, and shall cause each of their respective Subsidiaries
to, use its best efforts to prevent or promptly respond to same.
7.2 COVENANTS OF CFC. From the date of this Agreement until the earlier
----------------
of the Effective Time or the termination of this Agreement, CFC covenants and
agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of the chief executive officer, president or chief
financial officer of ANB, which consent shall not be unreasonably withheld:
(A) amend the Articles of Incorporation, Bylaws or other governing
instruments of any CFC Company; or
(B) incur any additional debt obligation or other obligation for borrowed
money in excess of an aggregate of $100,000, except in the ordinary course of
the business of CFC Subsidiaries consistent with past practices (which shall
include, for CFC Subsidiaries that are
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<PAGE>
depository institutions, creation of deposit liabilities, purchases of federal
funds, sales of certificates of deposit, advances from the FRB or the Federal
Home Loan Bank, entry into repurchase agreements fully secured by U.S.
government or agency securities and issuances of letters of credit), or impose,
or suffer the imposition, on any share of stock held by any CFC Company of any
Lien or permit any such Lien to exist; or
(C) repurchase, redeem or otherwise acquire or exchange, directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any CFC Company, or, declare or pay any dividend or make any
other distribution in respect of CFC's capital stock; or
(D) except for this Agreement and as required upon exercise of any of the
CFC Warrants or the Vested CFC Options, issue, sell, pledge, encumber, enter
into any Contract to issue, sell, pledge, or encumber, authorize the issuance
of, or otherwise permit to become outstanding, any additional shares of CFC
Common Stock or any other capital stock of any CFC Company, or any stock
appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock, or any security convertible into any shares of such
stock; or
(E) adjust, split, combine or reclassify any capital stock of any CFC
Company or issue or authorize the issuance of any other securities with respect
to or in substitution for shares of its capital stock or sell, lease, mortgage
or otherwise encumber any shares of capital stock of any CFC Subsidiary or any
Asset other than in the ordinary course of business for reasonable and adequate
consideration; or
(F) acquire any direct or indirect equity interest in any Person, other
than in connection with (i) foreclosures in the ordinary course of business and
(ii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or
(G) grant any increase in compensation or benefits to the employees or
officers of any CFC Company, except in accordance with past practices with
respect to employees; pay any bonus except in accordance with the provisions of
any applicable program or plan adopted by the CFC Board prior to the date of
this Agreement; enter into or amend any severance agreements with officers of
any CFC Company; grant any material increase in fees or other increases in
compensation or other benefits to directors of any CFC Company; or
(H) enter into or amend any employment Contract between any CFC Company
and any Person (unless such amendment is required by Law) that the CFC Company
does not have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the Effective
Time; or
(I) adopt any new employee benefit plan of any CFC Company or make any
material change in or to any existing employee benefit plans of any CFC Company
other than any such change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified status of any
such plan; or
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<PAGE>
(J) make any material change in any accounting methods or systems of
internal accounting controls, except as may be appropriate to conform to changes
in regulatory accounting requirements or GAAP; or
(K) (i) commence any Litigation other than in accordance with past
practice, (ii) settle any Litigation involving any Liability of any CFC Company
for money damages in excess of $50,000 for any single matter, or in excess of
$100,000 in the aggregate for all such matters, or restrictions upon the
operations of any CFC Company, or, (iii) except in the ordinary course of
business, modify, amend or terminate any material Contract or waive, release,
compromise or assign any material rights or claims; or
(L) enter into any material transaction or course of conduct not in the
ordinary course of business, or not consistent with safe and sound banking
practices, or not consistent with applicable Laws; or
(M) fail to file timely any report required to be filed by it with any
Regulatory Authority; or
(N) make any Loan or advance to any 5% stockholder, director or officer of
CFC or any of the CFC Subsidiaries, or any member of the immediate family of the
foregoing, or any Related Interest (Known to CFC or any of its Subsidiaries) of
any of the foregoing, except for advances under unfunded loan commitments in
existence on the date of this Agreement and specifically described on Schedule
--------
7.2(n); or
- ------
(O) cancel without payment in full, or modify in any material respect any
Contract relating to, any loan or other obligation receivable from any
stockholder, director or officer of any CFC Company or any member of the
immediate family of the foregoing, or any Related Interest (Known to CFC or any
of its Subsidiaries) of any of the foregoing; or
(P) enter into any Contract for services or otherwise with any of the 5%
stockholders, directors, officers or employees of any CFC Company or any member
of the immediate family of the foregoing, or any Related Interest (Known to CFC
or any of its Subsidiaries) of any of the foregoing; or
(Q) modify, amend or terminate any material Contract or waive, release,
compromise or assign any material rights or claims, except in the ordinary
course of business and for fair consideration; or
(R) file any application to relocate or terminate the operations of any
banking office of it or any of its Subsidiaries; or
(S) except in accordance with applicable Law, change its or any of its
Subsidiaries' lending, investment, liability management and other material
banking policies in any material respect; or
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<PAGE>
(T) intentionally take any action that would reasonably be expected to
jeopardize or delay the receipt of any of the regulatory approvals required in
order to consummate the transactions provided for in this Agreement; or
(U) take any action that would cause the transactions provided for in this
Agreement to be subject to requirements imposed by any Takeover Law and CFC
shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions provided for in this Agreement from, or
if necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect, including, without limitation, Sections 14-
2-1111 and 14-2-1132 of the GBCC and Takeover Laws of any other State that
purport to apply to this Agreement or the transactions provided for herein.
7.3 COVENANTS OF ANB. From the date of this Agreement until the earlier
----------------
of the Effective Time or the termination of this Agreement, ANB covenants and
agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of the chief executive officer, president or chief
financial officer of CFC, which consent shall not be unreasonably withheld:
(A) fail to file timely any report required to be filed by it with
Regulatory Authorities, including the SEC; or
(B) take any action that would cause the ANB Common Stock to cease to be
traded on the NASDAQ or another National Securities Exchange; provided, however,
that any action or transaction in which the ANB Common Stock is converted into
cash or another marketable security that is traded on a National Securities
Exchange shall not be deemed a violation of this Section 7.3(b).
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries that (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein, and to use its commercially reasonable best efforts to prevent or
promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall timely file all
-------
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time, and each party shall deliver to the
other party copies of all such reports filed by such party or its Subsidiaries
promptly after the same are filed. If financial statements are contained in any
such reports filed with such Regulatory Authority, such financial statements
will fairly present the consolidated financial position of the entity filing
such statements as of the dates indicated and the consolidated results of
operations, changes in stockholders' equity, and cash flows for the periods then
ended in accordance with GAAP or regulatory accounting principles, as applicable
(subject in the case of interim financial statements to normal recurring year-
end
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<PAGE>
adjustments that are not material). As of their respective dates, such reports
filed with the SEC will comply in all material respects with the Securities Laws
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any financial statements contained in any other reports to a
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
7.6 ACQUISITION PROPOSALS. Except with respect to this Agreement and the
---------------------
transactions provided for herein, CFC expressly agrees that neither CFC nor any
of its Subsidiaries, nor any representative retained by CFC or any of its
Subsidiaries or any Affiliate thereof will solicit any Acquisition Proposal by
any Person until the earlier of the termination of this Agreement or the
consummation of the Merger. CFC shall promptly notify ANB orally and in writing
in the event it or any of its Subsidiaries receives any inquiry or proposal
relating to any such transaction.
7.7 NASDAQ QUALIFICATION. ANB shall, prior to the Effective Time, secure
--------------------
designation of all ANB Common Stock to be issued in the Merger as a NASDAQ
"national market system security" within the meaning of Rule 11Aa2-1 of the SEC.
7.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND D & O POLICY COVERAGE.
------------------------------------------------------------------
the extent, if any, not provided by an existing right of indemnification or
other agreement or policy, from and after the Effective Time, ANB shall, to the
fullest extent permitted under applicable Law, indemnify, defend and hold
harmless the present and former officers and directors of CFC against all
losses, expenses (including reasonable attorney's fees), claims, damages or
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time that are in whole or in part based on, or arising out of the fact
that such Person is or was a director or officer of CFC or arising out of or
pertaining to the transactions provided for in this Agreement.
ARTICLE 8
ADDITIONAL AGREEMENTS
---------------------
8.1 REGULATORY MATTERS.
------------------
(A) ANB shall promptly prepare and file the S-4 Registration Statement
with the SEC. ANB shall use its all reasonable efforts to have the S-4
Registration Statement declared effective under the 1933 Act as promptly as
practicable after such filing. CFC shall mail the Proxy Statement/Prospectus to
its stockholders simultaneously with delivery of notice of the meeting of
stockholders called to approve the Merger. ANB shall also use its reasonable
efforts to obtain all necessary state securities Law or "Blue Sky" permits and
approvals required to carry out the transaction provided for in this Agreement,
and CFC shall furnish all information concerning CFC and the holders of CFC
Common Stock as may be requested in connection with any such action. If at any
time prior to the Effective Time of the Merger any event shall occur which
should be set forth in an amendment of, or a supplement to, the Proxy
Statement/Prospectus,
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<PAGE>
CFC will promptly inform ANB and cooperate and assist ANB in preparing such
amendment or supplement and mailing the same to the stockholders of CFC. As of
the date of the execution of this Agreement, and assuming the absence of any
additional material factors, unless the CFC Board in its good faith judgment
determines that it is otherwise required by Law it is the intent of the CFC
Board that the Proxy Statement/Prospectus shall contain the recommendation of
the CFC Board in favor of the Merger and, subject to the foregoing, the CFC
Board shall recommend that the holders of CFC Common Stock vote for and adopt
the Merger provided for in the Proxy Statement/Prospectus and this Agreement.
(B) The Parties shall cooperate with each other and use their best efforts
to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings and to obtain as promptly as
practicable all Consents of all third parties and Regulatory Authorities which
are necessary or advisable to consummate the transactions contemplated by this
Agreement. ANB and CFC shall have the right to review in advance, and to the
extent practicable each will consult the other on, in each case subject to
applicable Laws relating to the exchange of information, all the information
relating to ANB or CFC, as the case may be, and any of their respective
Subsidiaries, which appear in any filing made with, or written materials
submitted to, any third party or any Regulatory Authority in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the Parties hereto shall act reasonably and as promptly as practicable.
The Parties hereto agree that they will consult with each other with respect to
the obtaining of all Permits and Consents, approvals and authorizations of all
third parties and Regulatory Authorities necessary or advisable to consummate
the transactions provided for in this Agreement, and each Party will keep the
other apprised of the status of matters relating to completion of the
transactions provided for in this Agreement.
(C) ANB and CFC shall, upon request, furnish each other all information
concerning themselves, their Subsidiaries, directors, officers and stockholders
and such other matters that as may be reasonably necessary or advisable in
connection with the Proxy Statement/Prospectus, the S-4 Registration Statement
or any other statement, filing, notice or application made by or on behalf of
ANB, CFC or any of their Subsidiaries to any Regulatory Authority in connection
with the Merger and the other transactions provided for in this Agreement.
(D) ANB and CFC shall promptly furnish each other with copies of written
communications received by ANB or CFC, as the case may be, or any of their
respective Subsidiaries, Affiliates or associates from, or delivered by any of
the foregoing to, any Regulatory Authority in respect of the transactions
provided for herein.
(E) ANB will indemnify and hold harmless CFC and its officers and
directors and CFC will indemnify and hold harmless ANB and its directors and
officers, from and against any and all actions, causes of actions, losses,
damages, expenses or liabilities to which any such entity, or any director,
officer or controlling person thereof, may become subject under applicable Laws
(including the 1933 Act and the 1934 Act) and rules and regulations thereunder
and will reimburse the other, and any such director, officer or controlling
person for any legal
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<PAGE>
or other expenses reasonably incurred in connection with investigating or
defending any actions, whether or not resulting in liability, insofar as such
losses, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
any such request, statement, application, report or material or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary in order to make the statement
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing in
connection therewith by such indemnifying Party for use therein.
8.2 ACCESS TO INFORMATION.
---------------------
(A) Upon reasonable notice and subject to applicable Laws relating to the
exchange of information, from the date of this Agreement, ANB and CFC shall, and
shall cause each of their respective Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other, access
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and, during such period, each of ANB and CFC
shall, and shall cause each of their respective Subsidiaries to, make available
to the other (i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of the Securities Laws or Federal or state banking Laws (other than
reports or documents which such Party is not permitted to disclose under
applicable Law, in which case such Party shall notify the other Party of the
nondisclosure and the nature of such information) and (ii) also other
information concerning its business, properties and personnel as the other party
may reasonably request.
(B) All information furnished by ANB to CFC or its representatives
pursuant hereto shall be treated as the sole property of ANB and, if the Merger
shall not occur, CFC and its representatives shall return to ANB all of such
written information and all documents, notes, summaries or other materials
containing, reflecting or referring to, or derived from, such information. CFC
shall, and shall use its best efforts to cause its representatives to, keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purpose. The obligation to
keep such information confidential shall continue for five years from the date
the proposed Merger is abandoned and shall not apply to (i) any information
which (x) was already in CFC's possession prior to the disclosure thereof by
ANB; (y) was then generally known to the public; or (z) was disclosed to CFC by
a third party not bound by an obligation of confidentiality, or (ii) disclosures
made as required by Law.
(C) All information furnished by CFC or its Subsidiaries to ANB or its
representatives pursuant hereto shall be treated as the sole property of CFC
and, if the Merger shall not occur, ANB and its representatives shall return to
CFC all of such written information and all documents, notes, summaries or other
materials containing, reflecting or referring to, or derived from, such
information. ANB shall, and shall use its best efforts to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information
A-37
<PAGE>
for any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue for five years from the date the
proposed Merger is abandoned and shall not apply to (i) any information which
(x) was already in ANB's possession prior to the disclosure thereof by CFC or
any of its Subsidiaries; (y) was then generally known to the public; or (z) was
disclosed to ANB by a third party not bound by an obligation of confidentiality,
or (ii) disclosures made as required by Law.
(d) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
8.3 EFFORTS TO CONSUMMATE. Subject to the terms and conditions of this
---------------------
Agreement, each of CFC and ANB shall use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as practicable after the date of this Agreement, the
transactions provided for in this Agreement, including without limitation
obtaining of all of the Consents.
8.4 CFC STOCKHOLDERS' MEETING. CFC shall call a meeting of its
-------------------------
stockholders (the "CFC Stockholders' Meeting") to be held as soon as reasonably
practicable after the date the Registration Statement becomes effective for the
purpose of voting upon this Agreement and such other related matters as it deems
appropriate. In connection with the CFC Stockholders' Meeting (a) CFC shall
prepare with the assistance of ANB a notice of meeting; (b) ANB shall furnish
all information concerning it that CFC may reasonably request in connection with
conducting the CFC Stockholders' Meeting; (c) ANB shall prepare and furnish to
CFC for distribution to CFC's stockholders the Proxy Statement/Prospectus; (d)
CFC shall furnish all information concerning it that ANB may reasonably request
in connection with preparing the Proxy Statement/Prospectus; (e) the CFC Board
shall recommend (subject to compliance with their fiduciary duties as advised in
writing by counsel to such board) to its stockholders the approval of this
Agreement; and (f) subject to compliance with their fiduciary duties as advised
in writing by counsel to such board, CFC shall use its reasonable efforts to
obtain its stockholders' approval. The Parties will use their reasonable best
efforts to prepare a preliminary draft of the Proxy Statement/Prospectus within
30 days of the date of this Agreement, and will consult with one another on the
form and content of the Proxy Statement/Prospectus (including the presentation
of draft copies of such proxy materials to the other) prior to delivery to CFC's
stockholders. CFC will use its reasonable best efforts to deliver notice of
meeting and, the Proxy Statement/Prospectus as soon as practicable after receipt
of all required regulatory approvals and the expiration of all applicable
waiting periods.
8.5 CERTIFICATES OF OBJECTIONS. As soon as practicable (but in no event
--------------------------
more than three business days) after the CFC Stockholders' Meeting, CFC shall
deliver to ANB a certificate of the Secretary of CFC containing the names of the
stockholders of CFC that both (a) gave written notice prior to the taking of the
vote on this Agreement at the CFC Stockholders' Meeting that they dissent from
the Merger, and (b) voted against approval of this Agreement or abstained from
voting with respect to the approval of this Agreement ("Certificate
A-38
<PAGE>
of Objections"). The Certificate of Objections shall include the number of
shares of CFC Common Stock held by each such stockholder and the mailing address
of each such stockholder.
8.6 PRESS RELEASES. Prior to the Effective Time, ANB and CFC shall obtain
--------------
the prior consent of the other Party as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
other transaction provided for herein; provided, however, that nothing in this
Section 8.6 shall be deemed to prohibit any Party from making any disclosure
which it deems necessary or advisable, with the advice of counsel, in order to
satisfy such Party's disclosure obligations imposed by Law.
8.7 EXPENSES. All costs and expenses incurred in connection with the
--------
transactions provided for in this Agreement, including without limitation,
attorneys' fees, accountants' fees, other professional fees and costs related to
expenses of officers and directors of CFC and the CFC Companies, shall be paid
by the party incurring such costs and expenses; provided, however, without the
consent of ANB, all such costs and expenses incurred by CFC and the CFC
Companies shall not exceed $80,000, exclusive of the Broker's Fee. Each Party
hereby agrees to and shall indemnify the other Party against any liability
arising from any such fee or payment incurred by such Party. Nothing contained
herein shall limit either Party's rights under Article 10 to recover any damages
arising out of a Party's wilful breach of any provision of this Agreement.
8.8 FAILURE TO CLOSE.
----------------
(A) ANB expressly agrees to consummate the transactions provided for
herein upon the completion of all conditions to Closing and shall not take any
action reasonably calculated to prevent the Closing and shall not unreasonably
delay any action reasonably required to be taken by it to facilitate the
Closing.
(B) CFC expressly agrees to consummate the transactions provided for
herein upon the completion of all conditions to Closing and shall not take any
action reasonably calculated to prevent the Closing and shall not unreasonably
delay any action reasonably required to be taken by it to facilitate the
Closing. Notwithstanding any other provision of this Agreement, to the extent
required by the fiduciary obligations of the CFC Board, as determined in good
faith by a majority of the CFC Board based on the advice of CFC's outside
counsel, CFC may:
(i) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to
CFC pursuant to a customary confidentiality agreement (as determined by
CFC's outside counsel) to, any person concerning an Acquisition Proposal
involving CFC or any of its Subsidiaries; and
(ii) approve or recommend (and, in connection therewith withdraw or
modify its approval or recommendation of this Agreement or the Merger) a
superior Acquisition Proposal involving CFC or any of its Subsidiaries or
enter into an agreement with respect to such superior Acquisition Proposal
(for purposes of this Agreement, "superior
A-39
<PAGE>
Acquisition Proposal," when used with reference to CFC or any of its
Subsidiaries, means a bona fide Acquisition Proposal involving CFC or any
of its Subsidiaries made by a third party which a majority of the
disinterested members of the CFC Board determines in its good faith
judgment (based on the advice of CFC's independent financial advisor) to be
more favorable to CFC's stockholders than the Merger, and for which
financing, to the extent required, is then committed).
CFC shall promptly advise ANB in writing of any Acquisition Proposal involving
CFC or any of its Subsidiaries or any inquiry with respect to or which could
lead to any such Acquisition Proposal and the identity of the Person making any
such Acquisition Proposal or inquiry and will keep ANB fully informed of the
status and details of any such Acquisition Proposal or inquiry.
(C) If this Agreement shall be terminated as a result of or in connection
with a superior Acquisition Proposal, CFC shall pay to ANB a termination fee
equal to $750,000 concurrently with such termination.
8.9 FAIRNESS OPINION. The CFC Board has engaged Brown, Burke Capital
----------------
Partners, Inc. (the "CFC Financial Advisor") to act as advisor to the CFC Board
during the transaction and to opine separately as to the fairness from a
financial point of view of the Exchange Ratio. Such fairness opinion shall be
reviewed by the CFC Board and shall contain analysis for each of CFC and ANB
based on a review of each of their historical performance, current financial
condition and market area analysis along with the CFC Financial Advisor's
understanding of future prospects in the banking industry. The CFC Financial
Advisor shall determine and set forth in its fairness opinion the range of fair
market values of CFC and ANB using standard valuation methods for banks. It is
expected that said fairness opinion shall be issued as soon as practicable after
the signing of this Agreement. The CFC Board may, at its option, elect to have
the final fairness opinion updated immediately prior to the Effective Time in
order to account for any Material Adverse Effect that may have occurred with
regard to ANB or CFC.
8.10 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and
----------------------------
agrees to use its best 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 Internal Revenue Code for federal income tax purposes.
8.11 AGREEMENT OF AFFILIATES . CFC has disclosed on Schedule 8.11 each
----------------------- -------------
Person whom it reasonably believes is an "affiliate" of CFC for purposes of Rule
145 under the 1933 Act. CFC shall use its reasonable efforts to cause each such
Person to deliver to ANB not later than 30 days prior to the Effective Time a
written agreement, substantially in the form of Exhibit A providing that such
---------
Person will not sell, pledge, transfer, or otherwise dispose of the shares of
CFC Common Stock held by such Person except as contemplated by such agreement or
by this Agreement and will not sell, pledge, transfer, or otherwise dispose of
the shares of ANB Common Stock to be received by such Person upon consummation
of the Merger except in compliance with applicable provisions of the 1933 Act
and the rules and regulations thereunder
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<PAGE>
and until such time as financial results covering at least 30 days of combined
operations of ANB and CFC have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies. Shares of ANB
Common Stock issued to such affiliates of CFC in exchange for shares of CFC
Common Stock shall not be transferable until such time as financial results
covering at least 30 days of combined operations of ANB and CFC have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, regardless of whether each such affiliate has
provided the written agreement referred to in this Section 8.11 (and ANB shall
be entitled to place restrictive legends upon certificates for shares of ANB
Common Stock issued to affiliates of CFC pursuant to this Agreement to enforce
the provisions of this Section 8.11). ANB shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of ANB Common Stock by such affiliates.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
---------------------------------------
each Party to perform this Agreement and consummate the Merger and the other
transactions provided for herein are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.4 of
this Agreement:
(A) STOCKHOLDER APPROVAL. The stockholders of CFC shall have approved this
--------------------
Agreement by the requisite vote, and the consummation of the transactions
provided for herein, as and to the extent required by Law and by the provisions
of any governing instruments, and CFC shall have furnished to ANB certified
copies of resolutions duly adopted by its stockholders evidencing same.
(B) REGULATORY APPROVALS. All Consents of, filings and registrations with,
--------------------
and notifications to, all Regulatory Authorities required for consummation of
the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority that is necessary to consummate the
transactions provided for herein shall be conditioned or restricted in a manner
(including without limitation requirements relating to the raising of additional
capital or the disposition of Assets) which in the reasonable judgment of the
Board of Directors of either Party would so materially adversely impact the
economic or business benefits of the transactions provided for in this Agreement
as to render inadvisable the consummation of the Merger.
(C) CONSENTS AND APPROVALS. Each Party shall have obtained any and all
----------------------
Consents required for consummation of the Merger (other than those referred to
in Section 9.1(b) of this Agreement) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party. No Consent so obtained which is necessary to consummate
the transactions provided for herein shall be conditioned or restricted in a
manner
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<PAGE>
which in the reasonable judgment of the Board of Directors of either Party would
so materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
(D) LEGAL PROCEEDINGS. No court or Regulatory Authority of competent
-----------------
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law or Order (whether temporary, preliminary or permanent) or taken any other
action that prohibits, restricts or make illegal consummation of the
transactions provided for in this Agreement. No action or proceeding shall have
been instituted by any Person, and the Parties shall not have Knowledge of any
threatened action or proceeding by any Person, which seeks to restrain the
consummation of the transactions provided for in this Agreement which, in the
opinion of the ANB Board or the CFC Board, renders it impossible or inadvisable
to consummate the transactions provided for in this Agreement.
(E) POOLING LETTER. ANB shall have received a letter, dated as of the
--------------
Effective Time, in form and substance reasonably acceptable to it, from Coopers
& Lybrand, L.L.P., to the effect that the Merger will qualify for pooling-of-
interests accounting treatment.
(F) TAX MATTERS. CFC and ANB shall have received a written opinion of
-----------
counsel from Maynard, Cooper & Gale, P.C. in form reasonably satisfactory to
them (the "Tax Opinion"), to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, (ii) the exchange in the Merger of CFC Common Stock for ANB Common Stock
will not give rise to gain or loss to the stockholders of CFC with respect to
such exchange (except to the extent of any cash received), and (iii) neither CFC
nor ANB 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 Internal Revenue Code). In rendering such Tax Opinion,
counsel for ANB shall be entitled to rely upon representations of officers of
CFC and ANB reasonably satisfactory in form and substance to such counsel.
(G) S-4 REGISTRATION STATEMENT EFFECTIVE. The S-4 Registration Statement
------------------------------------
shall have become effective under the 1933 Act and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the SEC.
(H) NONCOMPETE AND NONSOLICITATION AGREEMENT. ANB and Ken F. Thigpen
----------------------------------------
shall have executed and delivered a noncompete and nonsolicitation agreement in
the form attached hereto as Exhibit B.
---------
9.2 CONDITIONS TO OBLIGATIONS OF ANB. The obligations of ANB to perform
--------------------------------
this Agreement and consummate the Merger and the other transactions provided for
herein are subject to the satisfaction of the following conditions, unless
waived by ANB pursuant to Section 11.4(a) of this Agreement:
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<PAGE>
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
------------------------------
of CFC set forth or referred to in this Agreement shall be true and correct as
of the date of this Agreement and as of the Effective Time with the same effect
as though all such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are confined
to a specified date shall speak only as of such date), except (i) as expressly
contemplated by this Agreement or (ii) for representations and warranties (other
than the representations and warranties set forth in Section 5.3 of this
Agreement, which shall be true in all material respects) the inaccuracies of
which relate to matters that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on CFC.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of CFC to be performed and complied with pursuant to
this Agreement and the other agreements provided for herein prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(C) CERTIFICATES. CFC shall have delivered to ANB (i) a certificate,
------------
dated as of the Effective Time and signed on its behalf by its chief executive
officer and its chief financial officer, to the effect that the conditions of
its obligations set forth in Section 9.2(a) and 9.2(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by the CFC
Board and the CFC stockholders evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions provided for herein, all in
such reasonable detail as ANB and its counsel shall request.
(D) OPINION OF COUNSEL. CFC shall have delivered to ANB an opinion of
------------------
Kilpatrick Stockton LLP, et al., counsel to CFC, dated as of the Closing,
in substantially the form of Exhibit C hereto.
---------
(E) NET WORTH AND CAPITAL REQUIREMENTS. Immediately prior to the
----------------------------------
Effective Time, CFC and CFC Bank shall each have a minimum net worth (excluding
any capital received pursuant to exercise of any CFC Warrants) of $9,675,000.
For purposes of this Section 9.2(e), "net worth" shall mean the sum of the
amounts set forth on the balance sheet as shareholders' equity (including the
par or stated value of all outstanding capital stock, retained earnings,
additional paid-in capital, capital surplus and earned surplus), less the sum of
(a) any amounts at which shares of capital stock of such person appear on the
asset side of the balance sheet and (b) any amounts due from or owed by any
Subsidiary thereof.
(F) COMFORT LETTER. ANB shall have received from Porter Keadle Moore LLP,
--------------
independent certified public accountants, a comfort letter dated as of the
Effective Time with respect to such matters relating to the financial condition
of CFC as ANB may reasonably request.
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(G) DOCUMENTATION REGARDING UNVESTED CFC OPTIONS. CFC shall have
--------------------------------------------
delivered to ANB documentation, in a form reasonably satisfactory to ANB,
amending such plans, agreement or other documents, as appropriate, to provide
for the following:
(i) with respect to Advisory Board Options that vest (by their
terms) prior to the Effective Time, the exercise price for shares of CFC
Common Stock available thereunder shall be equal to (A) the Exchange Ratio
multiplied by (B) the Vesting Date Average Quoted Price; and
(ii) with respect to Advisory Board Options that vest after the
Effective Time, the exercise price for shares of ANB Common Stock available
hereunder shall be equal to the Vesting Date Average Quoted Price.
In addition, CFC shall have caused each member of the Advisory Board to have
delivered to ANB an acknowledgement, in a form reasonably satisfactory to ANB,
that the exercise price of the shares of CFC Common Stock or ANB Common Stock,
as the case may be, subject to the Advisory Board Options shall be determined in
accordance with this Section 9.2(g) and Section 3.1(e) above.
(H) TERMINATION OF ESOP. CFC shall have delivered to ANB documentation,
-------------------
in a form reasonably satisfactory to ANB, that the Georgia State Bank Employee
Stock Ownership Plan has been terminated prior to or at the Effective Time.
9.3 CONDITIONS TO OBLIGATIONS OF CFC. The obligations of CFC to perform
--------------------------------
this Agreement and consummate the Merger and the other transactions provided for
herein are subject to the satisfaction of the following conditions, unless
waived by CFC pursuant to Section 11.4(b) of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
------------------------------
of ANB set forth or referred to in this Agreement shall be true and correct as
of the date of this Agreement and as of the Effective Time with the same effect
as though all such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are confined
to a specified date shall speak only as of such date), except (i) as expressly
contemplated by this Agreement or (ii) for representations and warranties (other
than the representations and warranties set forth in Section 6.3 of this
Agreement, which shall be true in all material respects) the inaccuracies of
which relate to matters that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on ANB.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of ANB to be performed and complied with pursuant to
this Agreement and the other agreements provided for herein prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
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(C) CERTIFICATES. ANB shall have delivered to CFC (i) a certificate,
------------
dated as of the Effective Time and signed on its behalf by its chief executive
officer and its chief financial officer, to the effect that the conditions of
its obligations set forth in Section 9.3(a) and 9.3(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by the ANB
Board evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, all in such reasonable detail as CFC and
its counsel shall request.
(D) OPINION OF COUNSEL. ANB shall have delivered to CFC an opinion of
------------------
Maynard, Cooper & Gale, P.C., counsel to ANB, dated as of the Effective Time, in
substantially the form of Exhibit D hereto.
---------
(E) COMFORT LETTER. CFC shall have received from Coopers & Lybrand,
--------------
independent certified public accountants, a comfort letter dated as of the
Effective Time with respect to such matters relating to the financial condition
of ANB as CFC may reasonably request.
(F) FAIRNESS OPINION. CFC shall have received from the CFC Financial
----------------
Advisor the fairness opinion described in Section 8.9 stating that the Exchange
Ratio provided for in this Agreement and recommended by CFC to its stockholders
is fair to CFC and its stockholders from a financial point of view.
(G) ANB COMMON STOCK. The ANB Common Stock to be issued in the Merger
----------------
shall have been qualified as a NASDAQ "national market system security" pursuant
to Section 7.7 hereof.
(H) ANB LOSS RESERVE. At the Closing Date, the ANB Allowance for Loan
----------------
Losses, as a percentage of total loans outstanding at such time, shall not be
less than 1.40 percent (1.40%).
ARTICLE 10
TERMINATION
-----------
10.1 TERMINATION. Notwithstanding any other provision of this Agreement,
-----------
and notwithstanding the approval of this Agreement by the stockholders of CFC,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(A) by mutual written consent of the ANB Board and the CFC Board; or
(B) by the Board of Directors of either Party in the event of a breach by
the other Party of any representation or warranty contained in this Agreement
which cannot be or has not been cured within thirty (30) days after the giving
of written notice to the breaching Party of such breach and which inaccuracy
would provide the terminating party the ability to refuse to
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consummate the Merger under the applicable standard set forth in Section 9.2(a)
of this Agreement in the case of ANB and Section 9.3(a) in the case of CFC;
provided, however, that for purposes of this Section 10.1(b), the determination
of whether one of the representations or warranties contained in Sections 5.7,
5.8(c) or 6.6 has been breached shall be made without regard to any Knowledge
limitation.
(C) by the Board of Directors of either Party in the event of a material
breach by the other Party of any covenant, agreement or other obligation
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach; or
(D) by the Board of Directors of either Party if (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions provided for herein shall have been denied by final nonappealable
action of such authority or if any action taken by such Authority is not
appealed within the time limit for appeal, or (ii) the stockholders of CFC fail
to vote their approval of this Agreement and the transactions provided for
herein at its Stockholders' Meeting where the transactions are presented to such
CFC stockholders for approval and voted upon; or
(E) by ANB, upon written notice to CFC, if there shall have occurred any
Material Adverse Effect to the business, operations or financial condition of
CFC taken as a whole and such Material Adverse Effect shall not have been
remedied within 15 days after receipt by CFC of notice in writing from ANB
specifying the nature of such Material Adverse Effect and requesting that it be
remedied; or
(F) by CFC, upon written notice to ANB, if there shall have occurred any
Material Adverse Effect to the business, operations, or financial condition of
ANB taken as a whole and such Material Adverse Effect shall not have been
remedied within 15 days after receipt by ANB of notice in writing from CFC
specifying the nature of such Material Adverse Effect and requesting that it be
remedied; or
(G) by the Board of Directors of either Party if the Merger shall not have
been consummated by December 14, 1998 if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate pursuant to this
Section 10.1(g); or
(H) by the Board of Directors of either Party if any of the conditions
precedent to the obligations of such Party to consummate the Merger cannot be
satisfied or fulfilled by the date specified in Section 10.1(g) of this
Agreement and such failure was not the fault of the terminating party; or
(I) by the ANB Board if the holders of in excess of seven and one-half
percent (7.5%) of the outstanding shares of CFC Common Stock properly assert
their dissenters' rights of appraisal pursuant to the Dissenters' Provisions; or
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(J) by CFC, to the extent that a majority of the disinterested members of
the CFC Board shall have determined to enter into an agreement with respect to a
superior Acquisition Proposal as contemplated by Section 8.8(b); provided that,
concurrently with such termination, CFC shall pay to ANB a termination fee equal
to $750,000.
10.2 EFFECT OF TERMINATION. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Sections 8.2, 8.7, 8.8(c) and 10.1(j) of
this Agreement shall survive any such termination and abandonment, and (ii) a
termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(h) of this Agreement
shall not relieve the breaching Party from Liability for an uncured willful
breach of a representation, warranty, covenant, obligation or agreement giving
rise to such termination.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
---------------------------------------------
representations, warranties, obligations, covenants and agreements of the
Parties shall not survive the Effective Time, except for those covenants and
agreements contained herein which by their terms apply in whole or in part after
the Effective Time.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 DEFINITIONS. Except as otherwise provided herein, the capitalized
-----------
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or Assets of, or other business combination involving such Party
or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any
of its Subsidiaries, including a plan of liquidation of a Party or any of
its Subsidiaries, other than the transaction provided for in this
Agreement.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ADVISORY BOARD" shall mean Ray Anderson, Jack Bickford, Wayne Kirby,
Jeff Talley and Griffin White, all of whom are members of the Georgia State
Bank Advisory Board of Directors.
"ADVISORY BOARD OPTIONS" shall have the meaning provided in Section
5.3(a) of this Agreement.
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<PAGE>
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits and Schedules delivered pursuant hereto and incorporated herein by
reference. References to "the date of this Agreement," "the date hereof" and
words of similar import shall refer to the date this Agreement was first
executed, June 8, 1998.
"ANB" shall mean Alabama National BanCorporation, a Delaware corporation.
"ANB ALLOWANCE FOR LOAN LOSSES" shall have the meaning provided for in
Section 6.17(b) of this Agreement.
"ANB BOARD" shall mean the Board of Directors of ANB.
"ANB COMMON STOCK" shall mean the $1.00 par value common stock of ANB.
"ANB COMPANIES" shall mean, collectively, ANB and all ANB Subsidiaries.
"ANB FINANCIAL STATEMENTS" shall mean (i) the consolidated statements of
conditions (including related notes and schedules, if any) of ANB as of December
31, 1997, 1996 and 1995, and the related statements of income, changes in
stockholders' equity, and cash flows (including related notes and schedules, if
any) for the years then ended, as filed by ANB in SEC Documents, and (ii) the
consolidated statements of condition of ANB (including related notes and
schedules, if any) and related statements of income, changes in stockholders'
equity and cash flows (including related notes and schedules, if any) included
in SEC Documents filed with respect to periods ended subsequent to December 31,
1997.
"ANB OPTIONS" shall have the meaning provided for in Section 3.1(c) of this
Agreement.
"ANB REGULATORY REPORTS" shall mean (i) the Consolidated Financial
Statements for Bank Holding Companies, Form FRY 9C, for the years ended December
31, 1997 and 1996, as filed by ANB with the FRB and (ii) the Consolidated
Financial Statements for Bank Holding Companies, Form FRY 9C, delivered by ANB
to CFC with respect to periods ended subsequent to December 31, 1997.
"ANB STOCK PLAN" shall mean the existing stock option plans of ANB
designated as the "ANB 1994 Stock Option Plan", the "ANB Long-Term Incentive
Compensation Plan" and the "ANB Performance Share Plan".
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<PAGE>
"ANB SUBSIDIARIES" shall mean the Subsidiaries of ANB.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be signed by ANB
and CFC and filed with the Department of State of Georgia relating to the Merger
as contemplated by Section 1.1 of this Agreement.
"ASSETS" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"AVERAGE QUOTED PRICE" shall mean the price derived by adding the averages
of the high and low sales price of one share of ANB Common Stock as reported on
NASDAQ on each of the ten (10) consecutive trading days ending on the fifth
business day prior to the Effective Time, and dividing such sum by ten (10).
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"BROKER'S FEE" shall have the meaning provided in Section 5.24 of the
Agreement.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be executed
by ANB and filed with the Secretary of State of Delaware relating to the Merger
as contemplated by Section 1.1 of this Agreement.
"CERTIFICATE OF OBJECTIONS" shall have the meaning provided in Section 8.5
of this Agreement.
"CFC" shall mean Community Financial Corporation, a Georgia corporation.
"CFC ALLOWANCE" shall have the meaning provided for in Section 5.9(a) of
this Agreement.
"CFC BANK" shall have the meaning set forth in Section 5.4(a) of this
Agreement.
"CFC BENEFIT PLANS" shall have the meaning set forth in Section 5.14(a) of
this Agreement.
"CFC BOARD" shall mean the Board of Directors of CFC.
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<PAGE>
"CFC CALL REPORTS" shall mean (i) the Reports of Income and Condition of
CFC Bank for the years ended December 31, 1997 and 1996, as filed with the FDIC
and the FRB and (ii) the Reports of Income and Condition of CFC Bank delivered
by CFC to ANB with respect to periods ended subsequent to December 31, 1997.
"CFC CERTIFICATE" shall have the meaning provided in Section 4.2 of this
Agreement.
"CFC COMMON STOCK" shall mean the $2.50 par value voting common stock of
CFC.
"CFC COMPANIES" shall mean, collectively, CFC and all CFC Subsidiaries.
"CFC CONTRACTS" shall have the meaning set forth in Section 5.15 of this
Agreement.
"CFC ERISA PLANS" shall have the meaning set forth in Section 5.14(a) of
this Agreement.
"CFC FINANCIAL ADVISOR" shall have the meaning set forth in Section 8.9 of
this Agreement.
"CFC FINANCIAL STATEMENTS" shall mean (i) the consolidated balance sheets
(including related notes and schedules, if any) of CFC as of December 31, 1997,
1996 and 1995, and the related statements of income, changes in stockholders'
equity and cash flows (including related notes and schedules, if any) for the
years then ended, as delivered by CFC to ANB, and (ii) the consolidated balance
sheets of CFC (including related notes and schedules, if any) and related
statements of income, changes in stockholders' equity and cash flows (including
related notes and schedules, if any) delivered by CFC to ANB with respect to
periods ended subsequent to December 31, 1997.
"CFC PENSION PLAN" shall have the meaning set forth in Section 5.14(a) of
this Agreement.
"CFC STOCKHOLDERS' MEETING" shall mean the meeting of the stockholders of
CFC to be held pursuant to Section 8.4 of this Agreement, including any
adjournment or adjournments thereof.
"CFC SUBSIDIARIES" shall mean the Subsidiaries of CFC, which shall include
the CFC Subsidiaries described in Section 5.4 of this Agreement and any
corporation, bank, savings association or other organization acquired as a
Subsidiary of CFC in the future and owned by CFC at the Effective Time.
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"CFC WARRANTS" shall have the meaning provided for in Section 5.3(a)
of this Agreement.
"CLOSING" shall mean the closing of the transactions provided for
herein, as described in Section 1.2 of this Agreement.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver or similar affirmation by any Person pursuant to any
Contract, Law, Order or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"CUTOFF" shall have the meaning provided in Section 4.2 of this
Agreement.
"DEFAULT" shall mean (i) any breach or violation of or default under
any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit, where, in any
such event, such Default is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on a Party.
"DGCL" shall mean the Delaware General Corporation Law.
"DESIGNATED REPRESENTATIVE"
(A) with respect to CFC shall mean Ken F. Thigpen and/or Caric
Martin; and
(B) with respect to ANB shall mean John H. Holcomb, III and/or
William E. Matthews.
"DISSENTER PROVISIONS" shall have the meaning provided in Section 3.4
of this Agreement.
"EFFECTIVE TIME" shall mean the date and time at which the Merger
becomes effective as provided in Section 1.3 of this Agreement.
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<PAGE>
"ENVIRONMENTAL LAWS" shall mean all Laws which are administered,
interpreted or enforced by the United States Environmental Protection
Agency and state and local agencies with jurisdiction over pollution or
protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall have the meaning provided in Section 5.14 of
this Agreement.
"EXCHANGE AGENT" shall mean AmSouth Bank.
"EXCHANGE RATIO" shall have the meaning given such term in Section 3.1
hereof.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" OR "FEDERAL RESERVE BOARD" shall mean Board of Governors of the
Federal Reserve System.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive Environment
Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., or
any similar federal, state or local Environmental Laws, as well as any
gasoline, oil or petroleum product regulated by Environmental Laws.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Party shall mean the actual
knowledge, after due inquiry, of the chairman, president, chief financial
officer, chief accounting officer, chief credit officer and any senior or
executive vice-president and directors of such Party.
"LAW" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including without limitation those
promulgated, interpreted or enforced by any of the Regulatory Authorities.
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"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
without limitation costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks and drafts presented for collection or
deposit in the ordinary course of business) of any type, whether accrued,
absolute or contingent, liquidated or unliquidated, matured or unmatured,
or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge or claim of any nature whatsoever of, on or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (ii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding or notice (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
Party, its business, its Assets (including without limitation Contracts
related to it), or the transactions provided for in this Agreement, but
shall not include regular, periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities.
"LOAN PROPERTY" shall mean any property owned by a Party in question
or by any of its Subsidiaries or in which such Party or Subsidiary holds a
security interest, and, where required by the context, includes the owner
or operator of such property, but only with respect to such property.
"LOANS" shall have the meaning set forth in Section 5.9(a) of this
Agreement.
"MATERIAL" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event, change or
occurrence that has a material adverse impact on (i) the financial
position, results of operations or business of such Party and its
Subsidiaries, taken as a whole, or (ii) the ability of such Party to
perform its obligations under this Agreement or to consummate the Merger or
the other transactions provided for in this Agreement; provided that
"material adverse impact" shall not be deemed to include the impact of (x)
changes in banking and similar Laws of general applicability or
interpretations thereof by courts of governmental authorities, (y) changes
in generally accepted accounting principles or regulatory
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accounting principles generally applicable to banks and their holding
companies and (z) the Merger on the operating performance of the Parties.
"MERGER" shall mean the merger of CFC with and into ANB referred to in
Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"OCC" shall mean the Office of the Comptroller of the Currency.
"ORDER" shall mean any administrative decision or award, decrees,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility in which the Party in
question or any of its Subsidiaries participates in the management and,
where required by the context, includes the owner or operator or such
property, but only with respect to such property.
"PARTY" shall mean either CFC or ANB, and "PARTIES" shall mean both
CFC and ANB.
"PERMIT" shall mean any federal, state, local and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities,
Assets or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert or any person acting
in a representative capacity.
"PROXY STATEMENT/PROSPECTUS" shall have the meaning set forth in
Section 5.18 of this Agreement.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-4 or Form S-3, or other appropriate form, filed with the SEC by ANB under
the 1933 Act in connection with the transactions contemplated by this
Agreement.
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"REGULATORY AUTHORITIES" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the FRB, the OCC, the
FDIC, all state regulatory agencies having jurisdiction over the Parties
and their respective Subsidiaries, the NASD and the SEC.
"RELATED INTERESTS" shall have the meaning set forth in Section 5.15
of this Agreement.
"S-4 REGISTRATION STATEMENT" shall have the meaning set forth in
Section 5.18 of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean all reports and registration statements
filed, or required to be filed, by a Party or any of its Subsidiaries with
any Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940 as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"SOFTWARE" shall have the meaning provided for in Section 5.28 of this
Agreement.
"STATE REGULATOR" shall have the meaning set forth in Section 5.9(c)
of this Agreement.
"SUBSIDIARIES" shall mean all those corporations, banks, associations
or other entities of which the entity in question owns or controls 50% or
more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its
parent; provided, however, there shall not be included any such entity
acquired through foreclosure or any such entity the equity securities of
which are owned or controlled in a fiduciary capacity.
"SURVIVING CORPORATION" shall mean ANB as the surviving corporation in
the Merger.
"TAKEOVER LAWS" shall have the meaning set forth in Section 5.27 of
this Agreement.
"TAX OPINION" shall have the meaning set forth in Section 9.1(f) of
this Agreement.
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<PAGE>
"TAXES" shall mean any federal, state, county, local, foreign and
other taxes, assessments, charges, fares, and impositions, including
interest and penalties thereon or with respect thereto.
"VESTED CFC OPTIONS" shall have the meaning provided in Section 5.3(a)
of this Agreement.
"VESTING DATE AVERAGE QUOTED PRICE" shall have the meaning provided in
Section 3.1(e) of this Agreement.
11.2 ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions provided for herein and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied is intended to confer upon any Person, other than the
Parties or their respective successors, any right, remedies, obligations or
liabilities under or by reason of this Agreement.
11.3 AMENDMENTS. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
approval of this Agreement by the holders of CFC Common Stock, there shall be
made no amendment that pursuant to the GBCC requires further approval by the CFC
stockholders without the further approval of the CFC stockholders.
11.4 WAIVERS.
-------
(A) Prior to or at the Effective Time, ANB, acting through the ANB Board,
chief executive officer or other authorized officer, shall have the right to
waive any Default in the performance of any term of this Agreement by CFC, to
waive or extend the time for the compliance or fulfillment by CFC of any and all
of its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of ANB under this Agreement, except any
condition which, if not satisfied, would result in the violation of any Law. No
such waiver shall be effective unless in writing signed by a duly authorized
officer of ANB.
(B) Prior to or at the Effective Time, CFC, acting through the CFC Board,
chief executive officer or other authorized officer, shall have the right to
waive any Default in the performance of any term of this Agreement by ANB, to
waive or extend the time for the compliance or fulfillment by ANB of any and all
of its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of CFC under this Agreement, except any
condition which, if not satisfied, would result in the violation of any Law. No
such waiver shall be effective unless in writing signed by a duly authorized
officer of CFC.
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<PAGE>
11.5 ASSIGNMENT. Except as expressly provided for herein, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.6 NOTICES. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
CFC: Community Financial Corporation
620 Fontaine Road S.W.
Mableton, Georgia 30126
Telecopy Number: (770) 941-8987
Attention: Ken F. Thigpen
Copy to Counsel: Kilpatrick Stockton LLP
Suite 2800, 1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telecopy Number: (404) 815-6555
Attention: F. Sheffield Hale and
Richard R. Cheatham
ANB: Alabama National BanCorporation
1927 First Avenue North
Birmingham, Alabama 35203
Telecopy Number: (205) 583-3275
Attention: John H. Holcomb, III,
Chief Executive Officer
Copy to Counsel: Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203
Telecopy Number: (205) 254-1999
Attention: Mark L. Drew
A-57
<PAGE>
11.7 BROKERS AND FINDERS. Except as provided in Section 5.24, each of the
-------------------
Parties represents and warrants that neither it nor any of its officers,
directors, employees or Affiliates has employed any broker or finder or incurred
any Liability for any financial advisory fees, investment bankers' fees,
brokerage fees, commissions or finders' fees in connection with this Agreement
or the transactions provided for herein. In the event of a claim by any broker
or finder based upon his or its representing or being retained by or allegedly
representing or being retained by CFC or ANB, each of CFC and ANB, as the case
may be, agrees to indemnify and hold the other Party harmless of and from any
Liability with respect to any such claim.
11.8 GOVERNING LAW. Except to the extent the laws of the State of Georgia
-------------
apply to the Merger, this Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware without regard to any
applicable conflicts of Laws, except to the extent federal law shall be
applicable.
11.9 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.10 CAPTIONS. The captions contained in this Agreement are for reference
--------
purposes only and are not part of this Agreement.
11.11 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.12 SEVERABILITY. Any term or provision of this Agreement that 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.
11.13 SINGULAR/PLURAL; GENDER. Where the context so requires or permits,
-----------------------
the use of singular form includes the plural, and the use of the plural form
includes the singular, and the use of any gender includes any and all genders.
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<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by its respectively authorized officers as of the day and year first
above written.
Community Financial Corporation
Attest:
By: /s/ Thomas J. Browning By: /s/ Ken F. Thigpen
---------------------- -------------------------------------
Its: Secretary Ken F. Thigpen
Its: President
[CORPORATE SEAL]
Alabama National BanCorporation
Attest:
By: /s/ Kimberly Moore By: /s/ John H. Holcomb, III
------------------ -------------------------------------
Its: Secretary John H. Holcomb, III
Its: Chief Executive Officer
[CORPORATE SEAL]
A-59
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A: Form of Rule 145 Agreement
Exhibit B: Form of Noncompete and Nonsolicitation Agreement
Exhibit C: Form of Kilpatrick Stockton LLP Opinion
Exhibit D: Form of Maynard, Cooper & Gale, P.C. Opinion
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<PAGE>
EXHIBIT A
---------
(Form of Rule 145 Agreement)
[see attached]
A-61
<PAGE>
[DRAFT OF RULE 145 AND POOLING
RESTRICTION LETTER FOR
AFFILIATES]
__________________, 1998
Alabama National BanCorporation
1927 First Avenue North
Birmingham, Alabama 35203
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Community Financial
Corporation, a Georgia corporation ("CFC"), as the term "affiliate" is defined
for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act").
Pursuant to the terms of the Agreement and Plan of Merger dated as of
__________________, 1998, (the "Merger Agreement"), executed by CFC and Alabama
National BanCorporation, a Delaware corporation ("ANB"), CFC will be merged with
and into ANB (the "Merger").
As a result of the Merger, the undersigned may receive shares of common
stock, par value $1.00 per share, of ANB (such shares received by the
undersigned as a result of the Merger are hereinafter referred to as the "ANB
Securities") in exchange for any shares owned by the undersigned of common stock
of CFC. Each of ANB and CFC have agreed in the Merger Agreement to use its best
efforts to cause the Merger to qualify for pooling-of-interests accounting
treatment. In order to qualify for pooling-of-interests accounting treatment,
affiliates of CFC are required to restrict transactions in ANB Securities for
specified time periods following the Closing of the Merger in compliance with
APB Opinion No. 16.
The undersigned represents, warrants and covenants to ANB that:
A. The undersigned shall not make any sale, transfer or other disposition
of the ANB Securities in violation of the Act or the Rules and Regulations.
B. The undersigned has carefully read this letter and the Merger
Agreement and discussed the requirements of such documents and other applicable
limitations upon the undersigned's ability to sell, transfer or otherwise
dispose of ANB Securities, to the extent the undersigned has considered
necessary, with the undersigned's counsel or counsel for CFC.
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<PAGE>
Alabama National BanCorporation
__________________, 1998
Page 2.
C. The undersigned has been advised that the issuance of ANB Securities
to the undersigned pursuant to the Merger has been registered with the
Commission under the Act on a Registration Statement on Form S-4. However, the
undersigned has also been advised that, since at the time the Merger was
submitted for a vote of the shareholders of CFC, the undersigned may be deemed
to have been an affiliate of CFC and the distribution by the undersigned of the
ANB Securities has not been registered under the Act, the undersigned may not
sell, transfer or otherwise dispose of ANB Securities issued to the undersigned
in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is made
in conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act (as hereafter amended, "Rule 145"), (iii) ANB has
received an opinion of counsel reasonably acceptable to ANB (or other evidence
reasonably acceptable to ANB) that such sale, transfer or other disposition is
otherwise exempt from registration under the Act or (iv) Rule 145 is amended by
the Commission to eliminate the resale limitations that are based on a
"presumptive underwriter" approach, as currently proposed by the Commission in
Release No. 33-7391 on February 20, 1997 (the "Proposed Rule 145 Amendment").
D. The undersigned understands that ANB is under no obligation to
register the sale, transfer or other disposition of the ANB Securities by the
undersigned or on the undersigned's behalf under the Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available.
E. The undersigned also understands that stop transfer instructions will
be given to ANB's transfer agent with respect to the ANB Securities and that
there will be placed on the certificates for the ANB Securities issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THE CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT DATED _______________, 1998,
BETWEEN THE REGISTERED HOLDER HEREOF AND ALABAMA NATIONAL
BANCORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF ALABAMA NATIONAL BANCORPORATION."
F. The undersigned also understands that unless the transfer by the
undersigned of the undersigned's ANB Securities has been registered under the
Act or is a sale made in
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<PAGE>
Alabama National BanCorporation
__________________, 1998
Page 3.
conformity with the provisions of Rule 145, ANB reserves the right to put the
following legend on the certificates issued to the undersigned's transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and
F above shall be removed by delivery of substitute certificates without such
legend and the related stop transfer instructions will be lifted forthwith, at
such time as (i) the undersigned is not an affiliate of ANB and a period of at
least one year (as determined in accordance with paragraph (d) of Rule 144 under
the Act) has elapsed since the date of consummation of the Merger, and ANB meets
the requirements of paragraph (c) of Rule 144 under the Act, (ii) the
undersigned is not, and has not been for at least three months, an affiliate of
ANB, and a period of at least two years (as determined in accordance with
paragraph (d) of Rule 144 under the Act) has elapsed since the date of
consummation of the Merger, (iii) ANB shall have received an opinion of counsel
or other evidence, in each case reasonably acceptable to ANB, that such legend
and stop transfer instructions are not required for purposes of the Act or (iv)
the Proposed Rule 145 Amendment or similar amendments eliminating the
restrictions on resale based on a "presumptive underwriter" approach shall have
become final under the Rules and Regulations.
G. The undersigned agrees that he will not sell, pledge, transfer or
otherwise dispose of any shares of CFC common stock within 30 days prior to the
Effective Time (as defined in the Merger Agreement). The undersigned agrees
that until the publication of financial results covering at least 30 days of
post-Merger combined operations of ANB and CFC (the "Holding Period"), he will
not sell, pledge, transfer or otherwise dispose of any shares of the ANB
Securities, except for pledges by the undersigned of all or part of the ANB
Securities to secure full recourse loans which have a loan term that is greater
than the Holding Period, provided the lender for such loan or loans accepts any
pledge of such ANB Securities subject to the terms of
A-64
<PAGE>
Alabama National BanCorporation
__________________, 1998
Page 4.
this letter agreement. The undersigned agrees that the shares of ANB Securities
to be issued to him in the Merger will bear a restrictive transfer legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN AGREEMENT DATED __________________, 1998 WHICH RESTRICTS
ANY SALE OR OTHER TRANSFER OF SUCH SHARES PRIOR TO THE
PUBLIC RELEASE BY ALABAMA NATIONAL BANCORPORATION ("ANB") OF
30 DAYS OF POST-MERGER COMBINED OPERATIONS OF ANB AND
COMMUNITY FINANCIAL CORPORATION, A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICES OF ANB."
Following a written request from the undersigned addressed to the Corporate
Secretary of ANB, ANB agrees to instruct its transfer agent to remove the
restrictive legend from any certificates evidencing shares subject hereto
promptly following the expiration of the transfer restrictions described in
Paragraph F.
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of CFC as described in
the first paragraph of this letter, or as a waiver of any rights the undersigned
may have to object to any claim that the undersigned is such an affiliate on or
after the date of this letter.
Very truly yours,
__________________________________
[Name of Affiliate]
Accepted this _____ day of __________, 1998 by
ALABAMA NATIONAL BANCORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
A-65
<PAGE>
EXHIBIT B
---------
(Form of Noncompete and Nonsolicitation Agreement)
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is effective [____________],
1998 (the "Effective Date"), by and between Georgia State Bank, a Georgia
banking corporation ("Bank"), and Alabama National BanCorporation, a Delaware
corporation ("ANB"; hereinafter together with the Bank collectively referred to
as "Employer"); and Ken F. Thigpen ("Executive").
Recitals
--------
WHEREAS, since its inception, the Bank has been a wholly-owned subsidiary
of Community Financial Corporation, a Georgia corporation ("CFC");
WHEREAS, pursuant to that certain Agreement and Plan of Merger dated [
], 1998, between CFC and ANB (the "Merger Agreement"), CFC shall merge with and
into ANB, and the Bank shall become a wholly-owned subsidiary of ANB; and
WHEREAS, Executive has been and continues to serve as the President [and
Chief Executive Officer] of Bank, and, as a condition to the consummation of the
transactions provided for in the Merger Agreement, Executive and Employer have
agreed to enter into this Agreement;
Agreement
---------
NOW THEREFORE, in consideration of the mutual recitals and covenants
contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. Employer agrees to employ Executive and Executive agrees
----------
to be employed by Employer, subject to the terms and provisions of this
Agreement.
2. TERM. The employment of Executive by Employer as provided in Section
----
1 will be for a period of three (3) years commencing on the Effective Date,
unless earlier terminated in accordance with the provisions of Section 9 hereof;
provided, however, that the obligations and rights set forth in Sections 7 and 8
hereof shall survive termination of this Agreement (except, under certain
limited circumstances set forth in Section 9(c), the obligations and rights set
forth in Section 8 shall expire upon termination).
3. DUTIES; EXTENT OF SERVICES. Executive shall perform for Employer all
--------------------------
duties incident to the positions of President [and Chief Executive Officer] of
Bank, under the direction of the board of directors of Bank or its designee. In
addition, Executive shall engage in such other services for Bank or its
affiliated companies as Employer from time to time shall direct.
A-66
<PAGE>
The precise services of Executive and the title of Executive's position may be
extended, curtailed or modified by Employer from time to time without affecting
the enforceability of the terms of this Agreement. Executive shall use his best
efforts in, and devote his entire time, attention, and energy, to Employer's
business and shall not during the term hereof be engaged in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage.
4. COMPENSATION.
------------
(a) During the term of this Agreement, Executive's total annual cash
compensation shall be an amount not less than One Hundred Ninety Thousand
Dollars ($190,000).
(b) Executive shall be entitled to vacation days, paid holidays and sick
days as provided in Bank's Personnel Policy.
5. COMPLIANCE WITH RULES AND POLICIES. Executive shall comply with all
----------------------------------
of the rules, regulations, and policies of Employer now or hereinafter in
effect. He shall promptly and faithfully do and perform any and all other
duties and responsibilities which he may, from time to time, be directed to do
by the board of directors of Bank or ANB or their respective designee.
6. REPRESENTATION OF EXECUTIVE. Executive represents to Employer that he
---------------------------
is not subject to any rule, regulation or agreement, including without
limitation, any noncompete agreement, that purports to, or which reasonably
could, be expected to limit, restrict or interfere with Executive's ability to
engage in the activities provided for in this Agreement.
7. DISCLOSURE OF INFORMATION.
-------------------------
(a) Executive acknowledges that any documents and information, whether
written or not, that come into Executive's possession or knowledge during
Executive's course of employment with Employer, including, without limitation
the financial and business conditions, goals and operations of customers of
Bank, ANB or any of their respective affiliates or subsidiaries as the same may
exist from time to time (collectively, "Confidential Information"), are
valuable, special and unique assets of Employer's business. Executive will not,
during or after the term of this Agreement, (i) disclose any written
Confidential Information to any person, firm, corporation, association, or other
entity not employed by or affiliated with Employer for any reason or purpose
whatsoever, or (ii) use any written Confidential Information for any reason
other than to further the business of Employer. Executive agrees to return any
written Confidential Information, and all copies thereof, upon the termination
of Executive's employment (whether hereunder or otherwise). In the event of a
breach or threatened breach by Executive of the provisions of this Section 7, in
addition to all other remedies available to Employer, Employer shall be entitled
to an injunction restraining Executive from disclosing any written Confidential
Information or from rendering any services to any person, firm, corporation,
association or other entity to whom any written Confidential Information has
been disclosed or is threatened to be disclosed. Executive further agrees that
he will not divulge to any person, firm, corporation, association, or other
entity not employed by or affiliated with Employer, any of Employer's business
methods, sales, services, or techniques, regardless of whether the same is
written or not.
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<PAGE>
(b) If Executive breaches or violates the terms of his agreement not to
disclose, he will pay any damages proven by Employer, including reasonable
attorney fees, whether or not suit be instituted.
8. COMPETITION.
-----------
(a) During the period of his employment by Employer and for a period of
two (2) years after such employment (whether such employment shall have ended by
reason of the expiration or termination of this Agreement or otherwise),
Executive will not, individually or as an employee, agent, officer, director or
shareholder of or otherwise through any corporation or other business
organization, directly or indirectly, (i) carry on or engage in a similar
business or solicit or do similar business with any customer of Bank or ANB or
any of their respective subsidiaries or affiliates in any territory in which
Bank or ANB or any of their respective subsidiaries or affiliates is conducting
business; or (ii) solicit any employee of Bank or ANB or any of their
subsidiaries or affiliates to leave his or her employment with Bank or ANB or
any of their subsidiaries or affiliates for any reason without the prior written
consent of Employer.
(b) Executive represents that his experience and capabilities are such
that the provisions of this Section 8 will not prevent him from earning a
livelihood.
(c) If Executive violates the provisions of Section 8(a) above, the period
during which the covenants set forth therein shall apply shall be extended one
(1) day for each day in which a violation of such covenants occurs; and if suit
be brought to enforce such covenants and one or more violations by Executive be
established, then Employer and Bank shall be entitled to an injunction
restraining Executive from further violations for a period of two (2) years from
the date of the final decree, less only such number of days that Executive shall
have not violated such covenants. The purpose of this provision is to prevent
Executive from profiting from his own wrong if he violates such covenants.
(d) If Executive breaches or violates the terms of the covenants set forth
in Section 8(a) not to compete, he will pay all costs incurred by Bank in
securing an injunction hereunder and/or securing payment of the liquidated
damages specified herein, including a reasonable attorney's fee, whether or not
suit be instituted; and Executive waives all right to claim exemptions of
personal property under the laws and Constitution of the State of Georgia or any
other state of the United States.
(e) For purposes of Section 8(a), Executive shall be deemed to be engaged
in any activity engaged in by a person or an entity between Executive and whom
or which no deduction is allowable in respect to any loss from the sale or
exchange of property pursuant to Section 267 of the Internal Revenue Code of
1986 or whose stock in any corporation or interest in any partnership would be
deemed to be owned by Executive pursuant to Section 318 of the Internal Revenue
Code of 1986.
9. TERMINATION.
-----------
(a) Employer shall be obligated to comply with all provisions of this
Agreement and may terminate Executive only For Cause. "For Cause" shall mean
(i) abuse of or addiction to intoxicating drugs (including alcohol); (ii) any
act on the part of Executive which constitutes
A-68
<PAGE>
fraud, malfeasance of duty or conduct grossly inappropriate to Executive's
office and is demonstrably likely to lead to material injury to Bank, ANB or a
successor or affiliate of Bank or ANB; (iii) a felony conviction of Executive;
or (iv) the suspension or removal of Executive by federal or state banking
regulatory authorities. In addition, the services of Executive and the
obligations of Employer under this Agreement may be terminated For Cause by
Employer due to the death or total disability of Executive. For purposes of this
Section 9, the term "total disability" shall mean Executive's inability, as a
result of illness or injury, to perform the normal duties of his employment for
a period of ninety (90) consecutive days.
(b) If Employer terminates Executive's employment hereunder "For Cause" or
if Executive terminates his employment hereunder for any reason prior to
____________________, 2001, all rights and obligations specified in Section 8
shall survive any such termination and Executive shall not be entitled to any
further compensation from Employer.
(c) If Employer terminates Executive without cause, Executive shall
continue to receive the minimum cash compensation provided for in Section 4(a).
(d) The provisions of Section 7 shall survive regardless of any
termination of Executive's employment hereunder, whether voluntary or
involuntary.
10. NOTICE. For the purposes of this Agreement, notices and demands shall
------
be deemed given when mailed by United States mail, addressed in the case of Bank
to Georgia State Bank, 620 Fontaine Rd. SW, Mabelton, GA, 30126, Attention:
Chairman of the Board of Directors, with a copy to ANB at Alabama National
BanCorporation, 1927 First Avenue North, Birmingham, Alabama 35203, Attention:
Chief Executive Officer; or in the case of Executive, to Ken F. Thigpen, 1200
Lee Bone Road, Dallas, GA, 30132.
11. MISCELLANEOUS. No provision of this Agreement may be modified, waived
-------------
or discharged unless such modification, waiver or discharge is agreed to in
writing. The validity, interpretation, construction and performance of this
Agreement shall be governed by Title 9 of the U.S. Code and the laws of the
State of Alabama. This Agreement supersedes and cancels any prior employment
agreement or understanding entered into between Executive and Bank or Executive
and CFC.
12. VALIDITY. The invalidity of any provision or provisions of this
--------
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect, nor shall the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
13. DEFAULT.
-------
(a) If Executive breaches or violates any of the covenants, conditions, or
terms of this Agreement on his part to be performed, Employer shall have the
right, without notice to Executive, to obtain a writ of injunction against him
restraining him from violating any such covenant, condition, or term, such
notice being hereby expressly waived by Executive; and, if Employer secures an
injunction against Executive for alleged breaches or violations by him of any
covenant, condition, or term of this Agreement and the injunction is for any
reason dissolved, Executive hereby expressly releases and discharges each of
Bank and ANB from and
A-69
<PAGE>
against any claim which he may have for damages, loss, cost or expense with
respect to, and he will make no claim against either of Bank or ANB by reason
of, the wrongful issuance of any such injunction; and Executive hereby waives
any and all claims for such damages, loss, cost or expense arising in that
connection.
(b) Additionally, in the event of any conduct by Executive violating any
provision of this Agreement, Employer shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either at law or in equity, to obtain damages for such conduct, to enforce
specific performance of such provision or to obtain any other relief or any
combination of the foregoing that Employer may elect to pursue.
14. PARTIES. This Agreement shall be binding upon and shall inure to the
-------
benefit of any successors or assigns to Bank or ANB. Executive may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement or any portion hereof.
15. ARBITRATION. Any controversy or claim between Executive and Employer
-----------
(or any of Bank's or ANB's subsidiaries or affiliates or any officer, agent,
director or employee of Bank, ANB or any of Bank's or ANB's subsidiaries or
affiliates) arising out of, or relating to, this Agreement, or the breach
thereof, shall be resolved by binding arbitration in accordance with the rules
and regulations then obtaining of the American Arbitration Association, and
judgment upon the award rendered may be entered and enforced in any court having
jurisdiction thereof.
16. DEFINITIONS. Any capitalized terms not otherwise defined herein shall
-----------
have the meanings ascribed to them in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
Executive and by a duly authorized officer of each of Bank and ANB as of the
date first above written.
Witnesses: "EXECUTIVE":
____________________ ________________________________________
Ken F. Thigpen
____________________
"BANK":
Attest: Georgia State Bank
By:_________________ By:_____________________________________
Its: Secretary Its:___________________________________
[Corporate Seal]
"ANB":
Attest: Alabama National BanCorporation
By:_________________ By:_____________________________________
Its: Secretary Its: Chief Executive Officer
[Corporate Seal]
A-71
<PAGE>
APPENDIX B
PROVISIONS OF GEORGIA BUSINESS CORPORATION CODE
RELATING TO DISSENTERS' RIGHTS
<PAGE>
APPENDIX B
GEORGIA DISSENTERS' RIGHTS STATUTES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Code 1981, (S) 14-2-1301, enacted by Ga. L. 1988, p. 1070, (S) 1;
Ga. L. 1993, p. 1231, (S) 16.)
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following
B-1
<PAGE>
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
B-2
<PAGE>
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise. (Code 1981, (S)
14-2-1302, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946, (S)
58.)
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. (Code
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<PAGE>
1981, (S) 14-2-1303, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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. (Code 1981,
(S) 14-2-1320, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1993, p. 1231, (S)
17.)
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article. (Code 1981, (S) 14-2-1321, enacted by Ga. L. 1988, p. 1070,
(S) 1.)
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
B-4
<PAGE>
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. (Code 1981, (S) 14-2-
1322, enacted by Ga. L. 1988, p. 1070, (S) 1.)
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article. (Code 1981, (S) 14-2-
1323, enacted by Ga. L. 1988, p. 1070, (S) 1.)
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.
(Code 1981, (S) 14-2-1324, enacted by Ga. L. 1988, p. 1070, (S) 1.)
B-5
<PAGE>
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice
to the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later. (Code 1981, (S)
14-2-1325, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946, (S) 59;
Ga. L. 1993, p. 1231, (S) 18.)
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
B-6
<PAGE>
Section 14-2-1322 and repeat the payment demand procedure. (Code 1981, (S) 14-2-
1326, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1990, p. 257, (S) 20.)
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
(Code 1981, (S) 14-2-1327, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L.
1989, p. 946, (S) 60; Ga. L. 1990, p. 257, (S) 21; Ga. L. 1993, p. 1231,
(S) 19.)
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled,
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<PAGE>
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia
Civil Practice Act," applies to any proceeding with respect to dissenters'
rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment. (Code 1981, (S) 14-2-1330, enacted by Ga. L.
1988, p. 1070, (S) 1; Ga. L. 1989, p. 946, (S) 61; Ga. L. 1993, p. 1231, (S)
20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section 14-
B-8
<PAGE>
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 benefited. (Code 1981, (S) 14-2-1331, enacted by
Ga. L. 1988, p. 1070, (S) 1.)
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be
brought more than three years after the corporate action was taken, regardless
of whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322. (Code 1981, (S) 14-2-1332, enacted by Ga. L. 1988,
p. 1070, (S) 1.)
B-9
<PAGE>
COMMUNITY FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
C-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
COMMUNITY FINANCIAL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
i. Independent Auditors' Report regarding the December 31, 1997, 1996
and 1995 Consolidated Financial Statements........................ C-2
ii. Consolidated Balance Sheets as of December 31, 1997 and 1996...... C-3
iii. Consolidated Statements of Earnings for the years ended December
31, 1997, 1996 and 1995........................................... C-4
iv. Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995...................... C-5
v. Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995........................................... C-6
vi. Notes to Consolidated Financial Statements........................ C-8
vii. Consolidated Balance Sheets as of March 31, 1998 (unaudited)...... C-22
viii. Consolidated Statements of Earnings for the periods ended March
31, 1998 and 1997 (unaudited)..................................... C-23
ix. Consolidated Statements of Changes in Stockholders' Equity........ C-25
x. Consolidated Statements of Cash Flows for the periods ended March
31, 1998 and 1997 (unaudited)..................................... C-26
xi. Notes to Unaudited Financial Statements........................... C-27
</TABLE>
C-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Community Financial Corporation
Mableton, Georgia
We have audited the accompanying consolidated balance sheets of Community
Financial Corporation and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Financial
Corporation and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
March 13, 1998
C-2
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
------
1997 1996
---------------- --------------
<S> <C> <C>
Cash and due from banks, including reserve requirements of
$565,000 and $450,000 $ 5,011,990 3,468,647
Federal funds sold - 3,120,000
------------ ----------
Cash and cash equivalents 5,011,990 6,588,647
Securities available for sale 26,075,884 22,074,715
Other investments 309,600 279,700
Loans, net 64,108,360 49,873,654
Premises and equipment, net 3,237,713 2,756,619
Accrued interest receivable and other assets 2,240,617 1,594,591
------------ ----------
$100,984,164 83,167,926
============ ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 16,961,043 11,713,099
Interest-bearing demand 20,335,011 19,999,113
Savings 4,117,421 4,631,507
Time 45,729,279 37,752,691
------------ ----------
Total deposits 87,142,754 74,096,410
Federal funds purchased and other borrowed money 2,319,127 651,764
FHLB advances 1,250,000 -
Accrued interest payable and other liabilities 1,392,850 1,216,358
Note payable 86,687 100,000
------------ ----------
Total liabilities 92,191,418 76,064,532
------------ ----------
Commitments
Stockholders' equity:
Common stock, $2.50 par value; 10,000,000 shares
authorized, 2,480,208 and 2,431,649 shares issued 6,200,520 6,079,123
Additional paid-in capital 2,043,472 2,080,497
Retained earnings (accumulated deficit) 600,261 (913,276)
Unrealized gain (loss) on securities available for sale,
net of tax 35,150 (42,950)
Unearned ESOP shares (16,505 and 19,046 shares) (86,657) (100,000)
------------ ----------
Total stockholders' equity 8,792,746 7,103,394
------------ ----------
$100,984,164 83,167,926
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
C-3
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $5,988,989 4,821,449 4,497,036
Interest on federal funds sold and deposits with other banks 203,647 224,302 203,675
Interest and dividends on investment securities:
U.S. Treasuries 404,308 307,407 395,152
U.S. Government agencies and mortgage-backed securities 1,085,063 951,582 729,855
State and municipal 40,521 15,282 2,406
Other 51,509 52,344 39,259
--------- --------- ---------
Total interest income 7,774,037 6,372,366 5,867,383
--------- --------- ---------
Interest expense:
Interest on deposits:
Demand 525,093 417,374 377,765
Savings 88,106 100,933 132,882
Time 2,377,384 2,068,935 1,794,983
--------- --------- ---------
2,990,583 2,587,242 2,305,630
Interest on federal funds purchased and other borrowed money 52,696 9,526 2,001
Interest on FHLB advances and note payable 72,760 - -
--------- --------- ---------
Total interest expense 3,116,039 2,596,768 2,307,631
--------- --------- ---------
Net interest income 4,657,998 3,775,598 3,559,752
Provision for loan losses 150,000 - 30,000
--------- --------- ---------
Net interest income after provision for loan losses 4,507,998 3,775,598 3,529,752
--------- --------- ---------
Non interest income:
Mortgage origination fees 287,585 195,975 159,775
Service charges on deposits 782,812 635,813 569,994
Gain (loss) on sale of securities available for sale 6,177 - (5,340)
Miscellaneous 282,537 167,162 127,212
--------- --------- ---------
Total non interest income 1,359,111 998,950 851,641
--------- --------- ---------
Non interest expenses:
Salaries and employee benefits 2,158,442 1,805,205 1,577,738
Occupancy 524,972 419,869 348,000
Provision for estimated losses and other real estate expenses, net - - 108,520
Other operating 1,336,890 1,297,606 1,307,673
--------- --------- ---------
Total non interest expenses 4,020,304 3,522,680 3,341,931
--------- --------- ---------
Earnings before income tax expense 1,846,805 1,251,868 1,039,462
Income tax expense 211,083 - -
--------- --------- ---------
Net earnings $1,635,722 1,251,868 1,039,462
========= ========= =========
Basic earnings per share $ 0.67 0.52 0.43
==== ==== ====
Diluted earnings per share $ 0.56 0.44 0.39
==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Common Stock Retained on Securities
------------------------ Additional Earnings Available Unearned
Shares Paid -In (Accumulated for Sale, ESOP
Outstanding Amount Capital Deficit) Net of Tax Shares Total
----------- ---------- ----------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,389,149 $5,972,873 2,118,067 (3,204,606) (165,988) - 4,720,346
Net earnings - - - 1,039,462 - - 1,039,462
Exercise of stock options 3,750 9,375 (2,738) - - - 6,637
Change in unrealized gain (loss) on
securities available for sale,
net of tax - - - - 275,182 - 275,182
--------- ---------- --------- -------- ------ ------- ---------
Balance, December 31, 1995 2,392,899 5,982,248 2,115,329 (2,165,144) 109,194 - 6,041,627
Net earnings - - - 1,251,868 - - 1,251,868
Exercise of stock options and
warrants 38,750 96,875 (34,832) - - - 62,043
Change in unrealized gain (loss) on
securities available for sale,
net of tax - - - - (152,144) - (152,144)
Common stock acquired by ESOP - - - - - (100,000) (100,000)
--------- ---------- --------- -------- ------ ------- ---------
Balance, December 31, 1996 2,431,649 6,079,123 2,080,497 (913,276) (42,950) (100,000) 7,103,394
Net earnings - - - 1,635,722 - - 1,635,722
Exercise of stock options and
warrants 48,559 121,397 (38,928) - - - 82,469
Cash dividends declared
($.05 per share) - - - (122,185) - - (122,185)
Change in unrealized gain (loss) on
securities available for sale,
net of tax - - - - 78,100 - 78,100
Release of unearned ESOP shares - - 1,903 - - 13,343 15,246
--------- ---------- --------- -------- ------ ------- ---------
Balance, December 31, 1997 2,480,208 $6,200,520 2,043,472 600,261 35,150 (86,657) 8,792,746
========= ========== ========= ======== ====== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
C-5
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,635,722 1,251,868 1,039,462
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 241,490 255,272 248,084
(Gain) loss on sale of securities available for sale (6,177) - 5,340
Provision for loan losses 150,000 - 30,000
Provision for estimated losses on other real estate - - 91,500
Provision for deferred taxes (74,761) - -
ESOP compensation expense 15,246 - -
Change in:
Accrued interest receivable (184,499) (24,817) (84,029)
Other assets (69,386) (117,893) 60,103
Accrued interest payable 292,854 129,288 438,559
Other liabilities (116,362) 676,165 155,022
---------- --------- ---------
Net cash provided by operating activities 1,884,127 2,169,883 1,984,041
---------- --------- ---------
Cash flows from investing activities:
Net change in interest-bearing deposits - - 396,000
Proceeds from sales of securities available for sale 2,003,594 - 1,999,219
Proceeds from calls and maturities of securities
held to maturity - - 1,135,603
Purchases of securities held to maturity - - (4,847,031)
Proceeds from calls and maturities of securities
available for sale 14,130,125 7,866,296 3,586,305
Purchases of securities available for sale (19,977,981) (10,454,371) (4,511,448)
Purchases of other investments (29,900) - (219,700)
Net change in loans (14,384,706) (7,891,469) (2,318,706)
Purchases of premises and equipment (759,796) (1,112,416) (787,129)
Proceeds from sales of other real estate - 6,602 81,051
Purchases of cash value life insurance policies (352,798) (370,500) (370,500)
---------- --------- ---------
Net cash used in investing activities (19,371,462) (11,955,858) (5,856,336)
---------- --------- ---------
Cash flows from financing activities:
Net change in demand and savings deposits 5,069,756 5,963,398 (2,945,467)
Net change in time deposits 7,976,588 4,513,572 6,682,543
Net change in federal funds and other borrowed money 1,667,363 - -
Proceeds from FHLB advances 1,250,000 - -
Payment of note payable (13,313) - -
Proceeds from issuance of common stock 82,469 62,043 6,637
Dividends paid (122,185) - -
---------- --------- ---------
Net cash provided by financing activities 15,910,678 10,539,013 3,743,713
---------- --------- ---------
Net change in cash and cash equivalents (1,576,657) 753,038 (128,582)
Cash and cash equivalents at beginning of year 6,588,647 5,835,609 5,964,191
---------- --------- ---------
Cash and cash equivalents at end of year $5,011,990 6,588,647 5,835,609
========== ========= =========
</TABLE>
C-6
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $2,823,185 2,467,480 1,869,072
Income taxes $ 291,500 - -
Noncash investing and financing activities:
Loans transferred to other real estate $ - 324,647 -
Financed portion of sales of other real estate $ - 392,000 48,000
Transfer of securities held to maturity to available for sale $ - - 12,103,652
Change in unrealized gain (loss) on securities available for sale,
net of tax $ 78,100 (152,144) 275,182
Unearned ESOP shares acquired in exchange for note payable $ - 100,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
C-7
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
------------
Community Financial Corporation (the Company) is a bank holding company
whose business is conducted by its wholly-owned bank subsidiary, Georgia
State Bank (the Bank). The Company is subject to regulation under the Bank
Holding Company Act of 1956.
The Bank is a commercial bank that serves Mableton, Georgia, a community
located approximately 20 miles west of downtown Atlanta, and surrounding
Cobb, Paulding and Douglas counties. The Bank is chartered and regulated by
the Georgia Department of Banking and Finance and is insured and subject to
regulation by the Federal Deposit Insurance Corporation. The Bank provides a
full range of customary banking services.
BASIS OF PRESENTATION AND RECLASSIFICATION
------------------------------------------
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year presentation.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles (GAAP) and with general practices within the banking
industry. In preparing financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts in the financial statements. Actual results could differ
significantly from those estimates. Material estimates common to the banking
industry that are particularly susceptible to significant change in the near
term include, but are not limited to, the determination of the allowance for
loan losses, the valuation of real estate acquired in connection with or in
lieu of foreclosure on loans, and valuation allowances associated with the
realization of deferred tax assets which are based on future taxable income.
SECURITIES AVAILABLE FOR SALE
-----------------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. At December 31, 1997 and 1996, all
securities were classified as available for sale.
Securities available for sale are recorded at fair value. Unrealized holding
gains and losses, net of the related tax effect, on securities available for
sale are excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer.
A decline in the market value of any investment below cost that is deemed
other than temporary is charged to earnings and establishes a new cost basis
for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities available for sale are included in earnings and are derived
using the specific identification method for determining the cost of
securities sold.
OTHER INVESTMENTS
-----------------
Other investments include equity securities (including FHLB stock) with no
readily determinable fair value. These investments are carried at cost.
C-8
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS AND ALLOWANCE FOR LOAN LOSSES
-----------------------------------
Loans are stated at the amount of unpaid principal, net of the allowance for
loan losses and any deferred fees or costs. Interest on loans is calculated
by using the simple interest method on daily balances of the principal
amount outstanding.
A loan is considered impaired when, based on current information and events,
it is probable that all amounts due according to the contractual terms of
the loan agreement will not be collected. Impaired loans are measured based
on the present value of expected future cash flows, discounted at the loan's
effective interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent. Interest
income from impaired loans is recognized when received.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. Management's judgment in determining the adequacy of the allowance
is based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality, and review of specific
problem loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the
time of their examination.
MORTGAGE LOAN ORIGINATION FEES
------------------------------
The Bank operates a mortgage department for the purpose of brokering
mortgage loans to independent investors. Mortgage loan origination fees are
recognized at the time the related mortgage loan is closed.
PREMISES AND EQUIPMENT
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives of
the assets are expensed currently. When assets are retired or otherwise
disposed, the cost and related accumulated depreciation are removed from the
accounts, and any gain or loss is reflected in earnings for the period.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Buildings 15 - 40 years
Furniture, fixtures and equipment 3 - 10 years
C-9
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
OTHER REAL ESTATE
-----------------
Properties acquired through foreclosure are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs to
dispose. Accounting literature defines fair value as the amount that is
expected to be received in a current sale between a willing buyer and seller
other than a forced or liquidation sale. Fair values at foreclosure are
based upon appraisals. Losses arising from the acquisition of foreclosed
properties and subsequent writedowns are provided by a charge to earnings
through the allowance for losses on other real estate in the period in which
the need arises.
INCOME TAXES
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely
than not. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the assets
and liabilities are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability
of being able to realize the future benefits indicated by such asset is
required. A valuation allowance is provided for a portion of the deferred
tax asset when it is more likely than not that some portions or all of the
deferred tax assets will not be realized. In assessing the realizability of
the deferred tax asset, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and tax planning
strategies.
NET EARNINGS PER SHARE
----------------------
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to simplify
previous earnings per share standards and to make domestic and international
practices more compatible. All net earnings per share amounts have been
restated to conform to the provisions of SFAS No. 128.
Basic earnings per share is based on the weighted average number of shares
outstanding during each year while the effects of potential common shares
outstanding such as stock options, warrants, and allocated shares of the
Company's Employee Stock Ownership Plan (ESOP) are included in diluted
earnings per share. Unearned ESOP shares are not considered outstanding for
purposes of calculating earnings per share. It is assumed that all dilutive
stock options and warrants are exercised at the beginning of the year and
that the proceeds are used to purchase shares of the Company's common stock.
The average market price during each year is used to compute equivalent
shares assumed to be acquired.
SFAS No. 128 requires the presentation on the face of the earnings statement
of net earnings per share with and without the dilutive effects of potential
common stock issuances from instruments such as options and warrants.
Additionally, the new statement requires the reconciliation of the amounts
used in the computation of both "basic earnings per share" and "diluted
earnings per share" for the years ended December 31, 1997, 1996 and 1995 as
follows:
C-10
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NET EARNINGS PER SHARE, CONTINUED
----------------------
<TABLE>
<CAPTION>
Weighted Average Per Share
FOR THE YEAR ENDED DECEMBER 31, 1997 Net Earnings Common Shares Amount
------------ ---------------- ---------
<S> <C> <C> <C>
Basic earnings per share $1,635,722 2,445,494 $0.67
Effect of dilutive securities:
Stock options - 41,926
Warrants - 422,051
---------- ---------
Diluted earnings per share $1,635,722 2,909,471 $0.56
========== ========= =====
<CAPTION>
Weighted Average Per Share
FOR THE YEAR ENDED DECEMBER 31, 1996 Net Earnings Common Shares Amount
------------ ---------------- ---------
<S> <C> <C> <C>
Basic earnings per share $1,251,868 2,418,275 $0.52
Effect of dilutive securities:
Stock options - 33,126
Warrants - 400,376
---------- ---------
Diluted earnings per share $1,251,868 2,851,777 $0.44
========== ========= =====
<CAPTION>
Weighted Average Per Share
FOR THE YEAR ENDED DECEMBER 31, 1995 Net Earnings Common Shares Amount
------------ ---------------- ---------
<S> <C> <C> <C>
Basic earnings per share $1,039,462 2,390,246 $0.43
Effect of dilutive securities:
Stock options - 897
Warrants - 303,471
---------- ---------
Diluted earnings per share $1,039,462 2,694,614 $0.39
========== ========= =====
</TABLE>
C-11
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 6,007,120 17,958 1,328 6,023,750
U.S. Government agencies 15,082,094 110,342 18,690 15,173,746
State and municipal 1,268,818 24,251 477 1,292,592
Mortgage-backed securities 3,147,448 22,685 9,596 3,160,537
Mutual fund investments 487,166 - 61,907 425,259
---------- ------- ------ ----------
Total $25,992,646 175,236 91,998 26,075,884
========== ======= ====== ==========
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 5,482,721 32,443 4,929 5,510,235
U.S. Government agencies 11,482,087 118,994 90,403 11,510,678
State and municipal 561,352 1,002 4,515 557,839
Mortgage-backed securities 4,091,669 14,753 30,078 4,076,344
Mutual fund investments 487,166 - 67,547 419,619
---------- ------- ------- ----------
Total $22,104,995 167,192 197,472 22,074,715
========== ======= ======= ==========
</TABLE>
The amortized cost and estimated fair value of securities available for sale
at December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have
the right to call or prepay certain obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- ----------
<S> <C> <C>
Within one year $ 6,493,513 6,491,565
One to five years 14,503,281 14,616,844
Five to ten years 1,200,000 1,215,114
More than ten years 161,238 166,565
Mortgage-backed securities 3,147,448 3,160,537
Mutual fund investments 487,166 425,259
----------- ----------
$25,992,646 26,075,884
=========== ==========
</TABLE>
Proceeds from sales of securities available for sale during 1997 and 1995
totaled $2,003,594 and $1,999,219, respectively. Gross gains of $6,177 were
realized on 1997 sales while gross losses of $5,340 were realized on 1995
sales. There were no sales of securities available for sale during 1996.
C-12
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE, CONTINUED
Investment securities with an approximate carrying value of $11,949,000 and
$12,950,000 as of December 31, 1997 and 1996, respectively, were pledged to
secure public deposits as required by law.
(3) LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Commercial, financial and agricultural $ 6,292,374 4,861,493
Real estate - construction 12,081,619 8,468,078
Real estate - mortgage 40,995,176 33,591,741
Consumer 5,972,202 4,091,203
------------- ----------
Total loans 65,341,371 51,012,515
Less allowance for loan losses 1,233,011 1,138,861
------------- ----------
Loans, net $64,108,360 49,873,654
============= ==========
</TABLE>
The Company grants loans and extensions of credit to individuals and a
variety of businesses and corporations located in its general trade area of
Mableton, Georgia and the surrounding counties of Cobb, Paulding and
Douglas. Although the Company has a diversified loan portfolio, a
substantial portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- --------
<S> <C> <C> <C>
Balance at beginning of year $1,138,861 846,830 780,666
Provision charged to operations 150,000 - 30,000
Loans charged off (159,733) (70,571) (115,403)
Recoveries of loans previously charged off 103,883 362,602 151,567
------------ --------- --------
Balance at end of year $1,233,011 1,138,861 846,830
============ ========= ========
</TABLE>
(4) PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land $ 946,031 944,031
Buildings and improvements 2,277,922 2,040,369
Furniture and fixtures 2,011,296 1,492,717
---------- ---------
5,235,249 4,477,117
Less accumulated depreciation 1,997,536 1,720,498
---------- ---------
$3,237,713 2,756,619
========== =========
</TABLE>
Depreciation expense for the years 1997, 1996 and 1995 amounted to
approximately $279,000, $222,000 and $166,000, respectively.
C-13
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) TIME DEPOSITS
At December 31, 1997, maturities of time deposits are as follows:
<TABLE>
<S> <C>
Maturing In:
1998 $35,360,686
1999 3,183,181
2000 3,402,912
2001 488,457
2002 and thereafter 3,294,043
----------
Total $45,729,279
==========
</TABLE>
Time deposits of $100,000 or more were approximately $10,291,000 and
$6,056,000 at December 31, 1997 and 1996, respectively.
(6) FHLB ADVANCES
At December 31, 1997 the Bank had advances outstanding from the Federal Home
Loan Bank (FHLB) of Atlanta amounting to $1,250,000. The advances require
monthly interest payments at an interest rate of 5.915% and are due in
August 1998. The FHLB advances are secured by the Bank's stock in the FHLB
and its 1-4 family first mortgage loans. There were no amounts outstanding
at December 31, 1996.
(7) INCOME TAXES
The components of income tax expense for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Current $ 285,844 17,635 -
Deferred 336,409 452,856 388,234
Change in valuation allowance (411,170) (470,491) (388,234)
--------- -------- --------
$ 211,083 - -
========= ======== ========
</TABLE>
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before taxes
relate primarily to the utilization of federal and state operating loss
carryforwards and changes in the valuation allowance. The following
summarizes the components of the net deferred tax asset.
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 15,296 8,382
Net operating loss carryforward - federal - 275,628
Alternative minimum tax credits - 84,862
Net operating loss carryforward - state 195,585 171,016
State tax credits 55,066 53,992
Other 493 50,175
-------- -------
Total gross deferred tax assets 266,440 644,055
Less valuation allowance - (411,170)
-------- -------
Net deferred tax assets 266,440 232,885
-------- -------
Deferred tax liabilities:
Allowance for loan losses 94,235 151,175
Accelerated depreciation 29,614 13,880
Unrealized gain on securities available for sale 48,089 12,671
-------- -------
Total gross deferred tax liabilities 171,938 177,726
-------- -------
Net deferred tax asset $ 94,502 55,159
======== =======
</TABLE>
C-14
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) INCOME TAXES, CONTINUED
For tax purposes, the Company has a state tax loss carryforward of
approximately $4,939,000 and state tax credits of approximately $83,000. The
loss carryforwards expire beginning in 2006.
(8) CAPITAL STOCK TRANSACTIONS
During 1993, the Company issued 650,295 shares of common stock at a price of
$1.60 per share, which represents a $0.90 per share discount to stockholders
(below par value). As part of the offering, each share purchased entitled
the holder to a warrant to purchase an additional share of common stock at
the offering price of $1.60 per share on or before June 30, 1998. During
1997 and 1996, 34,059 and 38,500 shares of common stock were issued upon
exercise of the warrants at $1.60 per share.
(9) COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risks in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the balance sheet. The
contractual amounts of these instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
In most cases, the Bank does require collateral to support financial
instruments with credit risk.
Approximate
Contract
Amount
----------------------
1997 1996
----------- ---------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $10,297,000 8,379,000
Standby letters of credit $ 378,000 470,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of
credit is based on management's credit evaluation. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit, or personal property.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to businesses within the Bank's trade area. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds real
estate and assignments of deposit accounts as collateral supporting those
commitments for which collateral is deemed necessary.
C-15
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital (as defined) to risk-weighted assets and of Tier 1 capital to
average assets. Management believes, as of December 31, 1997 and 1996, the
Company and the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth below. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and
ratios are presented below. Consolidated amounts and ratios do not
materially differ from Bank-only capital amounts and ratios.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital
(to Risk Weighted Assets) $9,479,572 14.3% 5,302,486 8.0% 6,628,107 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $8,651,059 13.1% 2,651,243 4.0% 3,976,864 6.0%
Tier 1 Capital
(to Average Assets) $8,651,059 7.9% 4,375,080 4.0% 5,468,850 5.0%
AS OF DECEMBER 31, 1996
Total Capital
(to Risk Weighted Assets) $7,689,255 13.9% 4,438,841 8.0% 5,548,551 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $6,995,686 12.6% 2,219,420 4.0% 3,329,130 6.0%
Tier 1 Capital
(to Average Assets) $6,995,686 8.4% 3,338,280 4.0% 4,172,850 5.0%
</TABLE>
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions are
based on the level of regulatory classified assets, the prior year's net
earnings, and the ratio of equity capital to total assets. At December 31,
1997, the Bank could declare dividends up to approximately $825,000 without
prior regulatory consent.
C-16
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) EMPLOYEE AND DIRECTOR BENEFIT PROGRAMS
The Bank has an employee savings plan which is available to all employees
subject to certain minimum age and service requirements. Contributions are
made at the discretion of the board of directors, with a minimum
contribution required to match 50% of the employee's contribution. Beginning
in February 1997, the savings plan was amended to require a 75% minimum
matching contribution. The total contributions made to the plan during 1997,
1996 and 1995 were approximately $48,000, $25,000 and $20,000,
respectively.
The Company offers incentive stock options to certain key employees and
directors (including advisory or honorary directors). A total of 300,000
shares are reserved under the plan to be granted at the discretion of the
board of directors. During 1994, 110,000 of these shares were granted to
certain officers to be awarded ratably through 1998 with the exercise price
to be determined based on the then fair market value. During 1997, the Board
granted an additional 50,000 shares to certain advisory directors to be
awarded ratably through September 2000 with an exercise price determined
based on the then fair market value. The options are exercisable no later
than ten years from the date of grant and vest immediately at the date of
the award.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for the Company January 1, 1996. This statement encourages, but does not
require, entities to compute the fair value of options at the date of grant
and to recognize such costs as compensation expense. The Company has chosen
not to adopt the cost recognition principles of this statement. No
compensation expense has been recognized related to the stock option plans.
Had compensation cost been determined based upon the fair value of the
options at the grant date consistent with the method of the new statement,
the Company's net earnings and net earnings per share would have been
reduced to the proforma amounts indicated below.
1997 1996 1995
---------- --------- ---------
Net earnings $1,595,747 1,202,210 1,000,984
Basic earnings per share $ 0.65 0.50 0.42
Diluted earnings per share $ 0.55 0.42 0.37
The fair value of each option is estimated on the date of grant using the
minimum value method with the following weighted average assumptions used
for grants in 1997, 1996 and 1995, respectively: dividend yield of 1% in
1997 and no dividend yield in 1996 and 1995, risk free interest rates of
5.80%, 5.11% and 5.03%, respectively, and an expected life of 7 years, 7
years and 6 years, respectively.
A summary status of the Company's Stock Option Plan as of December 31, 1997,
1996 and 1995, and changes during the years ending on those dates, are
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option Option Option Option
Shares Price Shares Price Shares Price
---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of 82,750 $2.45 61,750 $1.89 43,500 $1.77
year
Awarded during the year 42,000 $5.50 22,000 $4.00 22,000 $2.10
Exercised during the year (14,500) $1.93 (250) $1.77 (3,750) $1.78
Cancelled during the year - - (750) $1.77 - -
------- ----- ------ ------ -----
Outstanding, end of year 110,250 $3.68 82,750 $2.45 61,750 $1.89
======= ===== ====== ===== ====== =====
</TABLE>
Options on 110,250, 82,750 and 61,750 shares were fully vested and
exercisable at December 31, 1997, 1996 and 1995, respectively. The weighted
average grant-date fair value of options granted in 1997, 1996 and 1995 was
$1.44, $3.42 and $2.65, respectively. Such options have a weighted average
remaining contractual life of approximately 8 years at December 31, 1997.
C-17
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) EMPLOYEE AND DIRECTOR BENEFIT PROGRAMS, CONTINUED
During 1995, the Bank purchased life insurance contracts to provide benefits
to its directors under Executive Supplemental Income Plan agreements. Under
these agreements, the Bank is obligated to pay death benefits to the
beneficiaries of its directors. These death benefits are funded through the
purchase of whole life insurance policies under which the Bank is the
beneficiary. These contracts provide dividends and increases in asset value
from which these benefits will be paid. At December 31, 1997 and 1996 the
cash surrender value of the insurance contracts was approximately $1,046,000
and $693,000, respectively, and is included as a component of other assets.
Expenses incurred for benefits relating to this plan were approximately
$21,000, $46,000 and $19,000 during 1997, 1996 and 1995, respectively.
Effective January 1, 1995, the Company adopted an ESOP plan that
substantially covers all employees subject to certain minimum age and
service requirements. The Company makes contributions to the ESOP as
determined annually by the Board of Directors. In November 1996, the ESOP
incurred debt to purchase 19,046 shares of Company stock thus converting the
plan from a nonleveraged ESOP to a leveraged ESOP. Prior to the leveraged
ESOP, the Company made cash contributions to the ESOP which were used to
purchase 14,054 shares of Company stock and, in turn, allocated to the
participants. Subsequent to November 1996, contributions to the ESOP will,
at a minimum, be applied to meet the ESOP's debt service requirements. As
the debt is repaid, shares are released and allocated to active employees,
based on the proportion of debt service paid during the year. Accordingly,
the debt incurred by the ESOP is recorded as a note payable and the shares
purchased with the debt proceeds are reported as unearned ESOP shares in the
consolidated balance sheet. As the debt is repaid, the Company will also
record compensation expense equal to the current market price of the shares
released, and the shares become outstanding for purposes of earnings per
share computations. Compensation expense of approximately $36,000 was
recognized during 1997. No shares were released during 1996 or 1995.
Compensation expense was $24,000 and $60,000 in 1996 and 1995, respectively,
which equals the cash contribution from the Company to the ESOP during those
years. ESOP shares at December 31, 1997 are summarized as follows:
Allocated shares 16,595
Unallocated shares 16,505
--------
Total ESOP shares 33,100
========
Fair value of unallocated shares $109,346
========
The ESOP also contains a put option whereby the Company will repurchase, at
its fair value, shares distributed to participants for cash, or in
installments over a period of time not to exceed five years, if the shares
cannot be readily sold.
(12) RELATED PARTY TRANSACTIONS
The Bank conducts transactions with directors and officers, including
companies in which they have beneficial interest, in the normal course of
business. It is the Bank's policy to comply with federal regulations which
require that loan transactions with directors and officers be made on
substantially the same terms as those prevailing at the time made for
comparable loans to other persons. The following summary reflects activity
for related party loans in 1997:
Beginning balance $1,174,000
New loans 1,254,000
Repayments (501,000)
---------
Ending balance $1,927,000
=========
At December 31, 1997 and 1996, deposits from directors, executive officers
and their related interests totaled approximately $2,267,000 and $1,830,000,
respectively.
C-18
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) SUPPLEMENTAL FINANCIAL INFORMATION
Components of other operating expenses which are greater than 1% of interest
income and other income are as follows:
1997 1996 1995
-------- ------- -------
Legal and professional fees $112,934 97,885 103,027
Data processing expense $227,896 181,043 145,829
FDIC assessment $ 9,472 - 88,468
Postage and freight $ 75,133 73,469 70,235
Office supplies $101,995 93,573 68,556
(14) COMMUNITY FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1997 and 1996
Assets
------
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Cash $ 122,617 83,113
Investment in subsidiary 8,748,116 7,120,281
Other assets 8,700 -
---------- ---------
$8,879,433 7,203,394
========== =========
</TABLE>
Stockholders' Equity
--------------------
<TABLE>
<S> <C> <C>
Note payable $ 86,687 100,000
Stockholders' equity 8,792,746 7,103,394
---------- ---------
$8,879,433 7,203,394
========== =========
</TABLE>
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Dividends from subsidiary $ 100,000 - -
Interest expense (8,625) - -
Operating expenses (14,088) (16,314) (21,999)
---------- --------- ---------
Earnings (loss) before income tax benefit
and equity in undistributed earnings of subsidiary 77,287 (16,314) (21,999)
Income tax benefit 8,700 - -
---------- --------- ---------
Earnings (loss) before equity in undistributed earnings
of subsidiary 85,987 (16,314) (21,999)
Equity in undistributed earnings of subsidiary 1,549,735 1,268,182 1,061,461
---------- --------- ---------
Net earnings $1,635,722 1,251,868 1,039,462
========== ========= =========
</TABLE>
C-19
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) COMMUNITY FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION, CONTINUED
Statements of Cash Flows
For the Years Ended December 31, 1997 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,635,722 1,251,868 1,039,462
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
ESOP compensation expense 15,246 - -
Equity in undistributed earnings of
subsidiary (1,549,735) (1,268,182) (1,061,461)
Change in other assets (8,700) 8,366 17,679
---------- ---------- ----------
Net cash provided by (used in) operating activities 92,533 (7,948) (4,320)
---------- ---------- ----------
Cash flows from financing activities:
Payment on note payable (13,313) - -
Proceeds from issuance of common stock 82,469 62,043 6,637
Cash dividends paid (122,185) - -
---------- ---------- ----------
Net cash provided by (used in) financing activities (53,029) 62,048 6,637
Net change in cash 39,504 54,095 2,317
Cash at beginning of year 83,113 29,018 26,701
---------- ---------- ----------
Cash at end of year $ 122,617 83,113 29,018
========== ========== ==========
</TABLE>
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. The assumptions used in
the estimation of the fair value of the Company's financial instruments are
detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather a good-faith
estimate of the increase or decrease in value of financial instruments held
by the Company since purchase, origination or issuance.
Cash and Cash Equivalents
-------------------------
For cash, due from banks and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
Securities Available for Sale
-----------------------------
Fair values for securities available for sale are based on quoted market
prices.
Other Investments
-----------------
The carrying amount of other investments approximates fair value.
Loans
-----
The fair value of fixed rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings. For variable rate loans, the
carrying amount is a reasonable estimate of fair value.
C-20
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Deposits
--------
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at the reporting date. The fair
value of fixed maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Federal Funds Purchased, Other Borrowed Money and FHLB Advances
----------------------------------------------------------------
Because Federal funds purchased, other borrowed money and FHLB advances
are made at variable rates, the carrying value is a reasonable estimate
of fair value.
Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------
Because commitments to extend credit and standby letters of credit are
made using variable rates, the contract value is a reasonable estimate of
fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include
deferred income taxes and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in the estimates.
The carrying amount and estimated fair values of the Company's financial
instruments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1997
----------------------------
Carrying Estimated
Amount Fair Value
------------ --------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 5,011,990 5,011,990
Securities available for sale $26,075,884 26,075,884
Other investments $ 309,600 309,600
Loans, net $64,108,360 64,304,914
Liabilities:
Deposits $87,142,754 87,505,055
Federal funds purchased and
other borrowed money $ 2,319,127 2,319,127
FHLB advances $ 1,250,000 1,250,000
Unrecognized financial instruments:
Commitments to extend credit $10,297,000 10,297,000
Standby letters of credit $ 378,000 378,000
</TABLE>
C-21
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash and due from banks $ 5,612,564 4,476,860
Federal funds sold 18,055,000 1,170,000
------------- ----------
Cash and cash equivalents 23,667,564 5,646,860
Securities available for sale 27,953,657 23,676,227
Other investments 309,600 309,600
Loans (net of allowance for loan losses of $1,238,246
and $1,140,862 respectively) 66,159,376 52,434,189
Bank premises and equipment, net 3,244,691 3,143,931
Accrued interest receivable and other assets 2,340,475 1,742,567
------------- ----------
$ 123,675,363 86,953,374
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 18,451,643 15,062,266
Interest-bearing demand 23,670,314 18,811,531
Savings 4,689,832 4,593,959
Time 56,826,467 38,387,258
------------- ----------
Total deposits 103,638,256 76,855,014
Federal funds purchased and other borrowed money 7,451,400 170,535
FHLB advances 1,250,000 1,250,000
Note payable 83,743 100,000
Accrued interest payable and other liabilities 1,735,628 1,216,273
------------- ----------
Total liabilities 114,159,027 79,591,822
------------- ----------
Commitments
Stockholders' equity:
Common stock, $2.50 par value; 10,000,000 shares authorized;
2,646,545 and 2,436,849 shares issued and outstanding,
respectively 6,616,363 6,092,123
Additional paid in capital 1,897,160 2,075,817
Retained earnings (accumulated deficit) 1,043,829 (527,924)
Accumulated other comprehensive income, net of tax 41,892 (178,464)
Unearned ESOP shares (82,908) (100,000)
------------- ----------
Total stockholders' equity 9,516,336 7,361,552
------------- ----------
$ 123,675,363 86,953,374
============= ==========
</TABLE>
C-22
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,756,182 1,356,252
Interest on federal funds sold 99,488 16,362
Interest on investment securities:
Taxable 357,247 366,877
Nontaxable 20,110 6,683
Other 13,037 6,773
--------- ---------
Total interest income 2,246,064 1,752,947
--------- ---------
Interest expense:
Demand 132,416 117,522
Savings 22,639 22,813
Time 736,991 531,590
Other 68,472 17,675
--------- ---------
Total interest expense 960,518 689,600
--------- ---------
Net interest income 1,285,546 1,063,347
Provision for loan losses 10,000 -
--------- ---------
Net interest income after provision for loan losses 1,275,546 1,063,347
--------- ---------
Noninterest income:
Service charges on deposits 220,592 170,363
Mortgage origination fees 72,229 69,922
Miscellaneous 97,475 65,614
--------- ---------
Total noninterest income 390,296 305,899
--------- ---------
Noninterest expenses:Salaries and employee benefits 544,174 517,241
Occupancy 126,566 111,566
Other operating 322,208 280,087
--------- ---------
Total noninterest expenses 992,948 908,894
--------- ---------
Earnings before income taxes 672,894 460,352
Income taxes 229,326 75,000
--------- ---------
Net earnings $ 443,568 385,352
========= =========
Basic earnings per share $ 0.18 0.16
========= =========
Diluted earnings per share $ 0.15 0.13
========= =========
</TABLE>
C-23
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net earnings $443,568 385,352
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for
sale:
Holding gains (losses) arising
during period, net of tax
of $6,531 and $65,358 6,742 (135,514)
-------
Comprehensive income $450,310 249,838
======== ========
</TABLE>
C-24
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
ADDITIONAL EARNINGS COMPREHENSIVE UNEARNED
COMMON PAID-IN (ACCUMULATED INCOME, ESOP
STOCK CAPITAL DEFICIT) NET OF TAX SHARES TOTAL
------------ ----------- ------------- -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 6,079,123 2,080,497 (913,276) (42,950) (100,000) 7,103,394
Net earnings - - 385,352 - - 385,352
Exercise of stock options
and warrants 13,000 (4,680) - - - 8,320
Change in accumulated other
comprehensive income - - - (135,514) - (135,514.00)
--------- --------- ------------ ------------- -------- ---------------
Balance, March 31, 1997 $ 6,092,123 2,075,817 (527,924) (178,464) (100,000) 7,361,552
========= ========= ============ ============= ======== ================
Balance, December 31, 1997 $ 6,200,520 2,043,472 600,261 35,150 (86,657) 8,792,746
Net earnings - - 443,568 - - 443,568
Exercise of stock options
and warrants 415,843 (149,703) - - - 266,140
Change in accumulated other
comprehensive income - - - 6,742 - 6,742
Release of ESOP shares - 3,391 - - 3,749 7,140
--------- --------- ------------ ------------- -------- ---------
Balance, March 31, 1998 $ 6,616,363 1,897,160 1,043,829 41,892 (82,908) 9,516,336
========= ========= ============ ============= ======== =========
</TABLE>
C-25
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 443,568 385,352
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 69,033 61,210
Provision for loan losses 10,000 -
ESOP compensation expense 7,140 -
Change in:
Interest receivable (75,887) (96,024)
Other assets (30,502) 13,406
Interest payable 138,949 (7,574)
Other liabilities 203,829 7,489
----------- ----------
Net cash provided by operating activities 766,130 363,859
----------- ----------
Cash flows from investing activities:
Purchases of securities available for sale (4,845,000) (2,491,328)
Purchases of other investments - (29,900)
Proceeds from calls and maturities of securities
available for sale 2,982,440 690,795
Net change in loans (2,061,016) (2,560,535)
Purchases of bank premises and equipment (77,951) (450,373)
----------- ----------
Net cash used by investing activities (4,001,527) (4,841,341)
----------- ----------
Cash flows from financing activities:
Net change in deposits 16,495,502 2,758,604
Proceeds from FHLB advances - 1,250,000
Net change in federal funds purchased and other borrowed money 5,132,273 (481,229)
Repayment of note payable (2,944) -
Proceeds from exercise of options and warrants 266,140 8,320
----------- -----------
Net cash provided by financing activities 21,890,971 3,535,695
----------- -----------
Net change in cash and cash equivalents 18,655,574 (941,787)
Cash and cash equivalents at beginning of period 5,011,990 6,588,647
----------- -----------
Cash and cash equivalents at end of period $23,667,564 5,646,860
=========== ===========
</TABLE>
C-26
<PAGE>
COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements included the accounts of Community
Financial Corporation and its wholly owned subsidiary, Georgia State Bank
(the "Bank").
The financial information furnished herein reflects all adjustments which
are, in the opinion of management, necessary to present a fair statement of
the results of operations and financial position for the periods covered
herein. All such adjustments are of a normal recurring nature.
(2) CASH AND CASH EQUIVALENTS
For presentation in the financial statements, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold.
(3) COMPREHENSIVE INCOME
In 1997, the Financial Accounting and Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 established standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. The Bank has elected to present comprehensive income
in a separate consolidated statement of comprehensive income. Accumulated
other comprehensive income is solely related to the net of tax effect of
unrealized gains and losses on securities available for sale.
C-27
<PAGE>
APPENDIX D
[LETTERHEAD OF BROWN, BURKE CAPITAL PARTNERS, INC. APPEARS HERE]
July 22, 1998
Board of Directors
Community Financial Corporation
620 Fontaine Road
Mableton, GA 30059
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the shareholders
and optionholders of Community Financial Corporation (the "Company"), from a
financial point of view, of the per share purchase price and terms (the "Per
Share Purchase Price and Terms") provided for in the Agreement and Plan of
Merger (the "Merger Agreement") dated June 8, 1998 between the Company and
Alabama National BanCorporation ("ANB"). The Merger Agreement provides for a
merger (the "Merger") of the Company and ANB pursuant to which the common
shareholders of the Company will receive 0.351807 ANB common shares (the
"Exchange Ratio") for each fully diluted common share. Optionholders shall
receive 0.351807 option shares to purchase ANB common stock for each option
share currently held, the exercise price of which shall be the current exercise
price divided by the Exchange Ratio.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to ANB and the Company. We have also
reviewed certain other information, including financial forecasts and budgets,
provided to us by ANB and the Company, and have discussed with the Company's
management the business and prospects of the Company.
We have also considered certain financial and stock market data of ANB and the
Company and we have compared that data with similar data for other publicly held
bank holding companies and 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
D-1
<PAGE>
Board of Directors
Community Financial Corporation
July 22, 1998
Page Two
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 ANB's and the Company's
managements as to the future financial performance of ANB and the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
of ANB or the Company and we have assumed that the aggregate allowances for loan
losses for ANB and the Company are adequate to cover such losses. We have
solicited third party indications of interest in acquiring the Company and have
considered the results of that solicitation in arriving at our opinion.
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 ANB common stock necessarily will be when
the ANB common stock is issued to the stockholders of the Company upon
consummation of the Merger.
We have acted as financial advisor to the Company 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 Per Share Purchase Price and Terms of the Merger are fair to the
common shareholders and optionholders of the Company from a financial point of
view.
Very truly yours,
/s/ BROWN, BURKE CAPITAL PARTNERS, INC.
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation, as amended, of ANB contains a provision
which, subject to certain exceptions described below, eliminates the liability
of a director to ANB or its stockholders for monetary damages for any breach
of duty as a director. This provision does not eliminate the liability of the
director (i) for violations of his duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law (the "DGCL") relating to unlawful
dividends and distributions, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Bylaws of ANB require ANB to indemnify any person who was, is or is
threatened to be made a named defendant or respondent in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of service by such person as a
director of ANB or any other corporation, including the subsidiary banks of
ANB, for which he served as such at the request of ANB. Directors are entitled
to be indemnified against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director in connection with the
proceeding, except that no payments may be made with respect to liability
which is not eliminated pursuant to the provision of ANB's Certificate of
Incorporation described in the preceding paragraph. Directors are also
entitled to have ANB advance any such expenses prior to final disposition of
the proceeding, upon delivery of a written affirmation by the director of his
good faith belief that the standard of conduct necessary for indemnification
has been met and a written undertaking to repay the amounts advanced if it is
ultimately determined that the standard of conduct has not been met.
In addition to the Bylaws of ANB, Section 145(c) of the DGCL requires ANB to
indemnify any director who has been successful on the merits or otherwise in
defending any proceeding described above which has arisen prior to July 1,
1997. The Delaware General Corporation Law also provides that a court may
order indemnification of a director if it determines that the director is
fairly and reasonably entitled to such indemnification.
The Board of Directors of ANB also has the authority to extend to officers,
employees and agents the same indemnification rights held by directors,
subject to all of the accompanying conditions and obligations. The Board of
Directors has extended indemnification rights to all of its executive
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of June 8, 1998, is found at
Appendix A to the Proxy Statement included in Part I hereof.
4.1 Certificate of Incorporation, filed as Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (No. 33-83800), is incorporated herein
by reference.
4.1A Certificate of Amendment of Certificate of Incorporation; filed as Exhibit
3.1A to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (No. 0-25160), is incorporated herein by reference.
4.1B Certificate of Merger, filed as Exhibit 3.1B to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 (No. 0-25160), is
incorporated herein by reference.
4.1C Certificate of Amendment of Certificate of Incorporation dated April 24,
1998; filed as Exhibit 3.1C to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (No. 0-25160) is incorporated
herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.2 Bylaws, filed as Exhibit 3.2 to Registrant's Registration Statement on
Form S-1 (No. 33-83800), is incorporated herein by reference.
5.1 Opinion of Maynard, Cooper & Gale, P.C. re legality dated July 24, 1998.
8.1 Opinion of Maynard, Cooper & Gale, P.C. re tax matters dated July 23,
1998.
13.1 Registrant's 1997 Annual Report on Form 10-K for the year ended December
31, 1997 (No. 0-25160), is incorporated herein by reference.
21.1 Subsidiaries of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Porter Keadle Moore LLP.
23.4 Consent of Maynard, Cooper & Gale, P.C. is included in their opinion re
legality filed as Exhibit 5.1 hereto.
23.5 Consent of Maynard, Cooper & Gale, P.C. is included in their opinion re
tax matters filed as Exhibit 8.1 hereto.
23.6 Consent of Brown, Burke Capital Partners, Inc.
24.1 Power of Attorney (contained on signature page of the Registration
Statement).
99.1 Form of Proxy to be used at Community Financial Corporation annual
meeting.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES. All Schedules to the consolidated
financial statements required by Article 9 of Regulation S-X are inapplicable
and therefore have been omitted.
(c) Information pursuant to Items 4(b) is included in the Prospectus.
ITEM 22. UNDERTAKINGS.
(a) 1. 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.
2. Insofar as an indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") 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
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.
II-2
<PAGE>
3. 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 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.
(b) 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.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<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 BIRMINGHAM, ALABAMA, ON
THE 20TH DAY OF JULY, 1998.
Alabama National BanCorporation
/s/ John H. Holcomb, III
By:__________________________________
John H. Holcomb, III,
Chairman and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JOHN H. HOLCOMB, III AND VICTOR E. NICHOL, JR.,
AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS
REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR
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 SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM OR THEIR
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 BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John H. Holcomb, III Chairman, Chief Executive July 20, 1998
____________________________________ Officer, and Director
John H. Holcomb, III (Principal Executive
Officer)
/s/ Victor E. Nichol, Jr. President and Chief July 20, 1998
____________________________________ Operating Officer, and
Victor E. Nichol, Jr. Director
/s/ William E. Matthews, V Executive Vice President and July 20, 1998
____________________________________ Chief Financial Officer
William E. Matthews, V (Principal Financial
Officer)
/s/ James S. Parks, Jr. Senior Vice President- July 20, 1998
____________________________________ Finance, Treasurer
James S. Parks, Jr. (Principal Accounting
Officer)
/s/ T. Morris Hackney Director July 20, 1998
____________________________________
T. Morris Hackney
/s/ John D. Johns Director July 20, 1998
____________________________________
John D. Johns
/s/ John J. McMahon, Jr. Director July 20, 1998
____________________________________
John J. McMahon, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. Phillip McWane Director July 20, 1998
____________________________________
C. Phillip McWane
/s/ William D. Montgomery Director July 20, 1998
____________________________________
William D. Montgomery
/s/ Drayton Nabers, Jr. Director July 20, 1998
____________________________________
Drayton Nabers, Jr.
/s/ G. Ruffner Page, Jr. Director July 20, 1998
____________________________________
G. Ruffner Page, Jr.
/s/ W. Stancil Starnes Director July 20, 1998
____________________________________
W. Stancil Starnes
/s/ Dan M. David Vice Chairman and Director July 21, 1998
____________________________________
Dan M. David
/s/ C. Lloyd Nix Director July 22, 1998
____________________________________
C. Lloyd Nix
/s/ William E. Sexton Director July 21, 1998
____________________________________
William E. Sexton
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
July 24, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Registration Statement on Form S-4
Alabama National BanCorporation
Ladies and Gentlemen:
As counsel for Alabama National BanCorporation ("ANB"), we are familiar with
the Certificate of Incorporation and the Bylaws of ANB and the above-
referenced Registration Statement on Form S-4 (the "Registration Statement")
relating to 1,132,887 shares of the common stock, $1.00 par value per share,
of ANB (the "Shares"). We have examined such public records and corporate
proceedings and other documents as we have deemed necessary or appropriate as
a basis for the opinion expressed below.
Based upon the foregoing, we are of the opinion that the Shares will, when
issued, be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
Maynard, Cooper & Gale, P.C.
/s/ Christopher B. Harmon
By: _________________________________
Christopher B. Harmon
<PAGE>
EXHIBIT 8.1
July 23, 1998
Alabama National BanCorporation
1927 First Avenue North
Birmingham, Alabama 35203
Attention: Chairman and Chief Executive Officer
Community Financial Corporation
620 Fontaine Road, S.W.
Mableton, GA
Attention: Chief Executive Officer
Re: Agreement and Plan of Merger dated as of June 8, 1998 (the
"Merger Agreement") between Community Financial Corporation
("CFC"); and Alabama National BanCorporation ("ANB"); which
provides for the merger of CFC with and into ANB
Gentlemen:
This letter is in response to your request that we provide you with our
opinion with respect to certain of the federal income tax consequences of
consummation of the transactions set forth in the Merger Agreement. In
rendering this opinion, we have relied upon the facts presented to us in (i) the
Merger Agreement and (ii) the Proxy Statement and Prospectus filed with the
Securities and Exchange Commission as part of ANB's Registration Statement on
Form S-4, including the exhibits thereto. Additionally, we have relied upon the
representations of management of CFC and management of ANB set forth in
certificates of officers of those entities, copies of which are attached hereto
as Exhibits A and B, respectively. In the aggregate, the facts relied upon are
as set forth in the section of this letter denominated "FACTS."
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 2
In our examination of such documents, we have assumed, with your consent, that
all documents submitted to us as photocopies reproduce the originals thereof,
that such originals are authentic, that all such documents have been or will be
duly executed to the extent required, and that all statements set forth in such
documents are accurate.
We have assumed that the stockholders of CFC approve the Merger Agreement in
accordance with the law of Georgia, its state of incorporation. We have assumed
that the transactions contemplated by the Merger Agreement, will qualify as
statutory mergers under Delaware and Georgia law.
FACTS
-----
ANB is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with its principal executive office
located in Birmingham, Alabama. It presently has 17,500,000 authorized shares
of common capital stock, $1.00 par value per share ("ANB Common Stock"), of
which 9,208,033 shares were issued and outstanding as of June 30, 1998.
Additionally, ANB has 100,000 authorized shares of preferred stock, $1.00 par
value per share, none of which were issued and outstanding as of June 30, 1998.
Since June 30, 1998, there has been no change in the issued and outstanding ANB
Common Stock (except (i) as will be effected by the transactions described
herein, and (ii) for insignificant changes occurring in the ordinary course of
business), and none of the preferred shares have been issued.
CFC is a corporation duly organized, validly existing and in good standing
under the laws of the State of Georgia with its principal executive offices
located in Mableton, Georgia. As of December 31, 1998, CFC had 10,000,000
authorized shares of common capital stock, each of which had a par value of
$2.50 per share (the "CFC Common Stock"), of which 2,337,309 were issued and
outstanding as of December 31, 1997. Additionally, CFC has 30,000 authorized
shares of preferred stock, $100 par value per share, none of which were issued
and outstanding as of December 31, 1997.
CFC owns all the stock of Georgia State Bank, a Georgia state banking
corporation ("Georgia State Bank").
Numerous factors were considered by the boards of directors of CFC and ANB in
approving and recommending to their respective shareholders the terms of the
merger of CFC into ANB (the "Merger"). ANB's board of directors considered the
information presented to the directors by the management of ANB concerning (i)
the business, operations, earnings, asset quality, and financial condition of
CFC, including the composition of the earning asset portfolio of CFC, (ii) the
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 3
financial terms of the Merger, including the relationship of the value of the
consideration issuable in the Merger to the market value, tangible book value,
and earnings per share of CFC, (iii) the nonfinancial terms of the Merger,
including the treatment of the Merger as a tax-free exchange of CFC Common Stock
for ANB Common Stock for federal income tax purposes, (iv) the likelihood of the
Merger being approved by the applicable regulatory authorities without undue
conditions or delay, (v) the opportunity for reducing the non-interest expense
of the operations of CFC and the ability of the operations of CFC after the
Merger to contribute to the earnings of ANB, (vi) the attractiveness of the CFC
franchise, the market potential of CFC and each of the markets in which it
operates, and the compatibility of the franchise of CFC in north-central Georgia
with the operation of ANB in its market, and (vii) the compatibility of the
community bank orientation of the operations of CFC to that of ANB.
The board of directors of CFC considered a number of factors and criteria
regarding the potential benefit of the merger. Among these factors were (i)
ANB's ability to provide additional financial services to the customers of
Georgia State Bank, (ii) ANB's ability, due to its superior capitalization, to
facilitate Georgia State Bank's addition of bank branches which would increase
customer convenience, (iii) the impact of ANB's reputation as an owner and
operator of community banks on Georgia State Bank's image as a community bank,
(iv) ANB's experience in owning and operating community banks and the value
thereof to the Mableton, Austell, Powder Springs and Hiram, Georgia communities,
(v) ANB's commitment to use CFC as a platform to create a north-central Georgia
network of community banks as an opportunity for the growth and enhancement of
the Mableton, Austell, Powder Springs and Hiram, Georgia communities, (vi) ANB's
reputation for maintaining continuity of qualified, local personnel in acquired
banks, (vii) the marketability and liquidity of ANB's securities, (viii) the
ability of ANB's growth potential to enhance shareholder value, and (ix) the
overall ability of the Merger to enhance shareholder value.
Additionally CFC's board of directors engaged Brown, Burke Capital Partners,
Inc. ("Brown, Burke"), to provide its opinion with respect to the fairness of
the consideration to be received by CFC's shareholders in connection with the
Merger and related matters. As of July 22, 1998 Brown, Burke rendered its
written opinion that, as of such date, the consideration to be received in the
Merger Agreement was fair from a financial point of view to the holders of CFC
Common Stock.
Prior to the Merger, no CFC Common Stock will be held by CFC or any subsidiary
thereof, or by ANB, any subsidiary thereof or any director or executive officer
thereof, other than in a fiduciary capacity and, in the case of CFC, as treasury
stock. Upon consummation of the Merger, each share of CFC Common Stock issued
and outstanding immediately prior to the Merger (excluding shares held by CFC
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 4
shareholders who perfect their dissenter's rights) shall cease to be outstanding
and shall be converted into .351807 newly issued shares of ANB Common Stock.
The ANB Common Stock to be issued in the Merger will have been registered with
the Securities and Exchange Commission under the Securities Act of 1933. The
ratio for the exchange of shares of CFC Common Stock for ANB Common Stock was
negotiated through arm's-length bargaining. Accordingly, the fair market value
of the ANB Common Stock and cash consideration, in the case of fractional
shares, will be approximately equal to the fair market value of the CFC Common
Stock surrendered in exchange therefor.
Options to purchase shares of CFC Common Stock will be converted into options
to purchase .351807 shares of ANB Common Stock for each share of CFC Common
Stock subject to option. Additionally, shares of CFC Common Stock held by the
Georgia State Bank Employee Stock Ownership Plan (the "ESOP") will be converted
into the right to receive .351807 shares of ANB Common Stock.
Each share of ANB Common Stock issued and outstanding immediately prior to the
effective time of the Merger shall remain issued and outstanding from and after
the effective time.
As contemplated in the Merger Agreement, CFC will be merged into and become a
part of ANB, which will be the surviving corporation. CFC's separate corporate
existence will cease to exist upon consummation of the Merger. The Merger will
be effected pursuant to the laws of the States of Georgia and Delaware. ANB, as
the successor corporation, will acquire all of the assets of CFC (both net and
gross) and assume all of CFC's liabilities. Both the fair market value and
adjusted basis of the assets of CFC to be transferred to ANB will equal or
exceed the sum of liabilities to be assumed by ANB, plus the amount of
liabilities, if any, to which the transferred assets are subject. The
liabilities of CFC to be assumed by ANB and the liabilities to which transferred
assets of CFC are subject were incurred by CFC in the ordinary course of its
business. CFC does not have any indebtedness of ANB, or any subsidiary or
affiliate of ANB, that was issued, acquired or will be settled at a discount, or
that was issued or acquired in connection with this transaction. Nor does ANB
have any indebtedness of CFC, or any subsidiary or affiliate of CFC, that was
issued, acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 5
ANB has no plan or intention to sell or otherwise dispose of any of the assets
of CFC acquired in the transaction, except for dispositions made, or to be made,
in the ordinary course of business. Following the Merger, ANB will continue the
historic business of CFC and use a significant portion of CFC's assets in such
business, including the operation of the banking business of CFC conducted
through Georgia State Bank. ANB has no plan or intention to liquidate Georgia
State Bank, to merge Georgia State Bank into another corporation, or to cause
Georgia State Bank to sell or otherwise dispose of any of the assets of Georgia
State Bank, except for dispositions made in the ordinary course of business.
No fractional shares will be issued in connection with the Merger. In the
event that a fractional share is computed, the shareholder will receive cash in
lieu thereof. The cash payment in lieu of fractional shares is solely for the
purpose of avoiding the expense and inconvenience to ANB of issuing fractional
shares and does not represent separately bargained-for consideration. No one
holder of CFC Common Stock will receive cash greater than the average sales
price of one full share of ANB Common Stock reported on the NASDAQ National
Market during the ten trading days ending on the fifth business day prior to the
effective date of the Merger, and in the aggregate the maximum amount of cash
consideration that will be paid in the transaction to the holders of CFC Common
Stock in lieu of fractional shares will not exceed the product of (i) the number
of holders of CFC Common Stock on the effective date of the Merger, times (ii)
the value of one full share of ANB Common Stock calculated as set forth above.
The total cash consideration that will be paid in the Merger instead of issuing
fractional shares is not expected to exceed one percent of the total
consideration to be received. Any holder of CFC Common Stock who perfects his
statutory dissenter's rights shall be entitled to receive the value of such
shares in cash, as determined pursuant to the Georgia Business Corporation Code.
In the event that Shareholders owning in excess of 7.5% of the outstanding
shares of CFC Common Stock properly assert their dissenter's rights, ANB's Board
of Directors may terminate the Merger Agreement.
All ANB Common Stock to be received by CFC shareholders will be freely
transferable, except for ANB Common Stock received by persons deemed to be
"affiliates" of CFC who, under Rule 145 of the Securities Act of 1933, will be
restricted as to future sales. As of the effective date of the Merger, each
such affiliate will have entered into an agreement restricting resale of the ANB
Common Stock.
To the best knowledge of management of CFC, no CFC shareholder sold,
exchanged, or otherwise dispose of any of such person's CFC Common Stock to ANB
or a person related to ANB in anticipation of the Merger. ANB has no plan or
intention to reacquire directly or indirectly through a related party any ANB
Common Stock issued in the transaction.
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 6
One of the present directors of CFC (either Roy E. Barnes or W. Ray Barnes)
will be elected to the Board of Directors of ANB. No shareholder-employee of
CFC will receive any consideration for the CFC Common Stock owned by such
shareholder-employee in the form of compensation for services rendered or to be
rendered, and all compensation to such shareholder-employees for services
rendered or to be rendered will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
ANB and CFC will each bear and pay costs and expenses incurred by it, or on
its behalf, in connection with the Merger, including expenses of their
respective accountants and counsel; provided that ANB will pay all expenses
relating to filing, registration, printing and mailing fees associated with the
Proxy Statement and Prospectus. Any costs and expenses incurred by a holder of
CFC Common Stock will be for his own account and will not be paid by ANB or CFC.
Neither ANB nor CFC are under the jurisdiction of a court in a Title 11 or
similar case.
As of March 31, 1998, the total consolidated assets of CFC, exclusive of cash,
cash items (including receivables) and Government securities, were approximately
$74,533,000. Of this amount, the total value of the assets held for investment
constitutes approximately $2,778,000, of which approximately $733,000 consisted
of stock and equity securities. As of the date hereof, there has been no
substantial change in CFC's total assets, that portion of CFC's total assets
held for investment or that portion represented by stock and securities.
As of March 31, 1998, the total assets of ANB, exclusive of cash, cash items
(including receivables) and Government securities, were $1,050,131,000. Of this
amount, the total value of the assets held for investment constitutes
$233,036,000 of which $38,879,000 consisted of stock and securities. As of the
date hereof, there has been no substantial change in ANB's total assets, that
portion of ANB's total assets held for investment or that portion represented by
stock and securities.
LEGAL ANALYSIS
--------------
Section 354(a)(1) of the Internal Revenue Code of 1986 (the "Code")/1/
provides that gain or loss will not be recognized to a transferor stockholder if
stock or securities in a corporation that is a "party to a reorganization" are,
- --------------------------
/1/ Statutory references are to the Code.
----
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 7
pursuant to a "plan of reorganization," exchanged solely for stock or securities
in another corporation that is also a "party to the reorganization." The
exchange to which section 354(a)(1) applies must be pursuant to a "plan of
reorganization" and the stock and securities surrendered and received must be
the stock and securities of corporations each of which is a "party to a
reorganization" as those terms are defined in section 368. Treas. Reg. (S)1.354-
1(a). Section 354(a)(2)(A) provides that the non-recognition rule of section
354(a)(1) will not apply if either (i) the principal amount of the securities
received by the transferor exceeds the principal amount of the securities
surrendered by the transferor, or (ii) securities are received by the transferor
but no securities are surrendered by the transferor.
Section 356(a)(1) provides that if the non-recognition rule of section
354(a)(1) would apply to an exchange except that money or "other property" is
received by the transferor in addition to stock or securities in a corporation
that is a "party to a reorganization," then gain will be recognized by the
transferor to the extent of the money and fair market value of the "other
property" received. If such an exchange has the effect of the distribution of a
dividend, then each transferor that receives money or "other property" will have
the gain to be recognized treated as a dividend to the extent of such
transferor's ratable share of the earnings and profits of the corporation in
which the transferor held stock. Code, (S)356(a)(2). Whether a distribution
----
has the effect of a dividend will be determined based upon principles developed
under sections 356(a)(2) and 302 for determining dividend equivalency. Rev.
Rul. 74-515, 1974-2 C.B. 118. In applying those principles in the context of
section 356, one compares the interest the shareholder actually received in the
acquiring corporation in the reorganization with the interest the shareholder
would have received in the acquiring corporation if solely stock had been
received. Commissioner v. Clark, 489 U.S. 726 (1989); Rev. Rul. 93-61, 1993-2
C.B. 118.
The phrase "other property" does not include "securities" if such securities
would be permitted to be received without the recognition of gain under the
provisions of section 354. Code, (S)356(d)(2)(A). Further, if securities of a
----
corporation that is "a party to a reorganization" are surrendered and securities
of a corporation that is "a party to a reorganization" are received which exceed
the principal amount of the securities surrendered, the term "other property"
includes only the fair market value of the excess principal amount. Code,
----
(S)356(d)(2)(B).
In a "reorganization" where cash is paid by the acquiring corporation that is
not separately bargained for, but is in lieu of fractional share interests to
which shareholders are entitled, such cash payment will be treated under section
302(a) as a redemption of the fractional share interest which will be treated as
a distribution in exchange, provided that the redemption is not essentially
equivalent to a dividend. Rev. Rul. 66-365, 1966-2 C.B. 116 amplified Rev. Rul.
81-18, 1981-1 C.B. 122; Rev. Rul. 69-34, 1969-1 C.B. 105. See also, PLR
9703019. The Internal Revenue Service (the "Service") will normally rule that a
cash distribution in lieu of fractional share interests arising in a
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 8
"reorganization" will be in part or full payment in exchange for the stock
redeemed if the cash distribution is undertaken solely for the purpose of saving
the corporation the expense and inconvenience of issuing and transferring
fractional shares and is not separately bargained-for consideration. Rev. Proc.
77-41, 1977-2 C.B. 574. See e.g. PLR 9701020.
The term "reorganization" is defined in Section 368(a) and includes under
Section 368(a)(1)(A) a statutory merger or what is commonly referred to as an "A
reorganization." See also, Treas. Reg. (S)1.368-2(b)(1).
--------
In the present matter, CFC will merge into ANB in a statutory merger under the
laws of the States of Georgia and Delaware. CFC shareholders will exchange
their shares for ANB Common Stock. Only in the instance where a fractional
share is computed will a CFC shareholder receive cash in lieu of a fractional
share of ANB Common Stock. The distribution of cash, as opposed to the
distribution of a fractional share of ANB Common Stock, is solely for the
purpose of saving ANB the expense and inconvenience of issuing and transferring
fractional shares of ANB Common Stock and is not separately bargained-for
consideration.
In the case of an exchange to which section 354 applies, the basis of the
stock or securities received by the transferor, without the recognition of gain
or loss, shall be the same as that of the stock or securities exchanged,
decreased by (i) the fair market value of any "other property" and money
received by the transferor and (ii) the amount of loss recognized by the
taxpayer on the exchange, and increased by (x) the amount treated as a dividend
and (y) the amount of gain recognized on the exchange, exclusive of the portion
treated as a dividend. Code, (S)358(a)(1).
----
The holding period of stock of a corporation "a party to a reorganization"
received by a transferor includes the period of time that the transferor held
the stock of the other corporation "a party to the reorganization" if such stock
constitutes a capital asset in the hands of the transferor. Code, (S)1223(1).
----
Additionally, for this rule to apply the stock received must have the same
basis, in whole or in part, as the stock exchanged. Generally, a capital asset
will include all property held by a taxpayer exclusive of (i) stock in trade of
a taxpayer or (ii) other property of a kind which would be properly includible
in inventory. Code, (S)1221(1).
----
In the present matter, a CFC shareholder will have a basis in the ANB Common
Stock received equal to such holder's basis in the CFC Common Stock surrendered,
decreased by the amount of any cash received in lieu of a fractional share of
ANB Common Stock and increased by the amount of gain recognized as a result of
receiving cash in lieu of a fractional share. Such CFC shareholder will include
in the holding period of ANB Common Stock the holding period of such CFC
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 9
shareholder unless the CFC Common Stock was not considered as a capital asset in
the hands of such holder.
With respect to the tax treatment of a corporation that is "a party to a
reorganization" which issues stock to a transferor of stock or securities in
another corporation that is a "party to a reorganization," the basis of the
property acquired shall be the same as the basis in the property surrendered
increased by the amount of gain recognized by the transferor on such transfer.
Code, (S)362(b).
- ----
The term "party to a reorganization" is defined in sections 368(a) and 368(b).
The term "plan of reorganization" is defined in the regulations promulgated
under the authority of section 368.
Two additional requirements for a "reorganization" are a "continuity of
business enterprise" and a "continuity of interest" therein on the part of those
persons who, directly or indirectly, were the owners of the enterprise prior to
the reorganization. Treas. Reg. (S)1.368-1(b).
On January 3, 1997 the Service published a notice of proposed rulemaking
relating to the "continuity of business enterprise" requirement. On January 23,
1998 the Service issued Treasury Decision 8760 modifying and making final new
continuity of business enterprise regulations. These regulations are effective
for transactions occurring after January 28, 1998. The "continuity of business
enterprise" requirement is satisfied if the acquiring corporation either (i)
continues the acquired corporation's historic business, or (ii) uses a
significant portion of the acquired corporation's historic business assets in a
business. Treas. Reg. (S)1.368-1(d)(2). With respect to continuing the historic
business of the acquired corporation, the fact that the acquiring corporation is
in the same line of business as the acquired corporation tends to establish the
requisite business continuity. The acquired corporation's historic business is
generally the business it has most recently conducted. If the acquired
corporation has more than one line of business, continuity of business
enterprise requires that only a significant line of business be conducted.
Treas. Reg. (S)1.368-1(d)(3). With respect to the alternative of historic
business assets continuity, it generally will be satisfied if the acquiring
corporation utilizes a significant portion of the acquired corporation's
historic business assets in a business. An acquired corporation's historic
business assets are those assets used in its historic business. Whether a
"significant" portion of the historic assets are used in a business is based
upon the relative importance of the assets to the operation of the business.
Treas. Reg. (S)1.368-1(d)(4).
On December 23, 1996, the Service published a notice of proposed rulemaking
relating to the "continuity of interest" requirement. By virtue of the same
notice the revised regulations became effective for transactions occurring after
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 10
January 28, 1998. The "continuity of interest" requirement is satisfied if
there exists among the holders of the stock and securities of either (i) the
acquired corporation or (ii) acquiring corporation, the requisite continuity of
interest in the acquiring corporation. Treas. Reg. (S)1.368-1(e). For ruling
purposes prior to the revised regulation, the Service had stated that the
continuity of interest requirement would be satisfied if one or more
shareholders of the acquired corporation acquire stock of the acquiring
corporation, or a corporation controlling the acquiring corporation, that was
equal in value to at least 50% of the value of all the outstanding stock of the
acquired corporation on the date of the reorganization. Rev. Proc. 77-37, 1977-
2 C.B. 568. See, J.E. Seagram Corp. v. Commissioner, 104 TC 100 (1995)
---
(discussion of judicial authority for less than 50%). Prior to the revised
regulations, there was the further requirement that there not be an intent on
behalf of the holders of the stock of the acquired corporation to dispose of the
stock received from the acquiring corporation. The revised regulation has
eliminated that requirement, at least as to third parties, and permits holders
of acquired company stock to sell the stock received from the acquiring company,
other than for sales to the acquiring company.
In the present matter, ANB will both continue CFC's historic business and use
a significant portion of CFC's historic business assets in such business.
Additionally, former CFC shareholders will acquire in the aggregate ANB Common
Stock equal in value to at least 50% of the value of all of the outstanding CFC
Common Stock on the date of the reorganization, and there is no known intent to
dispose of any ANB Common Stock to ANB or a party related to ANB.
Additionally, for a transaction to qualify as a reorganization by virtue of a
statutory merger, there must be a business purpose for the transaction. Treas.
Reg. (S)(S)1.368-1(b); 1.368-2(b)(2). Whether a transaction has a business
purpose is eventually a factual question with no mathematical safe-harbor
available.
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 11
In the present matter, ANB should be able by virtue of its size to realize
certain economies of scale and be more competitive with regional and national
providers of financial services. Additionally, holders of CFC Common Stock will
receive in exchange for such shares a security registered under the Securities
Act of 1933 issued by a company that reports under the Securities Exchange Act
of 1934. Based upon similar facts, the Service has ruled in the past that a
reorganization has occurred.
Assuming that a "reorganization" occurs, a "party to a reorganization"
includes both corporations in a transaction qualifying as a reorganization when
one corporation acquires properties of another corporation and, in the case of a
corporation controlling the acquiring corporation, such corporation where its
stock is used in the acquisition. Treas. Reg. (S)1.368-2(f). A "plan of
reorganization" is a consummated transaction specifically defined as a
reorganization and is not itself a broadening of the term "reorganization."
Treas. Reg. (S)1.368-2(g).
Although not directly applicable to the present matter, the Service has held
that the "solely for voting stock" requirement of Sections 368(a)(1)(B) and
368(a)(1)(C) will not be violated if the acquiring corporation pays expenses of
the acquired corporation that are solely and directly related to the
reorganization, but will be violated if the acquiring corporation pays the
individual expenses of the stockholders of the acquired corporation. Rev. Rul.
73-54, 1973-1 C.B. 187; PLR 9701020. Even in statutory mergers, for ruling
purposes, the Service required a representation that each party to the merger
and the stockholders of the acquired corporation will pay their respective
expenses, if any, incurred in connection with the transaction. Rev. Proc. 86-
42, 1986-2 C.B. 722. The Service has stopped ruling on these types of
transactions. Rev. Proc. 98-3, 1998-I.R.B. __ (Section 3.01(24)).
Even though a transaction would otherwise meet all of the requirements for a
"reorganization" as described before, a transaction will not be considered a
"reorganization" if two or more parties to the transaction are "investment
companies," at least as with respect to such "investment company." Code,
----
(S)368(a)(2)(F)(i). For this purpose, the term "investment company" means a
"regulated investment company," a "real estate investment trust," or a
corporation 50% or more of the value of whose total assets are stock and
securities and 80% or more of the value of whose total assets are assets held
for investment. In making this calculation, stock and securities in any
subsidiary are disregarded and the parent corporation is deemed to own its
ratable share of the subsidiary assets, considering for this purpose a
corporation as being a subsidiary if another corporation owns 50% or more of the
combined voting power of all classes of stock entitled to vote, or 50% or more
of the total value of shares of all classes of stock outstanding. Code,
----
(S)368(a)(2)(F)(iii). Additionally, in determining total assets, there is
excluded cash and cash items (including receivables), government securities and
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 12
in certain instances other assets acquired. Code, (S)368(a)(2)(F)(iv). Assets
----
are held for investment if (i) they are held primarily for gain from
appreciation in value, production of passive income or both and (ii) are not
held primarily for sale to customers. Prop. Treas. Reg. (S)1.368-4(d)(1).
Passive income includes interest income if such interest constitutes passive
income for purposes of S corporation taxation. Prop. Treas. Reg. (S)1.368-
4(d)(2). Interest income directly derived in the ordinary course of a trade or
business of lending or financing does not constitute passive income. Treas. Reg.
(S)1.1362-2(c)(5)(iii)(B). Among the requirements to constitute a "regulated
investment company," is that the company files with its return for the taxable
year an election to be a "regulated investment company" or has made such
election for a previous taxable year. Code, (S)851(d)(1). A similar requirement
----
is provided to constitute a "real estate investment trust." Code, (S)856(c)(1).
----
In the present matter, neither ANB nor CFC has made an election to be taxed as
a regulated investment company or a real estate investment trust. Accordingly,
such entities can constitute an "investment company" only if 50% or more of the
value of their respective assets are stocks and securities and 80% or more of
the value of the total assets are held for investment. In making these
calculations, cash, cash items (including receivables) and Government securities
are excluded and stock and securities in a 50%-owned subsidiary are disregarded
with the parent being deemed to own its ratable share of such subsidiaries'
assets. Otherwise, a "security" includes obligations of state and local
governments, commodity futures contracts, shares of regulated investment
companies, real estate investment trusts and other investments constituting a
security within the meaning of the Investment Company Act of 1940. In the
present matter, neither ANB nor CFC meet the definition of an "investment
company."
With respect to CFC shareholders who elect to exercise their right to dissent
to the Merger, cash received with respect to a dissenter's CFC Common Stock will
be treated as received by the CFC shareholder in redemption of their CFC Common
Stock, subject to the provisions and limitations of Section 302 of the Code.
OPINION
-------
Based upon the facts set forth herein and assuming that the Merger will take
place as described in the Merger Agreement and that the representations made by
ANB and CFC are true and correct at the time of consummation of the Merger, it
is our opinion that for federal income tax purposes:
(i) the Merger will constitute a reorganization within the meaning of
Section 368 of the Code;
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 13
(ii) ANB and CFC will each be a "party to a reorganization" within the
meaning of (S)368(b) of the Code;
(iii) no gain or loss will be recognized by ANB or CFC in the Merger;
(iv) no gain or loss will be recognized by a CFC shareholder upon the
exchange in the Merger of CFC Common Stock solely for shares of ANB Common
Stock;
(v) the basis of ANB Common Stock to be received in the Merger by a CFC
shareholder will be the same as such person's basis in the CFC Common Stock
exchanged therefor;
(vi) the holding period of ANB Common Stock to be received in the Merger
by a CFC shareholder will include the period during which such person held the
CFC Common Stock exchanged therefor, provided that such CFC Common Stock was
held as a capital asset immediately prior to the consummation of the Merger;
(vii) the receipt of cash in exchange for a fractional share interest in
a share of ANB Common Stock will be treated as received in exchange for such
fractional share interest;
(viii) no gain or loss will be recognized by ANB or CFC in connection with
the reorganization; and
(ix) the receipt of cash by a CFC shareholder, who exercises his or her
rights to dissent, will be treated as received in exchange for such CFC Common
Stock.
The opinions expressed herein are based upon existing statutory, regulatory,
and judicial authority, any of which may be changed at any time with retroactive
effect. This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the Internal Revenue Service or a court
considering the issues. Also, future changes in federal income tax laws and the
interpretation thereof can have retroactive effect. In addition, our opinions
are based solely on the documents that we have examined, the additional
information that we have obtained, and the statements set out therein, which we
have assumed and you have confirmed to be true on the date hereof and will be
true on the date on which the proposed transaction is consummated. Our opinions
<PAGE>
Alabama National BanCorporation
Community Financial Corporation
July 23, 1998
Page 14
cannot be relied upon if any of the facts contained in such documents or if such
additional information is, or later becomes, inaccurate, or if any of the
statements set out herein is, or later becomes, inaccurate. Finally, our
opinions are limited to the federal income tax matters specifically covered
thereby, and we have not been asked to address, nor have we addressed, any other
tax consequences of the proposed transaction. No opinion is expressed with
respect to shareholders who are corporations, trusts, dealers in securities,
financial institutions, insurance companies, tax exempt organizations, persons
who are not United States citizens or resident aliens or domestic entities
(partnerships or trusts), subject to the alternative minimum tax (to the extent
that tax affects the tax consequences), or are subject to the "golden parachute"
provisions of the Code (to the extent that tax affects the tax consequences);
also shareholders who acquired CFC Common Stock pursuant to employee stock
options or otherwise as compensation, who do not hold their shares as capital
assets, or who hold their shares as part of a "straddle" or "conversion
transaction."
We consent to the use of this opinion as an exhibit to the Registration
Statement (Registration No. _____________) filed be ANB relating to the proposed
Merger and to the reference to us under the headings "RISK FACTORS - Tax
Considerations," "THE MERGER -Federal Income Tax Consequences" and "LEGAL
MATTERS" in the Proxy Statement and Prospectus included in the Registration
Statement. This opinion is being provided solely for the use of ANB and CFC.
No other person or party shall be entitled to rely on this opinion.
Very truly yours,
/s/ Maynard, Cooper & Gale, P.C.
<PAGE>
EXHIBIT A
---------
STATEMENT OF FACTS AND REPRESENTATIONS
--------------------------------------
This Statement of Facts and Representations is made on behalf of Georgia State
Bank Corporation ("CFC") to Maynard, Cooper & Gale, P.C., and is intended to be
relied upon in the issuance of an opinion as to certain federal tax consequences
arising from consummation of the transactions described in the Merger Agreement
and Plan of Merger dated June 8, 1998, by and between CFC and Alabama National
BanCorporation ("ANB"). Capitalized terms shall have the meaning assigned to
them in the opinion of Maynard, Cooper & Gale, P.C. dated July 23, 1998, to ANB
and CFC.
1. Both the fair market value and adjusted basis of assets of CFC to be
transferred to ANB will equal or exceed the sum of liabilities to be assumed by
ANB, plus the amount of liabilities, if any, to which the transferred assets are
subject.
2. The ratio for the exchange of shares of CFC Common Stock for ANB Common
Stock was negotiated through arm's-length bargaining. The fair market value of
the ANB Common Stock and cash consideration, in the case of fractional shares,
will be approximately equal to the fair market value of the CFC Common Stock
surrendered in exchange therefor.
3. The liabilities of CFC to be assumed by ANB and the liabilities to which
transferred assets of CFC are subject were incurred by CFC in the ordinary
course of its business.
4. To the best knowledge of management of CFC, there is no plan or intention
by any CFC shareholder to sell, exchange, or otherwise dispose of such person's
CFC Common Stock to ANB or a person related to ANB in anticipation of the
Merger.
5. CFC does not have any indebtedness of ANB or any subsidiary of ANB that
was issued, acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
6. Any cost or expense incurred by a CFC shareholder will be for his own
account and will not be paid by CFC.
7. No shareholder-employee of CFC will receive any consideration for the CFC
Common Stock owned by such shareholder-employee in the form of compensation for
services rendered or to be rendered and all compensation to such shareholder-
employee for services rendered or to be rendered will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar services.
8. CFC is not under the jurisdiction of a court in a Title 11 or similar
case.
A-1
<PAGE>
9. As of March 31, 1998, the total consolidated assets of CFC, exclusive of
cash, cash items (including receivables) and Government securities was
approximately $74,533,000. Of this amount, the total value of the assets held
for investments constitutes approximately $2,778,000, of which $733,000
consists of stock and equity securities.
10. As of the date hereof, there has been no substantial change from March
31, 1998 in CFC's total assets or that portion of CFC's total assets represented
by investment securities.
11. Except as will be effected by the Merger, there has been no change in the
issued and outstanding CFC Common Stock since June 30, 1998.
12. CFC has not elected to be taxed as a regulated investment company or a
real estate investment trust.
COMMUNITY FINANCIAL CORPORATION
By: /s/ Ken F. Thigpen
-----------------------------
Its: President
--------------------------
A-2
<PAGE>
EXHIBIT B
---------
STATEMENT OF FACTS AND REPRESENTATIONS
--------------------------------------
This Statement of Facts and Representations is made on behalf of Alabama
National BanCorporation ("ANB"), to Maynard, Cooper & Gale, P.C., and is
intended to be relied upon in the issuance of an opinion as to certain federal
tax consequences arising from consummation of the transactions described in the
Merger Agreement and Plan of Merger dated June 8, 1998, by and between Community
Financial Corporation ("CFC") and ANB. Capitalized terms shall have the meaning
assigned to them in the opinion of Maynard, Cooper & Gale, P.C. dated July 23,
1998, to ANB and CFC.
1. The ratio for the exchange of shares of CFC Common Stock for ANB Common
Stock was negotiated through arm's-length bargaining. The fair market value of
the ANB Common Stock and cash consideration in the case of fractional shares
will be approximately equal to the fair market value of the CFC Common Stock
surrendered in exchange therefor.
2. Each share of ANB common stock (excluding shares held by stockholders who
perfect their dissenter's right of appraisal as provided in the Merger
Agreement) issued and outstanding immediately prior to the effective time of the
Merger shall remain issued and outstanding from and after the effective time.
3. ANB does not have any indebtedness of CFC or any subsidiary of CFC that
was issued, acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
4. ANB has no plan or intention to sell or otherwise dispose of any of the
assets of CFC acquired in the transaction, except for dispositions made, or to
be made, in the ordinary course of business or for transfers to another
corporation controlled by ANB. Following the Merger, ANB will continue the
historic business of CFC and use a significant portion of CFC's assets in such
business, including the operation of the banking business of CFC conducted
through Georgia State Bank.
5. ANB has no plan or intention to reacquire any ANB Common Stock issued in
this transaction, and ANB has not acquired any CFC Common Stock prior to the
Merger in anticipation of the Merger.
6. None of ANB, its subsidiaries (other than in a fiduciary capacity),
directors and executive officers owned on March 31, 1998 any CFC Common Stock.
7. The payment of cash in lieu of fractional shares of ANB Common Stock is
solely for the purpose of avoiding the expense and inconvenience to ANB of
issuing fractional shares and does not represent separately bargained for
consideration. The maximum amount of cash consideration that will be paid in the
merger to the holders of CFC Common Stock in lieu of fractional shares will not
exceed the product of (i) the number of holders of CFC Common Stock on the
B-1
<PAGE>
effective date of the Merger, times (ii) the value of one full share of ANB
Common Stock. The total cash consideration that will be paid in the merger
instead of issuing fractional shares is not expected to exceed one percent of
the total consideration to be received.
8. As of March 31, 1998, the total assets of ANB, exclusive of cash, cash
items (including receivables) and Government securities were $1,050,131,000. Of
this amount, the total value of the assets held for investment constitutes
$223,036,000, of which $38,879,000 consists of stock and securities. As of the
date hereof, there has been no substantial change in ANB's total assets, the
portion of ANB's total assets held for investment, or that portion represented
by stock and securities.
9. ANB is not under the jurisdiction of a court in a Title 11 or similar
case.
10. ANB has no plan or intention to liquidate Georgia State Bank, to merge
Georgia State Bank into another corporation, or to cause Georgia State Bank to
sell or otherwise dispose of any of the assets of Georgia State Bank, except for
dispositions made in the ordinary course of business.
11. ANB has not elected to be taxed as a regulated investment company or a
real estate investment trust.
ALABAMA NATIONAL
BANCORPORATION
By: /s/ James S. Parks, Jr.
--------------------------------------------
Its: Senior Vice President--Finance, Treasurer
-----------------------------------------
B-2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ -------------
<S> <C>
National Bank of Commerce of Birmingham..................... National Bank
NBC Securities, Inc....................................... Alabama
Bank of Dadeville........................................... Alabama
Ashland Insurance, Inc.................................... Alabama
Alabama Exchange Bank....................................... Alabama
Tuskegee Loan Company, Inc................................ Alabama
First Gulf Bank............................................. Alabama
First Citizens Bank, National Association................... National Bank
Clay County Finance Company, Inc.......................... Alabama
First American Bank......................................... Alabama
Corporate Billing, Inc.................................... Alabama
First Allegiance Mortgage, Inc............................ Alabama
Citizens and Peoples Bank, N.A.............................. National Bank
Public Bank................................................. Florida
Public Mortgage Corporation............................... Florida
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
on Form S-4 (File No. 333- ) of our report dated January 15, 1998, except
for Notes 8 and 19 as to which the dates are January 19, 1998 and March 5,
1998, respectively, on our audits of the consolidated financial statements of
Alabama National BanCorporation as of December 31, 1997 and 1996, and for each
of the two years in the period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Birmingham, Alabama
July 21, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Alabama National
BanCorporation for the registration of 1,132,887 shares of its common stock
and to the incorporation by reference therein of our report dated February 29,
1996, with respect to the 1995 consolidated financial statements of Alabama
National BanCorporation (not presented separately in the 1996 Annual Report on
Form 10-K) which report is included in Alabama National BanCorporation's
Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Birmingham, Alabama
July 21, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF PORTER KEADLE MOORE LLP
We have issued our report dated March 13, 1998, accompanying the
consolidated financial statements of Community Financial Corporation and
subsidiary, contained in the Form S-4 Registration Statement. We consent to
the use of the aforementioned report in the Registration Statement and to the
use of our name as it appears under the caption "Experts".
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
July 24, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use in this Registration Statement on Form S-4 of
Alabama National BanCorporation of our letter to the Board of Directors of
Community Financial Corporation included as Appendix D to the Proxy
Statement/Prospectus that is part of the Registration Statement, and to the
references to such letter and to our firm in the Proxy Statement/Prospectus.
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/ Brown, Burke Capital Partners,
Inc.
-------------------------------------
Brown, Burke Capital Partners, Inc.
July 22, 1998
<PAGE>
EXHIBIT 99.1
LOGO
REVOCABLE PROXY
COMMUNITY FINANCIAL CORPORATION
620 FONTAINE ROAD, S.W.
MABLETON, GEORGIA 30126
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMMUNITY
FINANCIAL CORPORATION ("CFC") FOR USE ONLY AT THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON , 1998, AND AT ANY POSTPONEMENT OR ADJOURNMENT
THEREOF (THE "ANNUAL MEETING").
The undersigned, being a Shareholder of CFC, hereby appoints and ,
and each of them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them, or either of them, to represent the undersigned at
the Annual Meeting and to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, on the following matters
in accordance with the following instructions on the reverse side hereof:
1 To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of June 8, 1998 (the "Merger Agreement"), by and between CFC
and Alabama National BanCorporation ("ANB"), pursuant to which, among other
matters (a) CFC would be merged with and into ANB (the "Merger") and (b) each
share of CFC common stock will be converted into the right to receive 0.351807
shares of ANB common stock. A copy of the Merger Agreement is set forth in
Appendix A to the accompanying Proxy Statement and Prospectus.
<TABLE>
<S> <C> <C> <C>
ELECTION TO APPROVE THE FOR Approval of the Merger AGAINST Approval of the Merger ABSTAIN from Approval of the Merger
MERGER: [_] [_] [_]
</TABLE>
2 To elect 11 directors to serve on the CFC Board of Directors until the
consummation of the above-referenced Merger or until the next annual meeting
and until their successors are duly elected and qualified.
[_] FOR All Nominees (Other than as Struck Below)
[_] WITHHOLD AUTHORITY To Vote For All Nominees Listed
NOTE: To withhold authority to vote for any individual nominee strike a line
through the nominee's name in the list below.
Roy E. Barnes, W. Ray Barnes, Thomas J. Browning, Ray H. Collier, Paul Y.
Cuthbertson, C. Eugene Eubanks, C. Freeman Poole, Mildred A. Reeves, Ken F.
Thigpen, Stephen P. Thompson, and R. Truman Travis.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Please mark, date and sign this Proxy below and return promptly using the
enclosed envelope.
<PAGE>
THIS PROXY CARD IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
THE UNDERSIGNED ACKNOWLEDGES THAT THE ANNUAL MEETING MAY BE POSTPONED OR
ADJOURNED TO A DATE SUBSEQUENT TO THE DATE SET FORTH ABOVE, AND INTENDS THAT
THIS PROXY SHALL BE EFFECTIVE AT THE ANNUAL MEETING AFTER SUCH POSTPONEMENT(S)
OR ADJOURNMENT(S). THIS PROXY IS REVOCABLE, AND THE UNDERSIGNED MAY REVOKE IT
AT ANY TIME BY DELIVERY OF WRITTEN NOTICE OF SUCH REVOCATION TO CFC, PRIOR TO
THE DATE OF THE ANNUAL MEETING, OR BY ATTENDANCE AT THE ANNUAL MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE MERGER
AND FOR ALL DIRECTOR NOMINEES.
Signature(s): _______________
Date: _______________________
NOTE: Please sign exactly as
name appears above. When
signing as attorney, execu-
tor, administrator, trustee
or guardian, please give
full title as such. If a
corporation, please sign in
full corporation name by
president or other autho-
rized officer. If a partner-
ship, please sign in part-
nership name by authorized
person.
