Filed Pursuant to Rule 424(b)(3)
Registration No. 333-118638
[Farmers & Merchants Bank Logo]
FARMERS AND MERCHANTS BANK
600 Bellevue Avenue
Dublin, Georgia 31021
To the shareowners of September 20, 2004
Farmers and Merchants Bank
I am pleased to invite you to attend a Special Meeting of the
shareowners of Farmers and Merchants Bank to be held at Farmers and Merchants
Bank, located at 600 Bellevue Avenue, Dublin, Georgia, on Friday, October 15,
2004, at 10:00 a.m., Eastern Time.
At the Special Meeting, you will be asked to approve the Agreement and
Plan of Merger among Farmers and Merchants, Capital City Bank Group, Inc. and
Capital City Bank, whereby Farmers and Merchants will merge with Capital
City. When the merger is completed, each share of common stock held by you
will be exchanged for the right to receive $666.50 in cash, plus up to 17.54
shares (but no less than 14.81 shares) of Capital City common stock. The
exact exchange ratio of Farmers and Merchants Bank common stock for Capital
City common stock will be based on the average of the daily closing sales
prices of Capital City common stock, as reported by the Nasdaq National
Market, for an agreed upon period prior to the closing date of the merger.
Capital City will pay Farmers and Merchants shareowners cash instead of
issuing any fractional shares in the merger.
As the bank's board of directors, we believe that the merger will have
many benefits. We believe that the combined company will have greater
financial strength and greater opportunity and flexibility to expand and
diversify. The merger is subject to certain conditions, including approval
of the Agreement and Plan of Merger by the affirmative vote of holders of a
majority of the outstanding common stock of Farmers and Merchants
represented, in person or by proxy, at the Special Meeting, and approval of
the merger by various regulatory agencies.
As the bank's board of directors, we have unanimously approved the
Agreement and Plan of Merger and recommend it to you for your approval as
well.
This Proxy Statement/Prospectus provides detailed information about the
merger. We urge you to read this entire document carefully, including the
risk factors considered by Capital City's and Farmers and Merchants' boards
of directors beginning on page 18. You can also get information about
Capital City from the SEC. Capital City's common stock is traded on the
Nasdaq National Market under the symbol "CCBG."
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, and promptly return the enclosed proxy card. If you attend
the Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy card. The merger is a significant step for
Farmers and Merchants Bank and your vote on this matter is of great
importance.
On behalf of the board of directors, I strongly urge you to vote FOR
approval of the Agreement and Plan of Merger by marking the enclosed proxy
card "FOR" item one.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ McGrath Keen, Jr.
------------------------
McGrath Keen, Jr.
President and Director
_____________________________________________________________________________
Neither the Securities and Exchange Commission nor any state securities
regulatory body has approved or disapproved of the securities to be issued
under this Proxy Statement/Prospectus or determined if this Proxy
Statement/Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The securities offered hereby are not savings accounts or deposit accounts or
other obligations of any bank or savings association and they are not insured
by the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the
Savings Association Insurance Fund, or any other government agency.
_____________________________________________________________________________
This Proxy Statement/Prospectus is dated September 20, 2004, and was
first mailed to shareowners on September 20, 2004.
[Capital City Bank Logo] [Farmers & Merchants Bank Logo]
PROPOSED MERGER OF FARMERS AND MERCHANTS BANK
WITH CAPITAL CITY BANK GROUP, INC.
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD OCTOBER 15, 2004
A special meeting of the shareowners (the "Special Meeting") of Farmers
and Merchants Bank will be held at Bank, located at 600 Bellevue Avenue,
Dublin, Georgia, on Friday, October 15, 2004, at 10:00 a.m., Eastern Time,
for the following purposes:
* To vote on an Agreement and Plan of Merger, pursuant to which, among
other matters, Farmers and Merchants Bank will merge with and into
Capital City Bank Group, Inc. with Capital City being the resulting
corporation.
* To transact any other business that properly comes before the Special
Meeting, or any adjournments or postponements of the Special Meeting.
In connection with the merger, each share of Farmers and Merchants
common stock outstanding at the effective time of the merger will be
exchanged for $666.50 in cash, plus up to 17.54 shares (but no less than
14.81 shares) of Capital City common stock. The exact exchange ratio of
Farmers and Merchants Bank common stock for Capital City common stock is more
fully described in the accompanying Proxy Statement/Prospectus. A copy of
the Agreement and Plan of Merger is attached to the Proxy
Statement/Prospectus as Appendix A.
The Board of Directors of Farmers and Merchants is not aware of any
other business to be presented to a vote at the Special Meeting.
Only shareowners of record at the close of business on September 20,
2004, will be entitled to notice of and to vote at the Special Meeting or any
adjournments. Approval of the Agreement and Plan of Merger requires the
affirmative vote of a majority of the issued and outstanding shares of
Farmers and Merchants common stock on that record date represented, in person
or by proxy, at the Special Meeting.
The Board of Directors of Farmers and Merchants unanimously recommends
that shareowners vote FOR approval of the Agreement and Plan of Merger.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ McGrath Keen, Jr.
------------------------
McGrath Keen, Jr.
President and Director
Dublin, Georgia
September 20, 2004
_____________________________________________________________________________
Whether or not you plan to attend the Special Meeting, please complete, date,
and sign the enclosed form of proxy and promptly return it in the enclosed
postage paid return envelope in order to ensure that your shares will be
represented at the Special Meeting.
Title 7, Chapter 1, Article 537 of the Financial Institutions Code of
Georgia, by reference to Title 14, Chapter 2, Article 13 of the Georgia
Business Corporation Code provides that each Farmers and Merchants shareowner
may dissent from the Agreement and Plan of Merger and demand payment of the
fair value of his or her shares in cash if the merger is consummated. The
right of any shareowner to receive such payment is contingent upon strict
compliance with the provisions of Title 14, Chapter 2, Article 13 of the
Georgia Business Corporation Code. We have included for your review the full
text of Title 14, Chapter 2, Article 13 of the Georgia Business Corporation
Code in Appendix E to the accompanying Proxy Statement/Prospectus. See
"DESCRIPTION OF THE MERGER - Dissenters' Rights" in the accompanying Proxy
Statement/Prospectus, page 38.
_____________________________________________________________________________
TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION ABOUT CAPITAL CITY..............................................1
A WARNING ABOUT FORWARD-LOOKING STATEMENTS..........................................................2
QUESTIONS AND ANSWERS ABOUT THE MEETING.............................................................3
SUMMARY.............................................................................................6
The Companies..................................................................................6
Capital City Bank Group, Inc. .................................................................6
The Merger.....................................................................................6
Our Reasons for the Merger.....................................................................7
Recommendation to Farmers and Merchants Shareowners............................................8
Fairness Opinion...............................................................................8
Farmers and Merchants Special Shareowner Meeting...............................................8
Record Date for Special Shareowner Meeting.....................................................9
Vote Required..................................................................................9
What Farmers and Merchants Shareowners will Receive............................................9
Regulatory Approvals..........................................................................10
Conditions to the Merger......................................................................10
Termination of the Agreement and Plan of Merger...............................................11
Dissenter's Rights............................................................................11
Interests of Officers and Directors in the Merger that are Different from Yours...............11
Important Federal Income Tax Consequences of the Merger.......................................12
Accounting Treatment of the Merger............................................................12
Certain Differences on Shareowners' Rights....................................................13
Comparative Market Prices of Common Stock.....................................................13
Listing of Capital City Common Stock..........................................................13
Risk Factors..................................................................................13
Recent Developments in Capital City's Business................................................14
Selected Financial Data.......................................................................14
Historical and Pro Forma Comparative Per Share Data (unaudited)...............................15
RISK FACTORS.......................................................................................18
MEETING OF FARMERS AND MERCHANTS SHAREOWNERS.......................................................20
Date, Place, Time, and Purpose................................................................20
Record Date, Voting Rights, Required Vote, and Revocability of Proxies........................20
DESCRIPTION OF THE MERGER..........................................................................22
General.......................................................................................22
Background of And Reasons for the Merger......................................................24
Farmers and Merchants' Reasons for the Merger and Recommendation of Directors.................25
Fairness Opinion Of Farmers and Merchants' Financial Adviser..................................27
Capital City's Reasons For The Merger.........................................................31
Effective Time of the Merger..................................................................32
Distribution of Capital City Stock Certificates...............................................32
Conditions to Consummation of the Merger......................................................34
Regulatory Approvals..........................................................................35
Waiver, Amendment, and Termination............................................................36
Dissenters' Rights............................................................................38
Conduct of Business Pending the Merger........................................................41
Management and Operations after the Merger; Interests of Certain Persons in the Merger........44
i
TABLE OF CONTENTS
Page
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Certain Federal Income Tax Consequences.......................................................47
Accounting Treatment..........................................................................48
Expenses and Fees.............................................................................49
Resales of Capital City Common Stock..........................................................49
DESCRIPTION OF CAPITAL CITY CAPITAL STOCK..........................................................50
EFFECT OF THE MERGER ON RIGHTS OF SHAREOWNERS......................................................50
Anti-Takeover Provisions Generally............................................................51
Authorized Capital Stock......................................................................52
Amendment of Articles of Incorporation and Bylaws.............................................53
Classified Board of Directors and Absence of Cumulative Voting................................54
Director Removal and Vacancies................................................................55
Indemnification...............................................................................56
Special Meetings of Shareowners...............................................................59
Ability of Directors to Consider Interests Other Than Shareowners' Interests..................60
Actions by Shareowners Without a Meeting......................................................61
Shareowner Nominations........................................................................61
Shareowner Votes Required For Certain Actions.................................................61
Dissenters' Rights of Appraisal...............................................................64
Shareowners' Rights To Examine Books And Records..............................................65
Dividends.....................................................................................65
COMPARATIVE MARKET PRICES AND DIVIDENDS............................................................65
Price Range of Common Stock...................................................................65
Stock Purchase Program........................................................................67
Comparative Dividends.........................................................................67
BUSINESS OF FARMERS AND MERCHANTS..................................................................69
General.......................................................................................69
Management Stock Ownership....................................................................69
Voting Securities and Principal Shareowners of Farmers and Merchants..........................69
Management's Discussion and Analysis of Financial Condition and Results of Operations.........70
BUSINESS OF CAPITAL CITY...........................................................................99
General.......................................................................................99
Banking Services..............................................................................99
Data Processing Services.....................................................................100
Trust Services and Asset Management..........................................................100
Brokerage Services...........................................................................100
Expansion of Business........................................................................101
Directors and Executive Officers.............................................................101
FINANCIAL INFORMATION.............................................................................103
Pro Forma Consolidated Statements of Income..................................................103
Pro Forma Consolidated Balance Sheet.........................................................108
Farmers and Merchants Bank Supplemental Financial Information................................111
SHAREOWNER PROPOSALS..............................................................................113
EXPERTS...........................................................................................113
LEGAL MATTERS.....................................................................................113
OTHER MATTERS.....................................................................................113
ii
Appendix A - AGREEMENT AND PLAN OF MERGER BY AND AMONG
CAPITAL CITY BANK GROUP, INC., CAPITAL CITY BANK
AND FARMERS AND MERCHANTS BANK, DATED AS OF MAY 12, 2004.............................A-1
Appendix B - BANK PLAN OF MERGER..................................................................B-1
Appendix C - AUDITED FINANCIAL STATEMENTS FOR FARMERS AND MERCHANTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002.......................................C-1
Appendix D - UNAUDITED FINANCIAL STATEMENTS FOR FARMERS AND MERCHANTS
AT AND AS OF JUNE 30, 2004...........................................................D-1
Appendix E - DISSENTERS' RIGHTS...................................................................E-1
Appendix F - FAIRNESS OPINION OF TRIDENT SECURITIES. .............................................F-1
iii
WHERE YOU CAN FIND MORE INFORMATION ABOUT CAPITAL CITY
Capital City files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
materials Capital City files with the SEC at the SEC's Public Reference Room
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. You should call the SEC at 1-800-SEC-0330 for further information on
the operation of the Public Reference Room. The SEC also maintains a Web
site that contains reports, proxy and information statements and other
information about Capital City. The address of the SEC Web site is
http://www.sec.gov.
Capital City filed a Registration Statement on Form S-4 to register with
the SEC the shares that Capital City will issue to Farmers and Merchants
shareowners in the merger. This Proxy Statement/Prospectus is a part of the
Registration Statement but does not include all of the information contained
in the Registration Statement. For further information about Capital City
and the securities offered in this Proxy Statement/Prospectus, you should
review the Registration Statement at the SEC's Public Reference Room or on
its Web site.
The SEC allows Capital City to "incorporate by reference" information
into the Proxy Statement/Prospectus, which means that Capital City can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
considered part of this Proxy Statement/Prospectus, except when superseded by
information contained in this Proxy Statement/Prospectus or in later filed
documents incorporated by reference in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Capital City previously filed with the SEC. These
documents contain important information about Capital City and its finances.
Some filings have been amended by later filings, which are also listed.
* Annual Report on Form 10-K for the fiscal year ended December 31, 2003
* Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
* Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
* Amendment 1 to Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 2004
* Amendment 2 to Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 2004
* Current Reports on Form 8-K filed on January 13, 2004, May 14, 2004 and
August 6, 2004
Capital City also incorporates by reference additional documents that it
may file with the SEC between the date of this Proxy Statement/Prospectus and
the completion of the merger or the termination of the Agreement and Plan of
Merger. These additional documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
We are providing you with a copy of Capital City's Annual Report to
Shareowners for the fiscal year ended December 31, 2003 and a copy of Capital
City's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
These documents provide more information about Capital City and its
1
finances. Capital City's Amendments to its Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004 were filed to include the Agreement and Plan
of Merger as an exhibit to the Form 10-Q. These amendments did not alter any
of the disclosures set forth in the original Form 10-Q. Because the
Agreement and Plan of Merger is included as Appendix A to this Proxy
Statement, we are not providing you with copies of these amendments.
Capital City's internet website is www.ccbg.com. Capital City's annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, including any amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d), and reports filed pursuant to Section 16, 13(d), and
13(g) of the Exchange Act are available free of charge through the website as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the SEC. In addition, you may obtain other documents
incorporated by reference in this Proxy Statement/Prospectus by requesting
them from Capital City at the address or telephone number listed on page 6.
PLEASE NOTE
Neither Capital City nor Farmers and Merchants has authorized anyone to
give any information or make any statement about the merger or either company
that differ from, or adds to, the information in the Proxy
Statement/Prospectus or in other documents filed with the SEC. Therefore, if
anyone gives you different or additional information, you should not rely on
it.
If you reside in a jurisdiction where it is unlawful to offer to
exchange or sell, or to ask for offers to exchange or buy, the securities
offered by this Proxy Statement/Prospectus or to ask for proxies, or if you
are a person to whom it is unlawful to direct such activities, then the offer
presented by this Proxy Statement/Prospectus does not extend to you.
The information contained in this Proxy Statement/Prospectus speaks only
as of its date unless the information specifically indicates that another
date applies.
Information in this Proxy Statement/Prospectus about Capital City has
been supplied by Capital City, and information about Farmers and Merchants
has been supplied by Farmers and Merchants.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Proxy
Statement/Prospectus (and in other documents filed with the SEC) that are
subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of Capital City's and Farmers and Merchants'
managements and on information currently available to members of management.
These forward-looking statements include information about possible or
assumed future results of operations or the performance of Capital City after
the merger. Many possible events or factors could cause results or
performance to differ materially from those expressed in our forward-looking
statements.
You should consider the events or factors detailed in the "RISK FACTORS"
section of this Proxy Statement/Prospectus beginning on page 18 when you vote
on the merger:
2
0
QUESTIONS AND ANSWERS ABOUT THE MEETING
Q(1): WHAT AM I BEING ASKED TO APPROVE?
A: You are being asked to approve the Agreement and Plan of Merger
providing for, among other things, the merger of Farmers and Merchants
into Capital City with Capital City being the resulting corporation.
Q(2): WHY IS FARMERS AND MERCHANTS MERGING WITH CAPITAL CITY?
A: The merger will enable Farmers and Merchants shareowners to hold stock
in a larger and more diversified entity whose shares are more widely
held and more actively traded. Capital City's common stock is traded
on the Nasdaq National Market under the symbol "CCBG." We also
believe the merger will enable Farmers and Merchants to better serve
its customers with more products and services. Based upon these and
other factors, we believe that the merger is in the best interest of
the Farmers and Merchants shareowners. We provide the background and
reasons for the merger, starting on page 24.
Q(3): AS A FARMERS AND MERCHANTS SHAREOWNER, WHAT WILL I RECEIVE IN THE
MERGER?
A: For each share of Farmers and Merchants common stock you own, Capital
City will pay you a combination of $666.50 in cash, plus shares of
Capital City common stock, calculated based on an exchange ratio
described in the next sentence. The exchange ratio to calculate the
number of Capital City shares you will receive in the merger is based
in part on the market price of Capital City common stock, which will
be calculated by dividing $666.50 by the average of the daily closing
sales prices of one share of Capital City common stock (as reported by
the Nasdaq National Market) for the 20 consecutive full trading days
ending on the fifth full trading day prior to the closing date of the
merger. Based on the terms of the Agreement and Plan of Merger, you
can expect to receive up to 17.54 shares (but no less than 14.81
shares) of Capital City common stock for each share of Farmers and
Merchants common stock you own, assuming the merger is approved and
consummated. Cash will be paid in lieu of issuing fractional shares
based upon the average closing price of Capital City common stock as
calculated above.
Example: If you own 1,000 shares of Farmers and Merchants common
stock, and, assuming the average closing price of Capital City common
stock (calculated as described above) is $40.00 per share, upon
completion of the merger, you will receive 16,662 shares of Capital
City common stock and a check for $666,500.00, plus an additional $20
in lieu of your remaining fractional share.
In addition, the Agreement and Plan of Merger permits distribution
payments by Farmers and Merchants to its shareowners, provided Farmers
and Merchants' net worth is at least $30 million, subject to certain
adjustments. We anticipate that Farmers and Merchants will distribute
cash to its shareowners through one or more distributions prior to the
closing date of the merger to the extent Farmers and Merchants' net
worth exceeds the $30 million dollar threshold. Based on the numbers
reported by Farmers and Merchants in its last call report dated June
30, 2004, we expect each share of Farmers and Merchants common stock
to receive a pre-merger distribution of approximately $785.20.
3
Q(4): WHAT HAPPENS AS THE MARKET PRICE OF CAPITAL CITY COMMON STOCK
FLUCTUATES?
A: As we stated above, the exchange ratio of the Capital City common
stock you will receive in the merger is based in part on the market
price of Capital City common stock for a specified period prior to the
close of the merger transaction. However, the Agreement and Plan of
Merger provides that the Capital City common stock price per share
used in calculating the exchange ratio will range from a minimum of
$38.00 per share to a maximum of $45.00 per share. As a result, the
share exchange ratio will fall somewhere in the range between
approximately 14.81 and 17.54 shares of Capital City common stock for
each outstanding share of Farmers and Merchants common stock. Because
the market value of Capital City common stock will fluctuate before
and after the closing date of the merger, the value of the stock you
will receive as a result of the merger will fluctuate as well and
could decrease in value.
Q(5): WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger during the fourth quarter of 2004.
The merger must be approved by the Farmers and Merchants shareowners
and by certain regulatory agencies, including the Federal Reserve
Board, the Federal Deposit Insurance Corporation, the Florida
Department of Financial Services and the Georgia Department of Banking
and Finance. Additional approvals by or notices to other Georgia and
Florida state authorities may be necessary.
Q(6): WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: We expect that for U.S. federal income tax purposes, your exchange of
Farmers and Merchants common stock for Capital City common stock in
the merger generally will not cause you to recognize any gain or loss.
You will, however, have to recognize gain in connection with any cash
received in the merger. In addition, shareowners who exercise
dissenters' rights may recognize gain or loss in the exchange of their
shares for cash.
We provide a more detailed review of the U.S. federal income tax
consequences of the merger at page 47 of this Proxy
Statement/Prospectus.
Q(7): AS A FARMERS AND MERCHANTS SHAREOWNER, DO I HAVE TO ACCEPT CAPITAL
CITY COMMON STOCK IN EXCHANGE FOR MY SHARES IF THE MERGER IS APPROVED?
A: No. If you are a Farmers and Merchants shareowner and you follow the
procedures prescribed by Georgia law, you may dissent from the merger
and receive the fair value of your stock. If you follow those
procedures, you will not receive Capital City common stock. Instead,
the fair value of your Farmers and Merchants stock, determined in the
manner prescribed by Georgia law, will be paid to you in cash.
Q(8): WHAT SHOULD I DO NOW?
A: Just indicate on your proxy card how you want to vote, sign it and
mail it in the enclosed envelope as soon as possible, so that your
shares will be represented at the Special Meeting.
4
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be voted in favor of the proposal to approve the
merger. If you do not sign and send in your proxy or attend and vote
in favor of the merger at the Special Meeting, your failure to vote
will count as a vote against the merger. Failure to vote against the
merger will not result in a waiver of your right to dissent. However,
the failure to vote or a vote against the merger, alone, will not
perfect your dissenters' rights under Georgia law.
The meeting is scheduled for October 15, 2004. You are invited to the
meeting to vote your shares in person rather than signing and mailing
your proxy card. If you do sign your card, you can take back your
proxy up to and including the time of the vote at the meeting and
either change your vote or attend the meeting and vote in person. We
provide more detailed instructions about voting starting on page 20.
Q(9): SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will be sent written
instructions explaining how to exchange your Farmers and Merchants
common stock certificates for Capital City common stock certificates
and the cash portion of the merger consideration.
Q(10): WHO CAN HELP ANSWER MY QUESTIONS?
A: If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:
McGrath Keen, Jr.
Farmers and Merchants Bank
600 Bellevue Avenue
Dublin, Georgia 31021
(478) 272-3100
5
SUMMARY
This summary highlights selected information contained elsewhere in this
Proxy Statement/Prospectus. Because this is a summary, it does not contain
all of the information that may be important to you. You should read the
entire Proxy Statement/Prospectus and its appendices carefully before you
decide to vote. We have included page references in this summary to direct
you to other places in this Proxy Statement/Prospectus where you can find a
more complete description of the topics we have summarized.
The Companies (See Page 69 for Farmers and Merchants, Page 99 for Capital
City)
Farmers and Merchants Bank
600 Bellevue Avenue
Dublin, Georgia 31021
(478) 272-3100
Farmers and Merchants Bank is a Georgia chartered commercial bank
headquartered in Dublin, Georgia. Founded in 1910, Farmers and Merchants is
one of the oldest and largest community banks in Georgia, with three full-
service offices in Laurens County. As of June 30, 2004, Farmers and
Merchants had total consolidated assets of approximately $403 million, total
consolidated deposits of approximately $305 million, total loans outstanding
of approximately $271 million and total consolidated shareowners' equity of
approximately $69.2 million.
Capital City Bank Group, Inc.
217 North Monroe Street
Tallahassee, Florida 32301
(850) 671-0300
Capital City is a $2.0 billion financial services company headquartered
in Tallahassee, Florida providing traditional deposit and credit services,
asset management, trust, mortgage banking, merchant services, bankcards, data
processing and securities brokerage services. Founded in 1895, Capital City
has 57 banking offices, 5 residential lending offices, 73 ATMs, and 11 Bank
'N Shop locations in Florida, Georgia and Alabama. For more information
about Capital City, go to www.ccbg.com.
The Merger (See Page 22)
The Agreement and Plan of Merger provides for Capital City to acquire
Farmers and Merchants in a four-step process. First, Capital City will
merge a Georgia-chartered, interim banking subsidiary with and into Farmers
and Merchants, with Farmers and Merchants being the resulting bank.
Immediately following this bank merger, the deposit liabilities of Farmers
and Merchants will be assumed by Capital City's wholly-owned banking
subsidiary, Capital City Bank. Immediately thereafter, Farmers and
Merchants will merge with and into Capital City, with Capital City being the
resulting corporation. Immediately following this second merger, Capital
City will transfer the assets and remaining liabilities of Farmers and
Merchants into Capital City Bank. A copy of the Agreement and Plan of
Merger is included as Appendix A to this Proxy Statement/Prospectus. We
encourage you to read the Agreement and Plan of Merger because it is the
legal document that governs the merger.
-6-
Our Reasons for the Merger (See Page24)
The Farmers and Merchants Board of Directors believes that the merger is
in the best interest of Farmers and Merchants and its shareowners. The
Farmers and Merchants Board of Directors has unanimously approved the
Agreement and Plan of Merger. In deciding to approve the Agreement and Plan
of Merger, the Farmers and Merchants Board of Directors considered a number
of factors, including:
* the value of the consideration to be received by Farmers and Merchants
shareowners relative to the book value and earnings per share of Farmers
and Merchants common stock;
* certain information concerning the financial condition, results of
operations and business prospects of Capital City;
* the financial terms of recent business combinations in the financial
services industry and a comparison of the multiples of selected
combinations with the proposed transaction with Capital City;
* the alternatives to the merger, including remaining an independent
institution;
* the previous experience of management of Capital City in completing
acquisition transactions;
* the expanded range of banking services that the merger will allow
Farmers and Merchants to provide to its customers;
* the competitive and regulatory environment for financial institutions
generally;
* the fact that the merger will enable Farmers and Merchants shareowners
to exchange their shares of Farmers and Merchants common stock, in a
partially tax-free transaction, for cash and shares of common stock of a
larger company, the stock of which is more widely held and more liquid
than that of Farmers and Merchants; and
* the opinion of Trident Securities that the consideration to be received
by Farmers and Merchants shareowners as a result of the merger is fair
to Farmers and Merchants shareowners from a financial point of view.
The Capital City Board of Directors believes that the merger is in the
best interests of Capital City and its shareowners. The Capital City Board
of Directors has unanimously approved the Agreement and Plan of Merger. In
deciding to approve the Agreement and Plan of Merger, the Capital City Board
of Directors considered a number of factors, including:
* a review, based in part on a presentation by Capital City's management,
of
- the business, operations, earnings, and financial condition,
including the capital levels and asset quality, of Farmers and
Merchants on an historical, prospective, and pro forma bases and
in comparison to other financial institutions in the area,
-7-
- the demographic, economic, and financial characteristics of the
Laurens County market, including existing competition, history of
the market area with respect to financial institutions, and
average demand for credit, on an historical and prospective bases,
and
* the results of Capital City's due diligence review of Farmers and
Merchants; and
* the likelihood of regulators approving the merger without undue
conditions or delay;
* the compatibility and the community bank orientation of both Capital
City and its subsidiary and Farmers and Merchants; and
* a variety of factors affecting and relating to the overall strategic
focus of Capital City.
The Boards of Directors of Farmers and Merchants and Capital City
believe that the merger will result in a company with expanded opportunities
for profitable growth and that the combined resources and capital of Farmers
and Merchants and Capital City will provide the combined company with greater
ability to compete in the changing and competitive financial services
industry.
Recommendation to Farmers and Merchants Shareowners (See Page 25)
The Farmers and Merchants Board believes that the merger of Farmers and
Merchants with and into Capital City is in the best interests of Farmers and
Merchants and Farmers and Merchants' shareowners. The Farmers and Merchants
Board unanimously recommends that you vote FOR the merger.
Fairness Opinion (See Page 27)
In deciding to approve the merger, we have considered an opinion from
our financial adviser, Trident Securities, that the price to be paid to
Farmers and Merchants shareowners is fair to Farmers and Merchants
shareowners, from a financial point of view. The full text of this opinion
is attached to this Proxy Statement/Prospectus as Appendix F. We encourage
you to read this opinion.
Farmers and Merchants Special Shareowner Meeting (See Page 20)
The Special Meeting will be held at Farmers and Merchants Bank, located
at 600 Bellevue Avenue, Georgia, on Friday, October 15, 2004, at 10:00 a.m.,
Eastern Time. The Farmers and Merchants Board of Directors is soliciting
proxies for use at the Special Meeting. At the Special Meeting, the Farmers
and Merchants Board of Directors will ask the Farmers and Merchants
shareowners to vote on a proposal to approve the Agreement and Plan of
Merger.
Record Date for Special Shareowner Meeting (See Page 20)
You may vote at the Special Meeting if you owned shares of Farmers and
Merchants common stock of record as of the close of business on Monday,
September 20, 2004. You will have one vote for each share of Farmers and
Merchants common stock you owned as of that date. You may revoke your proxy
at any time prior to the vote at the Special Meeting.
-8-
Vote Required (See Page 20)
Shareowners holding a majority of the outstanding shares of Farmers and
Merchants common stock entitled to vote at the Special Meeting must be
present in person or by proxy at the Special Meeting in order to form a
quorum.
In order to approve the merger, however, shareowners holding two-thirds
of the outstanding shares of Farmers and Merchants common stock represented
in person or by proxy at the Special Meeting must approve the Agreement and
Plan of Merger. At the record date, all directors and executive officers of
Farmers and Merchants as a group (6 persons) could vote approximately 32,947
shares of Farmers and Merchants common stock, constituting approximately
65.89% of the total number of shares of Farmers and Merchants common stock
outstanding at that date. The Farmers and Merchants directors and executive
officers have committed to vote their shares of Farmers and Merchants common
stock in favor of the merger.
What Farmers and Merchants Shareowners will Receive (See Page 32)
Under the Agreement and Plan of Merger, Capital City will pay Farmers
and Merchants shareowners $666.50 in cash, plus a determinable number of
shares of Capital City common stock for each share of Farmers and Merchants
common stock that they own.
The exchange ratio to calculate the number of Capital City shares you
will receive in the merger is based in part on the market price of Capital
City common stock, and will be calculated by dividing $666.50 by the average
of the daily closing sales prices of one share of Capital City common stock,
as reported by the Nasdaq National Market, for the 20 consecutive full
trading days ending on the fifth full trading day prior to the closing date
of the merger, and then multiplying that quotient by the number of shares of
Farmers and Merchants common stock you own. In addition, the per share price
of Capital City common stock used in calculating the exchange ratio will
range from a minimum of $38.00 to a maximum of $45.00. As a result, the
share exchange ratio will fall somewhere in the range of approximately 14.81
and 17.54 shares of Capital City common stock for each outstanding share of
Farmers and Merchants common stock, or between 740,555 and 876,973 shares of
Capital City's stock in total, assuming 50,000 shares of Farmers and
Merchants common stock are outstanding on the closing date.
Farmers and Merchants shareowners will not receive fractional shares of
Capital City common stock. Instead, they will receive a payment for any
fractional shares based on the market value of Capital City common stock as
calculated above.
In addition, as a condition to the merger, Farmers and Merchants must
have, immediately prior to the effective date of the merger, a net worth of
at least $30 million, subject to certain adjustments. We anticipate that
Farmers and Merchants will distribute in cash any equity above this $30
million amount, subject to adjustment, to its shareowners in one or more
distributions prior to the closing date of the merger. Based on Farmers and
Merchants last call report filed with the FDIC, as of June 30, 2004, Farmers
and Merchants had an unaudited net worth of approximately $69.26 million.
Assuming that to be the total immediately prior to the effective date of the
merger, Farmers and Merchants shareowners would receive an additional
distribution of approximately $39.26 million, or $785.20 per share (assuming
50,000 shares are outstanding).
-9-
Once the merger is complete, Capital City's transfer agent will mail you
materials and instructions for exchanging your Farmers and Merchants stock
certificates for Capital City stock certificates and the cash portion of the
consideration. You should not send in your Farmers and Merchants stock
certificates until you receive the transmittal materials and instructions
from Capital City's transfer agent.
Regulatory Approvals (See Page 36)
We cannot complete the merger until we receive the approval of the
Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Georgia Department of Banking and Finance, the
Florida Department of Financial Services and the Florida Secretary of State.
Capital City and Farmers and Merchants have filed applications with the
Federal Reserve, the Federal Deposit Insurance Corporation, the Georgia
Department and the Florida Department seeking approval of the merger. The
approvals of the bank regulators may impose conditions or restrictions that,
in the opinion of Capital City and/or Farmers and Merchants, would have a
material adverse effect on the economic or business benefits of the merger.
In that event, Capital City and Farmers and Merchants may terminate the
Agreement and Plan of Merger by mutual consent.
Conditions to the Merger (See Page 34)
The completion of the merger depends upon Capital City and Farmers and
Merchants satisfying a number of conditions, including:
* the holders of two-thirds of the outstanding Farmers and Merchants
common stock represented in person or by proxy at the Special Meeting
must approve the Agreement and Plan of Merger;
* Farmers and Merchants must have a minimum net worth of at least $30
million, subject to certain adjustments;
* Capital City and Farmers and Merchants must receive all required
regulatory approvals and any waiting periods required by law must have
passed; and
* Capital City and Farmers and Merchants must receive a legal opinion
confirming the tax-free nature of the merger.
Termination of the Agreement and Plan of Merger (See Page 36)
Either Capital City or Farmers and Merchants may terminate the Agreement
and Plan of Merger without completing the merger if, among other things, any
of the following occurs:
* the merger is not completed by December 31, 2004;
* the holders of two-thirds of Farmers and Merchants common stock do not
approve the Agreement and Plan of Merger; or
* the other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the Agreement and
Plan of Merger.
-10-
In addition, Farmers and Merchants may terminate the Agreement and Plan
of Merger without completing the merger if the adjusted average closing
price of Capital City common stock is less than $32.00, and Capital City
may terminate the Agreement and Plan of Merger without completing the
merger in the event of a material adverse effect.
Dissenter's Rights (See Page 38 and Appendix E)
Each holder of Farmers and Merchants common stock who perfects his or
her rights is entitled to the rights and remedies of a dissenting shareowner
under Title 7, Chapter 1, Article 537 of the Financial Institutions Code of
Georgia, by reference to Title 14, Chapter 2, Article 13 of the Georgia
Business Corporation Code, subject to compliance with the procedures set
forth in those dissenters' rights provisions (referred to in this document as
the "Appraisal Statute"). A dissenting shareowner who has perfected his or
her dissenter's rights is entitled to receive an amount in cash equal to the
"fair value" of his or her shares of Farmers and Merchants common stock. A
copy of the Appraisal Statute is set forth in Appendix E to this Proxy
Statement/Prospectus and a summary is included under "DESCRIPTION OF THE
MERGER - Dissenters' Rights." To perfect dissenters' rights, a shareowner
must comply with the provisions of the Appraisal Statute which require, among
other things, that the shareowner deliver to Farmers and Merchants, prior to
the vote at the Special Meeting, written notice of his or her intention to
demand payment for his or her shares if the merger is effectuated and that
such shareowner not vote his or her shares in favor of the Agreement and Plan
of Merger. Any Farmers and Merchants shareowner who returns a signed proxy
but fails either to provide instructions as to the manner in which his or her
shares are to be voted, or to revoke such proxy, will be deemed to have voted
in favor of the Agreement and Plan of Merger and thus will not be entitled to
assert dissenters' rights.
Interests of Officers and Directors in the Merger that are Different from
Yours (See Page 44)
Certain members of Farmers and Merchants' management and Board of
Directors have interests in the merger that are in addition to their
interests as shareowners of Farmers and Merchants.
Wallace E. Miller, Chairman and Chief Executive Officer, and Roger W.
Miller, Executive Vice President and a director, will be paid bonuses of
$1,000,000 and $500,000, respectively, by Capital City Bank after the
successful completion of the merger.
McGrath Keen, Jr., President and a director of Farmers and Merchants,
will be appointed to the Board of Directors of Capital City after the merger,
and is expected to be compensated for his services in accordance with Capital
City's standard director compensation policy.
The Agreement and Plan of Merger contains provisions for the
indemnification of Farmers and Merchants directors, officers and employees by
Capital City, and provisions for the officers and employees of Farmers and
Merchants to receive certain employee benefits that Capital City already
provides to its officers and employees.
In addition, the Agreement and Plan of Merger contains provisions for
the same or substantially similar directors' and officers' liability
insurance (with certain cost restraints), for three years after the effective
time of the merger.
-11-
The Capital City and Farmers and Merchants Boards of Directors were
aware of these interests and took them into account in approving the
Agreement and Plan of Merger.
Important Federal Income Tax Consequences of the Merger (See Page 47)
We expect that Capital City, Farmers and Merchants and their shareowners
will not recognize any gain or loss for U.S. federal income tax purposes from
the merger, except for the cash portion of the consideration paid to Farmers
and Merchants shareowners for their Farmers and Merchants common stock and
where Farmers and Merchants shareowners receive cash instead of fractional
shares. Both parties have received a legal opinion that this will be the
case. This legal opinion is filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. However, the
opinion does not bind the Internal Revenue Service, which could take a
different view. In addition, this tax treatment will not apply to any
Farmers and Merchants shareowner who receives cash for his or her shares due
to the exercise of dissenters' rights. Determining the actual tax
consequences of the merger to you as an individual taxpayer can be
complicated. The tax treatment also may depend upon facts that are unique to
your specific situation. Accordingly, you should consult your own tax
adviser for a full understanding of the tax consequences of the merger.
Accounting Treatment of the Merger (See Page 48)
The merger will be accounted for as a "purchase," as that term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Under purchase accounting, the assets and liabilities of
Farmers and Merchants as of the effective time of the merger will be recorded
at their respective fair values and added to those of Capital City. Any
excess of purchase price over the fair values is recorded as goodwill.
Financial statements of Capital City issued after the merger would reflect
such fair values and would not be restated retroactively to reflect the
historical financial position or results of operations of Farmers and
Merchants.
Certain Differences in Shareowners' Rights (See Page 50)
When the merger is consummated, Farmers and Merchants shareowners, whose
rights are governed by Farmers and Merchants' Charter Application and Bylaws,
as amended, and by the Financial Institutions Code of Georgia, will
automatically become Capital City shareowners, and their rights as Capital
City shareowners will be determined by Capital City's Articles of
Incorporation and Bylaws and by the Florida Business Corporations Act. The
rights of Capital City shareowners differ from the rights of Farmers and
Merchants shareowners in certain important respects. For example, Capital
City's governing documents contain certain anti-takeover provisions that may
deter the efforts of, or make it more difficult for, a person to acquire
Capital City in the future.
Comparative Market Prices of Common Stock (See Page 65)
Capital City common stock is traded on the Nasdaq National Market under
the symbol "CCBG." Farmers and Merchants common stock is not traded in any
established market. On May 12, 2004, the last day prior to public
announcement of the merger, the last reported sale price per share of Capital
City common stock on the Nasdaq National Market was $37.88. Because this is
below the minimum exchange ratio, the $38.00 minimum exchange price would
-12-
have been used to calculate the resulting equivalent pro forma price per
share of Farmers and Merchants common stock. Based on the combined $666.50
in cash and the exchange ratio of approximately 17.54 shares of Capital City
stock for each share of stock (using the minimum exchange ratio, without
factoring in any withholdings), the resulting equivalent pro forma price per
share of Farmers and Merchants common stock would have been $1,330.98.
To the knowledge of Farmers and Merchants, the most recent trade of
Farmers and Merchants common stock prior to May 12, 2004, the last day prior
to public announcement of the merger between Capital City and Farmers and
Merchants, was on February 28, 2003, which was a sale of 200 shares for a
purchase price of $2,000 per share. To the knowledge of Farmers and
Merchants, there have been no trades since the announcement of the merger.
There can be no assurance as to what the market price of the Capital City
common stock will be if and when the merger is consummated.
Listing of Capital City Common Stock (See Page 50)
Capital City will list the shares of Capital City common stock to be
issued in connection with the merger on the Nasdaq National Market.
Risk Factors (See Page 18)
An investment in Capital City common stock involves risks. In
determining whether to approve the Agreement and Plan of Merger, you should
consider the various risks associated with an investment in Capital City
common stock as more fully described in the "Risk Factors" section beginning
on page 18.
Recent Developments in Capital City's Business
On March 19, 2004, Capital City completed its merger with Quincy State
Bank, an affiliate of Synovus Financial Corp. Results of Quincy State Bank's
operations have been included in Capital City's consolidated financial
statements since March 20, 2004. Quincy State Bank had $116.6 million in
assets with one office in Quincy, Florida and one office in Havana, Florida.
The transaction was accounted for as a purchase and resulted in approximately
$14.9 million of intangible assets, including approximately $12.5 million in
goodwill and a core deposit intangible of $2.4 million. The core deposit
intangible is being amortized over a 7-year period.
Selected Financial Data
The following tables present, for Capital City and for Farmers and
Merchants, selected consolidated financial data for the six-month periods
ended June 30, 2003 and 2004, and for the five-year period ended December 31,
2003. The Farmers and Merchants information is based on the historical
financial information that has been presented in Farmers and Merchants'
annual financial statements, included as Appendix C to this Proxy
Statement/Prospectus, and interim financial statements included as Appendix D
to this Proxy Statement/Prospectus. The Capital City information is based on
the consolidated financial statements contained in reports Capital City filed
with the SEC, including its June 30, 2004 Quarterly Report on Form 10-Q. All
of these documents are incorporated by reference in this Proxy
Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION ABOUT CAPITAL
CITY," on page 1.
-13-
You should read the following tables in conjunction with the
consolidated financial statements of Capital City and Farmers and Merchants
described above with the notes to them.
Historical results are not necessarily indicative of results to be
expected for any future period. In the opinion of the respective managements
of Capital City and Farmers and Merchants, all adjustments (which include
only normal recurring adjustments) necessary to arrive at a fair statement of
interim results of operations of Capital City and Farmers and Merchants,
respectively, have been included. With respect to Capital City and Farmers
and Merchants, results for the six-month period ended June 30, 2004 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
-14-
Historical and Pro Forma Comparative Per Share Data (unaudited)
Six Months Twelve Months
Ended Ended
June 30, December 31,
2004 2003
--------------- ----------------
NET INCOME: (In thousands)
Capital City
Basic $0.85 $1.91
Diluted 0.85 1.90
Farmers and Merchants
Basic 115.36 226.94
Diluted 115.36 226.94
Pro Forma (Capital City and Farmers and Merchants)
Basic 0.95 2.08
Diluted 0.95 2.07
Farmers and Merchants equivalent pro forma
Basic 16.66 36.48
Diluted 16.66 36.31
CASH DIVIDENDS PER SHARE
Capital City 0.36 0.65
Farmers and Merchants 67.00 153.50
Pro Forma (Capital City and Farmers and Merchants)(1) 0.57 1.23
Farmers and Merchants equivalent pro forma 10.00 21.57
BOOK VALUE PER DILUTED SHARE
Capital City 15.80 15.27
Farmers and Merchants 1,385.20 1,387.12
Pro Forma (Capital City and Farmers and Merchants) 17.17 16.68
Farmers and Merchants equivalent pro forma 301.16 292.57
(1) Calculated based on actual cash dividends paid by Capital City and Farmers and Merchants
for the periods shown divided by the anticipated number of Capital City shares to be
outstanding after the merger.
Farmers and Merchants Bank
At or for the six At or for the year
months ended June 30, ended December 31,
------------------------ ---------------------------------------------------------
(Dollars in Thousands, Except Per
Share Data) 2004 2003 2003 2002 2001 2000 1999
----------- ------------ --------- ----------- ----------- ----------- -----------
Interest Income $11,174 $11,646 $23,033 $25,180 $27,620 $27,129 $24,296
Net Interest Income 8,148 8,038 16,297 16,717 14,810 13,325 13,551
Provision for Loan Losses 150 300 450 900 400 400 400
Net Income 5,768 5,729 11,347 11,265 10,200 9,326 9,293
Per Common Share:
Basic and Diluted Net Income $115.36 $114.58 $226.94 $225.30 $204.00 $186.52 $185.86
Cash Dividends Declared 67.00 61.00 153.50 153.50 122.00 112.00 111.66
Book Value 1,385.20 1,401.82 1,386.44 1,341.48 1,191.00 1,090.64 1,013.68
Based on Net Income:
Return on Average Assets 2.87% 2.99% 2.95% 3.02% 2.94% 2.83% 3.07%
Return on Average Equity 17.25% 18.13% 17.95% 19.25% 17.74% 17.70% 18.93%
Dividend Payout Ratio 58.08% 53.24% 67.64% 58.37% 59.83% 60.05% 60.08%
Averages for the Period:
Loans, Net $277,683 $251,224 $257,038 $236,167 $217,445 $201,218 $182,122
Earning Assets 390,869 373,167 372,091 356,818 333,397 317,418 291,108
Assets 404,055 386,979 388,619 372,722 347,092 329,907 303,135
Deposits 302,905 285,820 286,472 279,344 271,673 265,050 244,591
Other Borrowings 22,448 22,306 22,411 20,298 8,480 4,340 2,002
Stockholders' Equity 66,869 63,197 63,207 58,519 54,422 50,705 46,985
Period-End Balances:
Loans, Net 275,598 253,918 257,662 242,074 224,344 205,889 190,447
Earning Assets 390,287 374,665 374,219 364,403 342,317 326,984 304,314
Assets 403,370 387,800 385,067 384,698 360,374 343,911 320,164
Deposits 305,224 287,283 293,027 283,859 273,476 271,544 255,583
Other Borrowings 22,562 22,284 22,289 22,293 17,010 8,785 5,236
Stockholders' Equity 69,260 70,091 63,197 67,074 59,550 54,532 50,684
Capital City Bank Group, Inc. and Subsidiary
At or for the six At or for the year
months ended June 30, ended December 31,
------------------------ ---------------------------------------------------------
(Dollars in Thousands, Except Per
Share Data) 2004 2003 2003 2002 2001 2000 1999
----------- ------------ --------- ----------- ----------- ----------- -----------
Interest Income $46,935 $48,324 $94,830 $104,165 $117,156 $107,720 $98,221
Net Interest Income 40,536 40,330 79,991 81,662 68,907 61,486 56,974
Provision for Loan Losses 1,541 1,665 3,436 3,297 3,983 3,120 2,440
Net Income 11,290 12,801 25,193 23,082 16,866 18,153 15,252
Per Common Share:
Basic Net Income $0.85 $0.97 $1.91 $1.75 $1.27 $1.43 $1.20
Diluted Net Income 0.85 0.97 1.90 1.74 1.27 1.43 1.20
Cash Dividends Declared .360 .306 .656 .502 .476 .436 .442
Diluted Book Value 15.80 14.73 15.27 14.08 12.86 11.61 10.36
Based on Net Income:
Return on Average Assets 1.21% 1.44% 1.40% 1.34% 0.99% 1.24% 1.06%
Return on Average Equity 10.90% 13.40% 12.82% 12.85% 10.00% 12.99% 11.64%
Dividend Payout Ratio 41.40% 31.42% 34.51% 28.87% 37.48% 30.49% 36.83%
Averages for the Period:
Loans, Net of Unearned Interest $1,424,175 1,303,008 $1,318,080 $1,256,107 $1,184,290 $1,002,122 $884,323
Earning Assets 1,678,062 1,613,701 1,624,680 1,556,500 1,534,548 1,315,024 1,291,262
Assets 1,879,991 1,791,797 1,804,895 1,727,180 1,704,167 1,463,612 1,444,069
Deposits 1,497,895 1,411,802 1,431,808 1,424,999 1,442,916 1,207,103 1,237,405
Long-Term Debt 50,387 63,354 55,594 30,423 15,308 13,070 17,274
Shareowners' Equity 208,303 192,610 196,588 179,652 168,652 139,738 131,058
Period-End Balances:
Loans, Net of Unearned Interest 1,521,497 1,332,387 $1,341,632 $1,285,221 $1,243,351 $1,051,832 $928,486
Earning Assets 1,818,628 1,671,905 1,648,818 1,636,472 1,626,841 1,369,294 1,263,296
Assets 2,026,830 1,870,590 1,846,502 1,824,771 1,821,423 1,527,460 1,430,520
Deposits 1,612,736 1,498,577 1,474,205 1,434,200 1,550,101 1,268,367 1,202,658
Long-Term Debt 58,427 57,664 46,475 71,745 13,570 11,707 14,258
Shareowners' Equity 209,721 195,469 202,809 186,531 171,783 147,607 132,216
Equity to Assets Ratio 10.35% 10.45% 10.98% 10.22% 9.43% 9.66% 9.24%
Other Data:
Basic Average Shares Outstanding 13,268,272 13,208,909 13,222,487 13,225,285 13,241,957 12,732,749 12,718,681
Shareowners of Record 1,512 1,457 1,512 1,457 1,473 1,599 1,362
Banking Locations 57 57 57 54 56 56 48
Full-Time Equivalent Associates 829 782 795 781 787 791 678
RISK FACTORS
In addition to the other information contained in or incorporated by
reference into this Proxy Statement/Prospectus, in deciding whether to
approve the Agreement and Plan of Merger, you should consider the various
risks associated with an investment in Capital City common stock, including,
but not limited to the following:
Capital City may have difficulties integrating Farmers and Merchants
operations into Capital City Bank's operations.
The merger involves the integration of two companies that have
previously operated independently of each other. Successful integration of
Farmers and Merchants' operations will depend primarily on Capital City's
ability to consolidate its operations, systems and procedures into those of
Capital City Bank and to eliminate redundancies and costs. We may not be
able to integrate our operations without encountering difficulties including,
without limitation:
* the loss of key employees and customers;
* possible inconsistencies in standards, control procedures and policies;
and
* unexpected problems with costs, operations, personnel, technology or
credit.
In determining that the merger is in the best interests of Capital City
and Farmers and Merchants, as the case may be, the Board of Directors of each
of Capital City and Farmers and Merchants considered that enhanced earnings
may result from the consummation of the merger, including from the reduction
of duplicate costs, improved efficiency and cross-marketing opportunities.
However, we cannot assure that any enhanced earnings or cost savings will
actually occur from the merger.
There is a limited market for shares of Capital City common stock.
While Capital City common stock is listed and traded on the Nasdaq
National Market, there has been limited trading activity in Capital City
common stock. The average daily trading volume of Capital City common stock
over the six-month period ending June 30, 2004 was approximately 12,294
shares. Capital City does not anticipate that the merger will cause any
significant improvements in the trading of Capital City common stock.
There are restrictions on Capital City's ability to pay dividends.
Capital City must comply with Florida corporate law and rules and
regulations of bank regulators before it may pay any dividends. The Board of
Directors of Capital City must authorize Capital City to pay any dividends
and Capital City must have sufficient funds to pay dividends. Capital City's
only sources of income are dividends and other payments that Capital City
Bank and any other subsidiary of Capital City make to Capital City. Certain
statutes and regulations restrict the ability of Capital City's subsidiary to
pay dividends to Capital City.
Capital City is subject to extensive governmental regulation.
Capital City and its subsidiary are subject to extensive governmental
regulation. Capital City, as a bank holding company, is regulated primarily
by the Federal Reserve. Capital City
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Bank is a commercial bank chartered by the State of Florida and regulated by
the Federal Reserve and the Florida Department of Financial Services. These
federal and state bank regulators have the ability, should the situation
require, to place significant regulatory and operational restrictions upon
Capital City and its subsidiary. Any such restrictions imposed by federal
and state bank regulators could affect the profitability of Capital City and
its subsidiary.
The financial institution industry is very competitive.
Capital City and its subsidiary compete directly with financial
institutions that are well established and have significantly greater
resources and lending limits than Capital City and its subsidiary. As a
result of those greater resources, the large financial institutions may be
able to provide a broader range of services to their customers than Capital
City and may be able to afford newer and more sophisticated technology than
Capital City. The long-term success of Capital City will be dependent on the
ability of Capital City's subsidiary to compete successfully with other
financial institutions in their service areas.
Management of Capital City holds a large portion of Capital City common
stock.
As of June 30, 2004, the directors and executive officers of Capital
City beneficially owned about 5.9 million shares of Capital City common
stock, or 44.7%, of the total outstanding shares of Capital City. As a
result, Capital City's management has significant control of Capital City.
Capital City's Articles of Incorporation and Bylaws may prevent takeover by
another company.
Capital City's Articles of Incorporation permit the Board of Directors
of Capital City to issue preferred stock without shareowner action. The
ability to issue preferred stock could discourage a company from attempting
to obtain control of Capital City by means of a tender offer, merger, proxy
contest or otherwise. Additionally, Capital City's Articles of Incorporation
and Bylaws divide the Board of Directors of Capital City into three classes,
as nearly equal in size as possible, with staggered three-year terms. One
class is elected each year. The classification of the Board of Directors
could make it more difficult for a company to acquire control of Capital
City. Capital City is also subject to certain provisions of the Florida
Business Corporations Act and the Capital City Articles of Incorporation
which relate to business combinations with interested shareowners.
Future results of the combined company may differ materially from the pro
forma financial information presented in this document.
Future results of the combined company may be materially different from
those shown in the pro forma financial statements that only show a
combination of our historical results. The pro forma financial information
includes adjustments to the fair value of Farmers and Merchants' assets and
liabilities. These adjustments represent management's estimates based on
current information and market conditions. The final allocation of the
purchase price will be determined after the merger is completed and after
completion of a final analysis to determine the fair values of Farmers and
Merchants' assets and liabilities. Accordingly, the final adjustments may be
materially different from the pro forma financial information. Furthermore,
we have estimated that the combined company will record approximately $1.5
million of merger-related charges.
-19-
The charges may be higher or lower than we have estimated, depending upon how
costly or difficult it is to integrate our two companies. These charges may
decrease capital of the combined company that could be used for profitable,
income-earning investments in the future.
The fairness opinion obtained by Farmers and Merchants will not reflect
changes in circumstances between the signing of the Agreement and Plan of
Merger and the closing date.
Farmers and Merchants has not obtained an updated opinion as of the date
of this document from its financial adviser. Changes in the operations and
prospects of Farmers and Merchants, general market and economic conditions
and other factors which may be beyond the control of Farmers and Merchants,
and on which the fairness opinion was based, may alter the value of Farmers
and Merchants or the prices of shares of Farmers and Merchants common stock
and shares of Capital City common stock by the time the merger is completed.
The opinion does not speak as of the time the merger will be completed or as
of any date other than the date of such opinion. For a description of the
opinion that Farmers and Merchants received from its financial adviser,
please refer to "DESCRIPTION OF THE MERGER - Fairness Opinion of Farmers and
Merchants' Financial Adviser" on page 27.
MEETING OF FARMERS AND MERCHANTS SHAREOWNERS
Date, Place, Time, and Purpose
The Farmers and Merchants Board of Directors is sending you this Proxy
Statement/Prospectus in connection with the solicitation by the Farmers and
Merchants Board of Directors of proxies for use at the Special Meeting. Each
of Farmers and Merchants and Capital City will pay one-half of the filing
fees payable and printing costs incurred in connection with this Proxy
Statement/Prospectus and the registration statement of which this Proxy
Statement/Prospectus is a part. At the Special Meeting, the Farmers and
Merchants Board of Directors will ask you to vote on a proposal to approve
the Agreement and Plan of Merger. Farmers and Merchants will pay all other
costs associated with the solicitation of proxies for the Special Meeting.
The Special Meeting will be held at Farmers and Merchants Bank, located at
600 Bellevue Avenue, Dublin, Georgia, on Friday, October 15, 2004, at 10:00
a.m., Eastern Time.
Record Date, Voting Rights, Required Vote, and Revocability of Proxies
Farmers and Merchants has set the close of business on Monday, October
15, 2004, as the record date for determining the holders of Farmers and
Merchants common stock entitled to notice of and to vote at the Special
Meeting. Only holders of Farmers and Merchants common stock of record on the
books of Farmers and Merchants at the close of business on the record date
are entitled to notice of and to vote at the Special Meeting. As of the
record date, there were 50,000 shares of Farmers and Merchants common stock
entitled to vote at the Special Meeting. The executive officers and
directors of Farmers and Merchants have committed to vote their shares in
favor of the merger. Capital City holds no shares of Farmers and Merchants
common stock.
You are entitled to one vote for each share of Farmers and Merchants
common stock you own on the record date. Shareowners holding a majority of
the outstanding shares of Farmers
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and Merchants common stock entitled to vote at the Special Meeting must be
present, in person or by proxy, at the Special Meeting to form a quorum. In
order to approve the merger, however, shareowners holding at least two-thirds
of the issued and outstanding shares of Farmers and Merchants common stock
represented, in person or by proxy, at the Special Meeting must approve the
Agreement and Plan of Merger. Consequently, abstentions and broker non-
votes, as well as instructions to withhold authority to vote, will have the
same effect as a vote "against" the Agreement and Plan of Merger.
_____________________________________________________________________________
Failure either to vote by proxy or in person at the Special Meeting will have
the same effect as a vote cast "against" approval of the Agreement and
Plan of Merger and the transactions contemplated therein.
_____________________________________________________________________________
Persons named as proxies will vote shares of Farmers and Merchants
common stock in accordance with the instructions on the proxies if such
proxies are properly executed, received in time, and not revoked. If the
proxy does not contain instructions on how to vote, persons named as proxies
will vote for approval of the Agreement and Plan of Merger. If any other
matters properly come before the Special Meeting, the persons named as
proxies will vote upon such matters according to their judgment. If
necessary, such persons may vote in favor of a proposal to adjourn the
Special Meeting in order to permit further solicitation of proxies in the
event there are not sufficient votes to approve the Agreement and Plan of
Merger at the time of the Special Meeting. However, no proxy that is voted
against the approval of the Agreement and Plan of Merger will be voted in
favor of an adjournment of the Special Meeting in order to permit further
solicitation of proxies.
A Farmers and Merchants shareowner who has given a proxy may revoke it
at any time prior to its exercise at the Special Meeting by:
* giving written notice of revocation to the Secretary of Farmers and
Merchants;
* properly submitting to Farmers and Merchants a duly executed proxy
bearing a later date; or
* attending the Special Meeting and voting in person.
All written notices of revocation and other communications with respect
to revocation of proxies should be addressed as follows: Farmers and
Merchants Bank, 600 Bellevue Avenue, Dublin, Georgia 31021, Attention:
McGrath Keen, Jr., President.
At the record date, all directors and executive officers of Farmers and
Merchants as a group (6 persons) were entitled to vote approximately 32,947
shares of Farmers and Merchants common stock, constituting approximately
65.89% of the total number of shares of Farmers and Merchants common stock
outstanding at that date. The Farmers and Merchants directors and executive
officers have committed to vote their shares of Farmers and Merchants common
stock in favor of the Agreement and Plan of Merger. See "BUSINESS OF FARMERS
AND MERCHANTS - Management Stock Ownership," on page 69.
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DESCRIPTION OF THE MERGER
The following information describes certain aspects of the merger.
However, the Agreement and Plan of Merger is attached as Appendix A to this
Proxy Statement/Prospectus, and you are urged to read carefully the Agreement
and Plan of Merger in its entirety.
General
This Agreement provides for Capital City to acquire Farmers and
Merchants in a series of transactions.
The Bank Merger
---------------
First, Capital City will merge a Georgia chartered, interim banking
subsidiary of Capital City with and into Farmers and Merchants in accordance
with the provisions of, and with the effect provided in, Sections 7-1-530 et
seq. of the Financial Institutions Code of Georgia on terms and subject to
the provisions of the Bank Plan of Merger, attached as Appendix B to this
Proxy Statement/Prospectus. Farmers and Merchants will be the surviving bank
resulting from the Bank Merger and will continue to be governed by the Laws
of the State of Georgia.
Assumption of Deposit Liabilities
---------------------------------
Second, immediately following the consummation of the Bank Merger,
Farmers and Merchants will transfer and Capital City Bank will assume the
following deposit liabilities:
* all deposits held by Farmers and Merchants and all terms and agreements
relating to the deposit accounts; and
* Farmers and Merchants' duties and responsibilities relating to the
deposits with respect to:
- the abandoned property laws of any state;
- any legal process which is served on Farmers and Merchants on or
before the effective time with respect to claims against or for
the deposits; and
- any other applicable law.
The Holding Company Merger
--------------------------
Third, immediately following the consummation of the Bank Merger and
immediately after the assumption of the deposit liabilities, Farmers and
Merchants will be merged with and into Capital City in accordance with the
provisions of and with the effect provided in Section 607.1108 of the Florida
Business Corporations Act and Sections 14-2-1101 et seq. of the Georgia
Business Corporation Code. Capital City will be the surviving corporation
resulting from this Holding Company Merger and will continue to be a
corporation governed by the laws of the State of Florida.
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Transfer of Assets and Remaining Liabilities
--------------------------------------------
Fourth, immediately after the Holding Company Merger, Capital City will
transfer to Capital City Bank the assets and remaining liabilities that were
on the books of Farmers and Merchants at that moment (after taking into
account the transfer of the Deposit Liabilities to Capital City Bank
described above).
At the effective time of the Bank Merger, the outstanding shares of the
capital stock of Farmers and Merchants will be converted into the right to
receive:
* $666.50 in cash, and
* that multiple of a share of Capital City common stock equal to the
quotient obtained by dividing $666.50 by the average of the daily closing
sales prices of one share of Capital City common stock as reported on the
Nasdaq National Market for the 20 consecutive full trading days ending on the
fifth full trading day preceding the effective date of the Bank Merger.
However, the per share price of Capital City common stock used in calculating
the exchange ratio will range from a minimum of $38.00 to a maximum of
$45.00.
As a result, shareowners of Farmers and Merchants will become
shareowners of Capital City, and Capital City and Capital City Bank will
conduct the business and operations of Farmers and Merchants.
Shares held by Farmers and Merchants, Capital City, or their subsidiary,
other than shares held in a fiduciary capacity or in satisfaction of debts
previously contracted, will not be converted to Capital City common stock.
Shares held by Farmers and Merchants shareowners who perfect their
dissenters' rights will not be converted to Capital City common stock. The
Agreement and Plan of Merger provides that the exchange ratio will be
adjusted to prevent dilution in the event Capital City changes the number of
shares of Capital City common stock issued and outstanding prior to the
effective time of the merger as a result of a stock split, stock dividend,
recapitalization, reclassification, or similar transaction.
Capital City will not adjust the exchange ratio of the shares of Capital
City to be received in the merger based on changes in the market value of
Capital City common stock before the effective time of the merger beyond a
minimum of $38.00 and a maximum of $45.00. The market value of the Capital
City common stock that shareowners of Farmers and Merchants will receive may
therefore vary significantly between the date of this Proxy
Statement/Prospectus and the effective time of the merger. Further, because
Capital City and Farmers and Merchants must satisfy various conditions,
including receipt of necessary regulatory approvals, the merger may not be
consummated until a substantial period of time following the Special Meeting.
During the time between the date of the Special Meeting and the effective
time of the merger, shareowners of Farmers and Merchants who do not properly
perfect their dissenters' rights, or who do not sell their shares of Farmers
and Merchants common stock, will be subject to the risk of a decline in the
market value of Capital City common stock.
Capital City will not issue fractional shares. Instead of issuing any
fractional share to which any Farmers and Merchants shareowner would
otherwise be entitled upon consummation of the merger, Capital City will pay
such shareowner cash equal to the fractional part of a share
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of Capital City common stock multiplied by the average closing price of one
share of Capital City common stock.
In addition, as a condition to the merger, Farmers and Merchants must
have, immediately prior to the effective date of the merger, a net worth of
at least $30 million, subject to certain adjustments. See "- Conditions to
Consummation of the Merger," on page 34. Capital City anticipates that
Farmers and Merchants will distribute any equity above this $30 million
amount, subject to adjustment, to its shareowners in one or more
distributions prior to the closing date of the merger. Based on the last
call report filed by Farmers and Merchants with the FDIC, as of June 30,
2004, Farmers and Merchants had a net worth of approximately $69.2 million.
Assuming that to be the total immediately prior to the effective date of the
merger, Farmers and Merchants shareowners would receive an additional
distribution of approximately $39.26 million, or $785.20 per share (assuming
all 50,000 shares remain outstanding).
At the record date, Farmers and Merchants had 50,000 shares of common
stock issued and outstanding. Based on the number of shares of Farmers and
Merchants common stock outstanding on the record date and the exchange ratio
range of 14.81 to 17.54 shares, Capital City anticipates that it will issue a
minimum of 740,555 and a maximum of 876,973 shares of Capital City common
stock to holders of Farmers and Merchants common stock once the merger is
complete. Accordingly, Capital City would then have issued and outstanding
between approximately 14,022,645 and 14,159,063 shares of Capital City common
stock based on the number of shares of Capital City common stock issued and
outstanding on the record date. Following the merger, and assuming no
exercise of dissenters' rights, the current shareowners of Farmers and
Merchants will beneficially own between approximately 5.3% and 6.2% of the
outstanding Capital City common stock.
Background of And Reasons for the Merger
In exercising their fiduciary responsibility to shareowners, Farmers and
Merchants' management and board of directors has assessed the financial
services industry as a whole, including the regulatory and competitive
environment for banking services, Farmers and Merchants' future prospects for
earnings and asset growth, and the viability of continued independent
operations in accordance with Farmers and Merchants' business plan.
On June 23, 2003, the Board of Directors engaged Trident Securities to
assist Farmers and Merchants in setting a strategic course and in identifying
suitable partners. Trident identified potential candidates which could
provide liquidity, enhanced earnings growth, and outstanding service to the
Laurens County market. During September and October of 2003, two of those
institutions identified expressed interest in a transaction with Farmers and
Merchants. Based on these preliminary expressions of interest, Farmers and
Merchants entered into exclusive negotiations with Capital City during which
Capital City was permitted to conduct further due diligence.
The Board of Directors of Farmers and Merchants met on May 4, 2004, to
discuss the Agreement and Plan of Merger and the merger. After review of the
matters before the Board of Directors, the Board of Directors of Farmers and
Merchants unanimously approved the Agreement and Plan of Merger and
authorized the President and the Chief Executive Officer of Farmers and
Merchants to take the appropriate actions necessary to execute the Agreement
and Plan of Merger.
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The Board of Directors of Capital City met on April 27, 2004, to discuss
the Agreement and Plan of Merger. After review of the matters before the
Directors of Capital City, the Board of Directors of Capital City unanimously
approved the Agreement and Plan of Merger and authorized the President and
Chief Executive Officer of Capital City to take the appropriate actions
necessary to execute the Agreement and Plan of Merger in substantially the
form approved by the Board.
On May 12, 2004, Capital City and Farmers and Merchants executed the
Agreement and Plan of Merger. Capital City and Farmers and Merchants each
conducted a due diligence review of the material financial, operating and
legal information relating to the other party.
Farmers and Merchants' Reasons for the Merger and Recommendation of Directors
Farmers and Merchants' Board of Directors, with the assistance of
outside advisers, evaluated the financial and market considerations bearing
on the decision to recommend the merger to the shareowners of Farmers and
Merchants. In reaching its conclusion that the Agreement and Plan of Merger
is in the best interests of Farmers and Merchants and its shareowners, the
Farmers and Merchants Board of Directors considered the following factors:
* the value of the consideration to be received by Farmers and Merchants
shareowners relative to the book value and earnings per share of Farmers
and Merchants common stock;
* the Farmers and Merchants board's familiarity with and review of Farmers
and Merchants' business, operations, financial condition and earnings on
an historical and a prospective basis, including, without limitation,
its potential growth and profitability;
* the Farmers and Merchants board's review, based on the presentation of
its financial adviser, of the business, operations, financial condition
and earnings of Capital City on an historical and a prospective basis
and of the combined company on a pro forma basis and the historical
stock price performance and liquidity of Capital City common stock, and
the resulting relative interests of Farmers and Merchants shareowners
and Capital City in the common equity of the combined company;
* the financial terms of recent business combinations in the financial
services industry and a comparison of the multiples of selected
combinations with the terms of the proposed transaction with Capital
City;
* the alternatives to the merger, including remaining an independent
institution;
* the competitive and regulatory environment for financial institutions
generally;
* the fact that the merger will enable Farmers and Merchants shareowners
to exchange their shares of Farmers and Merchants common stock, in a
partially tax-free transaction, for cash and shares of common stock of a
larger company, the stock of which is more widely held and more liquid
than that of Farmers and Merchants;
* the previous experience of management of Capital City in completing
acquisition transactions;
-25-
* the general impact that the merger could be expected to have on the
constituencies served by Farmers and Merchants, including its customers,
employees and communities;
* the expanded range of banking services that the transaction will allow
Farmers and Merchants to provide to its customers;
* that the directors and officers of Farmers and Merchants might be deemed
to have interests in the merger other than their interests generally as
Capital City shareowners;
* the results of the due diligence investigation of Capital City by
management of Farmers and Merchants and Trident Securities;
* the Farmers and Merchants board's assessment, with the assistance of
counsel, concerning the likelihood that Capital City would obtain all
requisite regulatory approvals required for the merger;
* the terms of the $3.2 million termination fee in favor of Capital City,
including the risk that the termination fee might discourage third
partiers from offering to acquire Farmers and Merchants by increasing
the cost of a third party acquisition, and recognizing that the
termination fee was a condition to Capital City's willingness to enter
into the Agreement and Plan of Merger;
* the terms of the $3.2 million termination fee in favor of Capital City
if Farmers and Merchants shareowners fail to approve the merger; and
* the opinion of Trident Securities that the consideration to be received
by Farmers and Merchants shareowners as a result of the merger is fair
to Farmers and Merchants shareowners from a financial point of view.
While each member of Farmers and Merchants' Board of Directors
considered the foregoing and other factors, the Farmers and Merchants Board
of Directors did not assign any specific or relative weights to the factors
considered and did not make any determination with respect to any individual
factor. Farmers and Merchants' Board of Directors collectively made its
determination with respect to the merger based on the unanimous conclusion
reached by its members, in light of the factors that each of them considered
as appropriate, that the merger is in the best interests of Farmers and
Merchants' shareowners.
The terms of the merger, including the exchange ratio, were the result
of arm's-length negotiations between representatives of Farmers and Merchants
and representatives of Capital City. Based upon its consideration of the
foregoing factors, the Board of Directors of Farmers and Merchants approved
the Agreement and Plan of Merger and the merger as being in the best
interests of Farmers and Merchants and its shareowners.
Farmers and Merchants' Board of Directors unanimously recommends that
shareowners vote "FOR" approval of the Agreement and Plan of Merger.
-26-
Fairness Opinion Of Farmers and Merchants' Financial Adviser
Acquisition - General. Pursuant to an engagement letter dated June 23,
2003 between Farmers and Merchants and Trident Securities, a division of
McDonald Investments Inc., Farmers and Merchants retained Trident to render
an opinion with respect to the fairness, from a financial point of view, of
the merger consideration to be received by Farmers and Merchants shareowners
in connection with a sale of Farmers and Merchants. Trident is a nationally
recognized specialist in the financial services industry and is regularly
engaged in evaluations of similar businesses and in advising institutions
with regard to mergers and acquisitions, as well as raising debt and equity
capital for such institutions. Farmers and Merchants selected Trident to
render a fairness opinion based upon Trident's qualifications, expertise and
reputation in such capacity.
Trident delivered a written opinion, dated May 12, 2004 that the merger
consideration was fair to Farmers and Merchants shareowners, from a financial
point of view, as of the date of such opinion. Neither Farmers and Merchants
nor its Board imposed any limitations on Trident with respect to the
investigations made or the procedures followed in rendering its opinion.
The full text of Trident's written opinion to the Farmers and Merchants
Board, dated May 12, 2004, which sets forth the assumptions made, matters
considered and extent of review by Trident, is attached as Appendix F and is
incorporated into this Proxy Statement/Prospectus by reference. It should be
read carefully and in its entirety in conjunction with this document. The
following summary of Trident's opinion is qualified in its entirety by
reference to the full text of the opinion. Trident's opinion is addressed to
the Farmers and Merchants Board and does not constitute a recommendation to
any shareowner of Farmers and Merchants as to how such shareowner should vote
at the Farmers and Merchants Special Meeting described in this document.
Trident, in connection with rendering its opinion:
* reviewed Farmers and Merchants' audited financial statements for each of
the years ended December 31, 2002, 2001, and 2000; Farmers and
Merchants' internal financial statements and general ledger balances for
the years ended December 31, 2003 and interim periods ending June 30,
2003 and September 30, 2003;
* reviewed Capital City's Annual Report to Shareowners and Annual Report
on Form 10-K for each of the years ended December 31, 2003, 2002, and
2001, including the audited financial statements contained therein; and
Capital City's Quarterly Report on Form 10-Q for the quarter ended March
31, 2004;
* reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Farmers and Merchants and Capital City provided
to Trident or publicly available;
* participated in meetings and telephone conferences with members of
senior management of Farmers and Merchants and Capital City concerning
the financial condition, business, assets, financial forecasts and
prospects of the respective companies, as well as other matters Trident
believed relevant to its inquiry;
-27-
* reviewed certain stock market information for Capital City common stock
and compared it with similar information for certain companies, the
securities of which are publicly traded;
* compared the results of operations and financial condition of Farmers
and Merchants and Capital City with that of certain companies which
Trident deemed to be relevant for purposes of this opinion;
* reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which Trident deemed to be relevant for
purposes of this opinion;
* reviewed the Agreement and Plan of Merger dated May 12, 2004 and certain
related documents; and
* performed such other reviews and analyses as Trident has deemed
appropriate.
The oral and written opinions provided by Trident to Farmers and
Merchants were necessarily based upon economic, monetary, financial market
and other relevant conditions as of the dates thereof.
In connection with its review and arriving at its opinion, Trident
relied upon the accuracy and completeness of the financial information and
other pertinent information provided by Farmers and Merchants and Capital
City to Trident for purposes of rendering its opinion. Trident did not
assume any obligation to independently verify any of the provided information
as being complete and accurate in all material respects. With regard to the
financial forecasts established and developed for Farmers and Merchants with
the input of its management, Trident assumed that these materials had been
reasonably prepared on bases reflecting the best available estimates and
judgments of Farmers and Merchants as to the future performance of the
Company and that the projections provided a reasonable basis upon which
Trident could formulate its opinion. Farmers and Merchants does not publicly
disclose such internal management projections of the type utilized by Trident
in connection with Trident's role as financial adviser to Farmers and
Merchants. Therefore, such projections cannot be assumed to have been
prepared with a view towards public disclosure. The projections were based
upon numerous variables and assumptions that are inherently uncertain,
including, among others, factors relative to the general economic and
competitive conditions facing Farmers and Merchants. Accordingly, actual
results could vary significantly from those set forth in the respective
projections.
Trident does not claim to be an expert in the evaluation of loan
portfolios or the allowance for loan losses with respect thereto and
therefore assumes that such allowances for Farmers and Merchants are adequate
to cover such losses. In addition, Trident does not assume responsibility for
the review of individual credit files and did not make an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of Farmers and Merchants, nor was Trident provided with such
appraisals. Furthermore, Trident assumes that the merger will be consummated
in accordance with the terms set forth in the Agreement and Plan of Merger,
without any waiver of any material terms or conditions by Farmers and
Merchants, and that obtaining the necessary regulatory approvals for the
merger will not have an adverse effect on either separate institution or the
combined entity. In particular, Trident assumes that the
-28-
merger will be recorded as a "purchase" in accordance with generally accepted
accounting principles.
In connection with rendering its opinion to Farmers and Merchants'
Board, Trident performed a variety of financial and comparative analyses, of
which the analyses necessitating the primary weight of our opinion are
briefly summarized below. Such summary of analyses does not purport to be a
complete description of the analyses performed by Trident. Moreover, Trident
believes that these analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered by it, without
considering all such analyses and factors, could create an incomplete
understanding of the scope of the process underlying the analyses and, more
importantly, the opinion derived from them. The preparation of a financial
adviser's opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analyses or a summary description of
such analyses. In its full analysis, Trident also included assumptions with
respect to general economic, financial market and other financial conditions.
Furthermore, Trident drew from its past experience in similar transactions,
as well as its experience in the valuation of securities and its general
knowledge of the banking industry as a whole. Any estimates in Trident's
analyses were not necessarily indicative of actual future results or values,
which may significantly diverge more or less favorably from such estimates.
Estimates of Farmers and Merchants valuations do not purport to be
appraisals, nor to necessarily reflect the prices at which companies or their
respective securities actually may be sold. None of the analyses summarized
below were assigned a greater significance by Trident than any other in
deriving its opinion.
Description of Transaction: Per the terms of the Agreement and Plan of
Merger dated May 12, Farmers and Merchants shareowners will receive all
equity capital in excess of $30 million, unrestricted dividend distributions
through closing, and consideration from Capital City of $33.325 million in
cash and $33.325 million in Capital City stock. For purposes of our
analysis, the aggregate consideration in the transaction is estimated to be
$110.73 million, which includes $66.65 million from Capital City and $44.08
million of excess capital distributions.
Comparable Transaction Analysis: Trident reviewed and compared actual
information for groups of comparable pending and completed thrift merger
transactions (through January 7, 2004) it deemed pertinent to an analysis of
the Merger. The pricing ratios for the Merger were compared to the average
and median ratios of (i) price to last twelve months net income ("LTM NI"),
(ii) price to tangible book value ("TBV"), (iii) capital adjusted price to
TBV, and (iv) TBV premium to core deposit ratio ("TBV Prem./Core Deposits"),
for each of the following 9 comparable transactions:
Buyer / Seller (State)
----------------------
* Persons Banking Company/Farmers Bank (GA)
* First Bancorp/Carolina Community Bancshares (SC)
* Hazlehurst Investors/Bank of Hazlehurst (GA)
* Putnam-Greene Financial/Citizens Bank of Cochran (GA)
* SNB Bancshares/Bank of Gray (GA)
* State Capital Corp/Mississippi Southern Bank (GA)
* Southwest Georgia Financial/First Bank Holding Co. (GA)
* Peoples Bancorp Inc./Kentucky Bancshares Inc. (KY)
* First Citizens Bancorp of SC/First Banks, Inc. (GA)
-29-
A summary of the pricing multiples for the Comparable Transactions is
listed below:
Farmers and
Mean Median Merchants
---------- ---------- ------------
Price / LTM NI 13.70x 14.44x 15.74x
Price / TBV 189.78% 180.4% 159.7%
Capital Adjusted Price / TBV 240.4% 247.9% 269.4%
Premium / Core Deposits 13.7% 14.2% 17.2%
Price / Assets 20.9% 20.8% 28.1%
The value of the transaction indicates that the Merger Consideration
paid to Farmers and Merchants shareowners falls within the range of similar
transactions, based on all methods of merger valuation used by Trident in its
comparable merger transaction analyses.
Discounted Dividend Analysis: Trident calculated a present value of
Farmers and Merchants' projected stand alone earnings and dividends based on
Trident assumptions and management estimates for the five-year period through
the calendar year ended December 31, 2008. This analysis utilized a range of
discount rates of 12.7%-14.7%, assumed annual earnings growth of 5.0%,
utilized a range of terminal earnings multiples of 11.0x - 14.0x calendar
year 2008 net income, and a target tangible capital ratio of 10.0%.
Additionally an initial dividend of $29.9 million was assumed to bring the
company to 10% capital. The discounted dividend analyses resulted in a range
of present values for Farmers and Merchants shareowners of between $103.7
million and $124.3 million. Trident found that the total consideration to
shareowners fell within this range.
Trident noted that the discounted earnings analysis was included because
it is a widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, terminal multiples, discount rates and
target tangible capital ratios.
Based on the aforementioned analyses and Trident's experience with
numerous mergers involving thrift institutions, it is Trident's opinion that
the merger consideration to be received by Farmers and Merchants shareowners
in the Merger is fair from a financial point of view.
No institution used as a comparison in the above analyses is identical
to Farmers and Merchants, or the combined entity, and no other transaction is
identical to the merger. Accordingly, an analysis of the results of the
foregoing is not purely mathematical; rather, such analyses involve complex
considerations and judgments concerning differences in financial, market and
operating characteristics of the companies and other factors that could
affect the trading characteristics of the companies to which Farmers and
Merchants, and the combined entity are being compared.
For its financial advisory services provided to Farmers and Merchants,
Trident will be paid a total fee of 0.85% of the merger consideration from
Capital City, excluding the dividend payments, of which $125,000 has been
received to date with the balance of the total fee to be paid to Trident at
the time of closing of the Merger. In addition, Farmers and Merchants has
agreed to reimburse Trident for all reasonable out-of-pocket expenses,
incurred by it on Farmers
-30-
and Merchants' behalf, provided such expenses shall not exceed $20,000
without Farmers and Merchants' prior consent. Farmers and Merchants also
agreed to indemnify Trident against certain liabilities, including any which
may arise under the federal securities laws.
Trident is a member of all principal securities exchanges in the United
States and in the conduct of its broker-dealer activities may have from time
to time purchased securities from, and sold securities to, Farmers and
Merchants and Capital City. As a market maker, Trident may also have
purchased and sold the securities of Capital City for Trident's own account
and for the accounts of its customers.
Based on the analyses performed for comparable transactions, Trident
Securities determined that the terms of the merger proposal were fair and
equitable to the shareowners of Farmers and Merchants. See Appendix F for
full report.
Capital City's Reasons For The Merger
The Capital City Board of Directors believes that the merger is in the
best interests of Capital City and its shareowners. The Capital City Board
of Directors has unanimously approved the Agreement and Plan of Merger. In
deciding to approve the Agreement and Plan of Merger, the Capital City Board
of Directors considered a number of factors, including:
* a review, based in part on a presentation by Capital City's management,
of
- the business, operations, earnings, and financial condition,
including the capital levels and asset quality, of Farmers and
Merchants on a historical, prospective, and pro forma bases and
in comparison to other financial institutions in the area,
- the demographic, economic, and financial characteristics of the
Laurens County market, including existing competition, history of
the market areas with respect to financial institutions, and
average demand for credit, on an historical and prospective
bases, and
- the results of Capital City's due diligence review of Farmers and
Merchants; and
* the likelihood of regulators approving the merger without undue
conditions or delay;
* the compatibility and the community bank orientation of both Capital
City and its subsidiary and Farmers and Merchants;
* that the merger will provide Capital City with significant opportunities
to market its fee based products, such as cash management, asset
management and securities products to the existing customers of Farmers
and Merchants;
* that after the merger, Farmers and Merchants will be able to draw upon
the resources and competencies of Capital City and Capital City Bank to
provide a broader range of services and product delivery channels; and
* a variety of factors affecting and in relating to the overall strategic
focus of Capital City.
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While Capital City's Board of Directors considered the foregoing and
other factors, the Board of Directors did not assign any specific or relative
weights to the factors considered and did not make any determination with
respect to any individual factor. Capital City's Board of Directors
collectively made its determination with respect to the merger based on the
unanimous conclusion reached by its members, in light of the factors that
each of them considers as appropriate, that the merger is in the best
interests of Capital City's shareowners.
The terms of the merger, including the exchange ratio, were the result
of arm's-length negotiations between representatives of Capital City and
representatives of Farmers and Merchants. Based upon its consideration of
the foregoing factors, the Board of Directors of Capital City approved the
Agreement and Plan of Merger and the merger as being in the best interests of
Capital City and its shareowners.
Effective Time of the Merger
The effective time of the merger will occur at 11:59 p.m. Eastern Time
on the date requested by Capital City's Georgia-chartered interim bank, as
soon as practicable after the delivery of the Bank Plan of Merger and the
Agreement and Plan of Merger to the Georgia Department of Banking and
Finance. Unless Farmers and Merchants and Capital City otherwise agree in
writing, and subject to the conditions to the obligations of Capital City and
Farmers and Merchants to effect the merger, the parties will use their
reasonable efforts to cause the effective time of the merger to occur at a
mutually-agreed upon time within 60 days after the last to occur of:
* the effective date (including expiration of any applicable waiting
period) of the last required consent of any regulatory authority having
authority over and approving or exempting the merger, and
* the date on which the shareowners of Farmers and Merchants approve the
Agreement and Plan of Merger.
Capital City and Farmers and Merchants cannot assure that they can
obtain the necessary shareowner and regulatory approvals or that they can or
will satisfy the other conditions to the merger. Capital City and Farmers
and Merchants anticipate that they will satisfy all conditions to
consummation of the merger so that the merger can be completed during the
fourth quarter of 2004. However, delays in the consummation of the merger
could occur.
The Board of Directors of either Capital City or Farmers and Merchants
may terminate the Agreement and Plan of Merger if the merger is not
consummated by December 31, 2004, unless the failure to consummate the merger
by that date is the result of a breach of the Agreement and Plan of Merger by
the party seeking termination. See "- Conditions to Consummation of the
Merger," on page 34 and "- Waiver, Amendment, and Termination," on page 36.
Distribution of Capital City Stock Certificates
Promptly after the effective time of the merger, Capital City will mail
to each holder of record of Farmers and Merchants common stock appropriate
transmittal materials and
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instructions for the exchange of Farmers and Merchants stock certificates for
Capital City stock certificates and the cash portion of the consideration.
Holders of Farmers and Merchants common stock should NOT send in their
Farmers and Merchants stock certificates until they receive the transmittal
materials and instructions.
After Capital City's exchange agent receives your Farmers and Merchants
stock certificates and properly completed transmittal materials, the Exchange
Agent will issue and mail to you a certificate representing the number of
shares of Capital City common stock to which you are entitled. The Exchange
Agent will also send Farmers and Merchants shareowners a check for the amount
to be paid, without interest for the cash portion of the consideration, for
any fractional shares and for all undelivered dividends or distributions in
respect of such shares.
After the effective time of the merger, to the extent permitted by law,
holders of Farmers and Merchants common stock of record as of the effective
time of the merger will be entitled to vote at any meeting of Capital City
shareowners the number of whole shares of Capital City common stock they will
receive in the merger, regardless of whether such shareowners have
surrendered their Farmers and Merchants stock certificates. Whenever Capital
City declares a dividend or other distribution on Capital City common stock,
the record date for which is at or after the effective time of the merger,
the declaration will include dividends or other distributions on all shares
issuable pursuant to the Agreement and Plan of Merger. However, Capital City
will not pay any dividend or other distribution payable after the effective
time of the merger with respect to Capital City common stock to the holder of
any unsurrendered Farmers and Merchants stock certificate until the holder
duly surrenders such Farmers and Merchants stock certificate. In no event
will the holder of any surrendered Farmers and Merchants stock certificate(s)
be entitled to receive interest on any cash to be issued to such holder,
except to the extent required in connection with dissenters' rights. In no
event will Capital City or the Exchange Agent be liable to any holder of
Farmers and Merchants common stock for any amounts paid or property delivered
in good faith to a public official pursuant to any applicable abandoned
property, escheat, or similar law.
After the effective time of the merger, no transfers of shares of
Farmers and Merchants common stock on Farmers and Merchants' stock transfer
books will be recognized. If Farmers and Merchants stock certificates are
presented for transfer after the effective time of the merger, they will be
canceled and exchanged for shares of Capital City common stock and a check
for the amount due in lieu of a fractional share, if any.
After the effective time of the merger, holders of Farmers and Merchants
stock certificates will have no rights with respect to the shares of Farmers
and Merchants common stock other than the right to surrender such Farmers and
Merchants stock certificates and receive in exchange the shares of Capital
City common stock to which such holders are entitled. After the effective
time of the merger, holders of Farmers and Merchants stock certificates who
have complied with the provisions regarding the right to dissent as detailed
in the Financial Institutions Code of Georgia (which provides that the
provisions of the Georgia Business Corporation Code apply), may be entitled
to receive in cash the fair value of such shareowner's shares of Farmers and
Merchants common stock determined immediately prior to the merger, excluding
any appreciation or depreciation in anticipation of the merger. Failure to
comply with the procedures prescribed by applicable law will result in the
loss of dissenters' rights. See Appendix E to this Proxy
Statement/Prospectus.
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Conditions to Consummation of the Merger
Consummation of the merger is subject to various conditions, including:
* the approval of the Agreement and Plan of Merger by the holders of two-
thirds of the outstanding Farmers and Merchants common stock represented
in person or by proxy at the Special Meeting;
* the receipt of all regulatory approvals required for consummation of the
merger (see "- Regulatory Approvals," on page 35);
* receipt of all consents required for consummation of the merger or for
the preventing of any default under any contract or permit which
consent, if not obtained, is reasonably likely to have, individually or
in the aggregate, a material adverse effect;
* the absence of any law or order, whether temporary, preliminary or
permanent, or any action taken by any court, governmental, or regulatory
authority of competent jurisdiction prohibiting, restricting, or making
illegal the consummation of the transactions contemplated by the
Agreement and Plan of Merger;
* the Registration Statement, of which this Proxy Statement/Prospectus
forms a part, being declared effective by the SEC and the receipt of all
necessary SEC and state approvals relating to the issuance or trading of
the shares of Capital City common stock issuable pursuant to the
Agreement and Plan of Merger;
* the approval of the Capital City common stock issuable pursuant to the
Agreement and Plan of Merger for listing on the Nasdaq National Market;
* the receipt of a written opinion of Gunster, Yoakley & Stewart, P.A. as
to the tax aspects of the merger, including that the merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
* the accuracy, in all material respects, as of the date of the Agreement
and Plan of Merger and as of the effective time of the merger, of the
representations and warranties of Farmers and Merchants and Capital City
as set forth in the Agreement and Plan of Merger;
* the performance of all agreements and the compliance with all covenants
of Farmers and Merchants and Capital City as set forth in the Agreement
and Plan of Merger;
* the receipt by Capital City and Farmers and Merchants of certain
required written opinions of counsel;
* the receipt by Capital City of agreements from each person Farmers and
Merchants reasonably believes may be deemed an affiliate of Farmers and
Merchants with respect to certain matters;
* Farmers and Merchants must have, immediately prior to the date the
merger becomes effective, a minimum net worth of at least $30 million,
provided that "net worth" shall
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not be reduced by fees, costs and expenses (a) incurred or paid at the
request of Capital City, except for adjustments requested by Capital
City for purposes of complying with accounting principles generally
accepted in the United States, or (b) incurred or paid by Farmers and
Merchants to ensure that the allowances for possible loan and lease
credit losses shown on Farmers and Merchants balance sheet immediately
prior to the effective time will be a minimum of 1.75% of total loans of
Farmers and Merchants and will be adequate (within the meaning of
accounting principles generally accepted in the United States and
applicable regulatory requirements or guidelines) to provide for all
known or reasonably anticipated losses relating to or inherent in
Farmers and Merchants loan and lease portfolio (including accrued
interest receivables) and other extensions of credit (including letters
of credit) by Farmers and Merchants as of the dates thereof;
* the delivery to Capital City by each Farmers and Merchants director of a
Director's Agreement;
* the receipt by Capital City of letters from each of the directors and
executive officers of Farmers and Merchants releasing any claims they
may have against Farmers and Merchants;
* the performance of all agreements and the compliance with all covenants
of Farmers and Merchants and Capital City as set forth in the Agreement
and Plan of Merger;
* the delivery to Capital City by Farmers and Merchants of any required
clearance certificate or similar document required by any state taxing
authority in order to relieve Capital City of any obligation to withhold
any portion of the consideration under the Agreement and Plan of Merger.
Capital City and Farmers and Merchants cannot assure you when or if all
of the conditions to the merger can or will be satisfied. In the event the
merger is not completed by December 31, 2004, the Agreement and Plan of
Merger may be terminated and the merger abandoned by either Farmers and
Merchants or Capital City, unless the failure to consummate the merger by
that date is the result of a breach of the Agreement and Plan of Merger by
the party seeking termination. See "- Waiver, Amendment, and Termination,"
on page 36.
Regulatory Approvals
Capital City and Farmers and Merchants cannot complete the merger unless
and until they receive regulatory approvals from the Federal Reserve, the
Federal Deposit Insurance Corporation, the Georgia Department of Banking and
Finance and the Florida Department of Financial Services. These regulators
will evaluate financial, managerial and competitive criteria, as well as the
supervisory history of the parties and the public benefits of the merger.
Capital City and Farmers and Merchants have filed all required regulatory
applications relating to the merger. Capital City and Farmers and Merchants
cannot assure when or whether they will receive the required regulatory
approvals. Additionally, the parties cannot assure that the regulatory
approvals will impose no conditions or restrictions that in the judgment of
their Boards of Directors would so adversely impact the economic or business
benefits of the merger that, had such conditions or restrictions been known,
the parties would not have entered into the Agreement and Plan of Merger.
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Capital City and Farmers and Merchants are not aware of any other
material governmental approvals or actions that are required for consummation
of the merger.
Waiver, Amendment, and Termination
To the extent permitted by applicable law, Farmers and Merchants and
Capital City may amend the Agreement and Plan of Merger by written agreement
at any time, whether before or after approval of the Agreement and Plan of
Merger by the Farmers and Merchants shareowners. After the Farmers and
Merchants shareowners approve the Agreement and Plan of Merger, the Agreement
and Plan of Merger cannot be amended in a way that reduces or modifies the
consideration to be received by the holders of Farmers and Merchants common
stock without further approval of Farmers and Merchants shareowners. In
addition, after the Farmers and Merchants shareowners approve the Agreement
and Plan of Merger, the provisions of the Agreement and Plan of Merger
relating to the manner or basis in which shares of Farmers and Merchants
common stock will be exchanged for shares of Capital City common stock cannot
be amended in a manner adverse to the holders of Capital City common stock
without any requisite approval of Capital City shareowners entitled to vote
on such an amendment. In addition, prior to or at the effective time of the
merger, either Farmers and Merchants or Capital City, or both, acting through
their respective Boards of Directors, chief executive officers or other
authorized officers, may:
* waive any default in the performance of any term of the Agreement and
Plan of Merger by the other party;
* waive or extend the time for the compliance or fulfillment by the other
party of any and all of its obligations under the Agreement and Plan of
Merger; and
* waive any of the conditions precedent to the obligations of such party
under the Agreement and Plan of Merger, except any condition that, if
not satisfied, would result in the violation of any applicable law or
governmental regulation.
No such waiver will be effective unless written and unless signed by a duly
authorized officer of Farmers and Merchants or Capital City, as the case may
be.
The Agreement and Plan of Merger may be terminated at any time prior to
the effective time of the merger:
* by the mutual agreement of Capital City and Farmers and Merchants;
* by Capital City or Farmers and Merchants:
- in the event of any material breach of any representation,
warranty, covenant or agreement of the other party contained in
the Agreement and Plan of Merger which cannot be or has not been
cured within 30 days after written notice to the breaching party
and which breach is reasonably likely, in the opinion of the non-
breaching party, to have, individually or in the aggregate, a
material adverse effect on the breaching party (provided that the
terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained
in the Agreement and Plan of Merger),
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- if any approval of any regulatory authority required for
consummation of the merger has been denied by final nonappealable
action, or if any action taken by such authority is not appealed
within the time limit for appeal,
- if the shareowners of Farmers and Merchants fail to approve the
Agreement and Plan of Merger at the Special Meeting,
- if the merger is not consummated by December 31, 2004, provided
that the failure to consummate is not due to a breach by the party
electing to terminate, or
- in the event that any of the conditions precedent to the
obligations of such party to consummate the merger cannot be
satisfied or fulfilled by December 31, 2004, provided that the
terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained
in the Agreement and Plan of Merger;
* by Capital City, in the event that the Board of Directors of Farmers and
Merchants does not reaffirm its approval of the Agreement and Plan of
Merger (excluding any other acquisition proposal from a third party), or
shall have resolved not to reaffirm the merger, or shall have affirmed,
recommended or authorized entering into any acquisition proposal or
other transaction involving a merger, share exchange or transfer of
substantially all of the assets of Farmers and Merchants;
* by Farmers and Merchants if, subject to any adjustments for any stock
split, stock dividend, or similar recapitalization with respect to
Capital City Common Stock, the Average Closing Price is less than
$32.00; and
* by Capital City in the event of a material adverse effect, and, if
Capital City provides notice of and grants time to cure such material
adverse effect, such material adverse effect is not cured to Capital
City's satisfaction within the timeframe specified in the notice.
In addition to any other payments required by the Agreement and Plan of
Merger, in the event that the Agreement and Plan of Merger is terminated as a
result of Farmers and Merchants or the holders of at least a majority of the
shares of Farmers and Merchants common stock entering into an agreement with
respect to the merger of Farmers and Merchants with a party other than
Capital City or the acquisition of a majority of the outstanding shares of
Farmers and Merchants common stock by any party other than Capital City, or
is terminated in anticipation of any such agreement or acquisition, then, in
either event, Farmers and Merchants shall immediately pay Capital City, by
wire transfer, $3,200,000 in full satisfaction of Capital City's losses and
damages resulting from such termination.
If Capital City and/or Farmers and Merchants terminate the merger as
described in this section, the Agreement and Plan of Merger will become void
and have no effect, except that certain provisions of the Agreement and Plan
of Merger will survive, including those relating to the obligations to
maintain the confidentiality of certain information. In addition,
termination of the Agreement and Plan of Merger will not relieve any
breaching party from liability for any uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
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Dissenters' Rights
If the merger is consummated, any shareowner of Farmers and Merchants
who properly dissents from the merger may be entitled to receive in cash the
fair value of such shareowner's Farmers and Merchants common stock,
determined immediately prior to the merger, excluding any appreciation or
depreciation in anticipation of the merger. Failure to comply with the
procedures prescribed by applicable law will result in the loss of
dissenters' rights.
Any shareowner of Farmers and Merchants entitled to vote on the
Agreement and Plan of Merger has the right to receive payment of the fair
value of his or her shares of Farmers and Merchants common stock upon
compliance with the applicable provisions of the Financial Institutions Code
of Georgia, which provides that the provisions of the Georgia Business
Corporation Code shall apply. A record shareowner may assert dissenters'
rights as to fewer than all of the shares registered in his or her name only
if he or she dissents with respect to all shares beneficially owned by any
one beneficial shareowner and notifies the corporation in writing of the name
and address of each person on whose behalf he or she asserts dissenters'
rights. The rights of a partial dissenter under Section 14-2-1303 of the
Georgia Business Corporation Code are determined as if the shares as to which
he or she dissents and his or her other shares were registered in the names
of different shareowners. Any Farmers and Merchants shareowner intending to
enforce the right to dissent:
* may not vote in favor of the Agreement and Plan of Merger, and
* must file with Farmers and Merchants a written notice of intent to
demand payment for his or her shares if the merger becomes effective
(the "Objection Notice").
A Farmers and Merchants shareowner should send the Objection Notice to:
Farmers and Merchants Bank, 600 Bellevue Avenue, Dublin, Georgia 31021
(telephone: (478) 272-3100), Attention: McGrath Keen, Jr., President, before
the vote on the proposal to approve the Agreement and Plan of Merger is taken
at the Special Meeting. The Objection Notice must state that the shareowner
intends to demand payment for his or her shares of Farmers and Merchants
common stock if the merger is effectuated. A vote against the Agreement and
Plan of Merger, in and of itself, will not constitute an Objection Notice
satisfying the requirements of the Georgia Business Corporation Code.
If the Agreement and Plan of Merger is approved by Farmers and
Merchants' shareowners at the Special Meeting, each shareowner who has
properly filed an Objection Notice and who has not voted in favor of the
Agreement and Plan of Merger will be notified by Farmers and Merchants of
such approval within ten days of the Special Meeting ("Dissenters' Notice").
The Dissenters' Notice shall contain the following information:
* where the payment demand must be sent and where and when the
certificates representing the Farmers and Merchants common stock must be
deposited;
* the extent to which the transfer of uncertificated shares will be
restricted after the payment demand is received;
* the date by which the corporation must receive the payment demand (which
date may not be fewer than 30 nor more than 60 days after the
Dissenters' Notice is delivered); and
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* a copy of Title 14, Chapter 2, Article 13 of the Georgia Business
Corporation Code (relating to dissenters' rights) (the "Appraisal
Statute").
Following the receipt of the Dissenters' Notice, any shareowner electing to
dissent must demand payment of the fair value of the shares and deposit the
certificates representing his or her Farmers and Merchants common stock in
accordance with the terms of, and by the date set out in, the Dissenters'
Notice. Such shareowner will retain all other rights of a shareowner until
those rights are canceled or modified by the consummation of the merger. A
record shareowner who does not demand payment or deposit his or her
certificates where required, each by the date set out in the Dissenters'
Notice, is not entitled to payment for such holder's shares under the
Appraisal Statute.
Except as described below, within ten days after the later of the
effective time, or the date of receipt of a payment demand, Farmers and
Merchants must, by written notice, offer to each shareowner who has properly
filed a payment demand, and who has deposited his or her Farmers and
Merchants certificates representing Farmers and Merchants common stock, to
pay an amount Farmers and Merchants estimates to be a fair value for the
shareowner's shares, plus accrued interest from the effective time. Such
offer of payment must be accompanied by:
* certain of Farmers and Merchants' recent financial statements;
* a statement of Farmers and Merchants' estimate of the fair value of the
shares involved;
* an explanation of how the interest was calculated;
* a statement of the dissenter's right to demand payment under Section 14-
2-1327 of the Georgia Business Corporation Code; and
* a copy of the Appraisal Statute.
Any shareowner who accepts such offer by written notice to Farmers and
Merchants within 30 days after the offer, or who is deemed to have accepted
such offer due to his or her failure to respond to such offer within 30 days,
shall receive payment for his or her shares within 60 days after such offer
to pay or consummation of the merger, whichever is later. If the merger is
not consummated within 60 days following the date set for demanding payment
and depositing share certificates, Farmers and Merchants must return the
deposited certificates and release the transfer restrictions imposed on
uncertified shares. If Farmers and Merchants then consummates the merger, it
must send a new Dissenters' Notice and repeat the payment demand procedure.
In the event that Farmers and Merchants fails to make any payment offer
within ten days after the later of the date the proposed corporate action is
taken or the date of receipt of a payment demand, Farmers and Merchants must
provide certain information to the shareowner (the financial statements and
other information required to accompany Farmers and Merchants' payment offer)
within ten days after receipt of a written demand from such dissenting
shareowner for such information. Additionally, such dissenting shareowner
may, at any time within the three years following the consummation of the
merger, notify Farmers and Merchants of his or her own estimate of the fair
value of his or her shares and the interest due thereon, and demand payment
of such amounts, if:
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* a dissenting shareowner is dissatisfied with an offer for payment made
by Farmers and Merchants within the time period set forth above, or
* Farmers and Merchants, having failed to effect the merger, does not
return the deposited Farmers and Merchants certificates or release the
transfer restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
A dissenting shareowner waives the right to demand payment under section
14-2-1327 of the Georgia Business Corporation Code unless he or she
notifies Farmers and Merchants of his or her demand in writing within 30
days after Farmers and Merchants makes or offers payment for such
holder's shares.
If such a demand for payment from any dissenting shareowner remains
unsettled, within 60 days following the receipt by Farmers and Merchants of
such demand for payment, Farmers and Merchants must institute proceedings in
the superior court of the county where Farmers and Merchants' registered
office is located (the "Court") requesting a nonjury equitable determination
of the fair value of such dissenting shareowner's shares and the accrued
interest owed to such dissenting shareowner. If Farmers and Merchants fails
to file such action within the 60-day period, Farmers and Merchants must pay
each dissenting shareowner whose demand remains unsettled the amount demanded
by such dissenting shareowner. Farmers and Merchants is required to make all
dissenting shareowners whose demands remain unsettled parties to the
proceeding and to serve a copy of the petition upon each such dissenting
shareowner. The Court may, in its discretion, appoint an appraiser to
receive evidence and recommend a decision on the question of fair value.
Each dissenting shareowner made a party to the proceeding will be entitled to
judgment for the amount which the court finds to be the fair value of his or
her shares, plus interest to the date of judgment.
The Court will determine and assess the costs and expenses of such
proceeding (including reasonable compensation for and the expenses of the
appraiser, but excluding fees and expenses of counsel and experts) against
Farmers and Merchants, except that the Court may assess such costs and
expenses as it deems appropriate against any or all of the dissenting
shareowners if it finds that their demand for additional payment was
arbitrary, vexatious or otherwise not in good faith. The Court may award
fees and expenses of counsel and experts in amounts the Court finds
equitable:
* against Farmers and Merchants, if Farmers and Merchants did not
substantially comply with the requirements of the corporation as set out
in the Appraisal Statute;
* against either Farmers and Merchants or the dissenting shareowner(s), if
the Court finds that either party's actions were arbitrary, vexatious or
otherwise not in good faith; or
* if the Court finds that the services of attorneys for any dissenting
shareowner were of substantial benefit to other dissenting shareowners
similarly situated, and that the fees for those services should not be
assessed against Farmers and Merchants, the court may award those
attorneys reasonable fees out of the amounts awarded the dissenting
shareowners who were benefited.
No action by any dissenting shareowner to enforce dissenters' rights may
be brought more than three years after the corporate action was taken,
regardless of whether
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notice of the corporate action and of the right to dissent was given by
Farmers and Merchants in compliance with the Dissenters' Notice and payment
offer requirements of Sections 14-2-1320 and 14-2-1322 of the Georgia
Business Corporation Code.
The foregoing summary of the applicable provisions of the Appraisal
Statute is not intended to be a complete statement of such provisions, and is
qualified in its entirety by reference to such sections, which are included
as Appendix E to this Proxy Statement/Prospectus. The provisions of the
statutes are technical and complex. It is suggested that any Farmers and
Merchants shareowner who desires to exercise the right to object to the
Agreement and Plan of Merger consult counsel. Failure to comply with the
provisions of the statute may defeat a shareowner's right to dissent. No
further notice of the events giving rise to dissenters' rights or any steps
associated therewith will be furnished to Farmers and Merchants shareowners,
except as indicated above or as otherwise required by law.
Any dissenting Farmers and Merchants shareowner who perfects the right
to be paid the value of such holder's shares will recognize taxable gain or
loss upon receipt of cash for such shares for federal income tax purposes.
See "- Certain Federal Income Tax Consequences," on page 47.
Conduct of Business Pending the Merger
Capital City and Farmers and Merchants have agreed in the Agreement and
Plan of Merger that unless the other party gives prior written consent, and
except as otherwise expressly contemplated in the Agreement and Plan of
Merger, each of Capital City and Farmers and Merchants will, and Capital City
will cause its subsidiary to:
* operate its business only in the usual, regular, and ordinary course;
* preserve intact its business organization and assets and maintain its
rights and franchises; and
* take no action which would:
- adversely affect the ability of any party to obtain any consents
required for the transactions contemplated by the Agreement and
Plan of Merger without the imposition of certain conditions or
restrictions referred to in the Agreement and Plan of Merger, or
- adversely affect the ability of any party to perform its covenants
and agreements under the Agreement and Plan of Merger.
In addition, Farmers and Merchants has agreed that, from the date of the
Agreement and Plan of Merger until the earlier of the effective time of the
merger or the termination of the Agreement and Plan of Merger, unless Capital
City has given prior written consent, and except as otherwise expressly
contemplated by the Agreement and Plan of Merger, Farmers and Merchants will
not do or agree or commit to do, or permit any of its subsidiaries to do or
agree or commit to do, any of the following:
* amend its Articles of Incorporation, Bylaws or other governing instruments;
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* incur any additional debt obligation or other obligation for borrowed
money in excess of an aggregate of $50,000 except in the ordinary course
of the business of Farmers and Merchants consistent with past practices
(which shall include creation of deposit liabilities, purchases of
federal funds, and entry into repurchase agreements fully secured by
U.S. government or agency securities), or impose, or suffer the
imposition, on any asset of Farmers and Merchants of any lien or permit
any such lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and
liens in effect as of the date of the Agreement and Plan of Merger that
were previously disclosed to Capital City by Farmers and Merchants);
* repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly
or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of Farmers and Merchants or, except as
consistent with past practice, declare or pay any dividend or make any
other distribution in respect of Farmers and Merchants' capital stock
that would cause Farmers and Merchants' net worth to fall below $30
million;
* except for the Agreement and Plan of Merger, or as previously disclosed
to Capital City by Farmers and Merchants, issue, sell, pledge, encumber,
authorize the issuance of, enter into any contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to
become outstanding, any additional shares of Farmers and Merchants
common stock, or any stock appreciation rights, or any option, warrant,
or other equity right;
* adjust, split, combine or reclassify any capital stock of Farmers and
Merchants or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Farmers and Merchants common
stock, or sell, lease, mortgage or otherwise dispose of or otherwise
encumber any asset having a book value in excess of $50,000 (other than
in the ordinary course of business for reasonable and adequate
consideration);
* except for purchases of U.S. Treasury securities or U.S. Government
agency securities, which in either case have maturities of one year or
less, purchase any securities or make any material investment, either by
purchase of stock or securities, contributions to capital, asset
transfer, or purchase of any assets, in any entity, or otherwise acquire
direct or indirect control over any entity, other than in connection
with:
- foreclosures in the ordinary course of business, or
- acquisitions of control by a depository institution subsidiary in
its fiduciary capacity;
* any of the following:
- make any new loans or extensions of credit or renew, extend or
renegotiate any existing loans or extensions of credit:
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(1) with respect to properties or businesses outside of Farmers
and Merchants current market area, or to borrowers whose
principal residence is outside of Farmers and Merchants
current market area,
(2) that are unsecured in excess of $100,000, or
(3) that are secured in excess of $500,000.
- purchase or sell (except for sales of single-family residential
first mortgage loans in the ordinary course of Farmers and
Merchants' business for fair market value) any whole loans,
leases, mortgages or any loan participations or agented credits or
other interest therein;
- renew or renegotiate any loans or credits that are on any watch
list and/or are classified or special mentioned or take any
similar actions with respect to collateral held with respect to
debts previously contracted or other real estate owned, except
pursuant to safe and sound banking practices and with prior
disclosure to Capital City Bank;
- Farmers and Merchants may, however, without the prior notice to or
written consent of Capital City, renew or extend existing credits
on substantially similar terms and conditions as present at the
time such credit was made or last extended, renewed or modified,
for a period not to exceed one year and at rates not less than
market rates for comparable credits and transactions and without
any release of any collateral except as Farmers and Merchants is
presently obligated under existing written agreements kept as part
of Farmers and Merchants' official records;
* grant any increase in compensation or benefits to the employees or
officers of Farmers and Merchants, except in accordance with past
practice previously disclosed to Capital City by Farmers and Merchants
or as required by law, pay any severance or termination pay or any bonus
other than pursuant to written policies or written contracts in effect
on the date of the Agreement and Plan of Merger and previously disclosed
to Capital City by Farmers and Merchants; enter into or amend any
severance agreements with officers of Farmers and Merchants; grant any
increase in fees or other increases in compensation or other benefits to
directors of Farmers and Merchants; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or
employee benefits or other equity rights;
* enter into or amend any employment contract between Farmers and
Merchants and any person (unless such amendment is required by law) that
Farmers and Merchants does not have the unconditional right to terminate
without liability (other than liability for services already rendered)
at any time on or after the effective time of the merger;
* adopt any new employee benefit plan of Farmers and Merchants or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of Farmers and Merchants 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
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such plan, or make any distributions from such employee benefit plans,
except as required by law, the terms of such plans or consistent with
past practice;
* make any significant change in any tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform
to changes in tax laws or regulatory accounting requirements or
accounting principles generally accepted in the United States;
* commence any litigation other than in accordance with past practice, or
settle any litigation involving any liability of Farmers and Merchants
for material money damages or restrictions upon the operations of
Farmers and Merchants; or
* except in the ordinary course of business, enter into, modify, amend or
terminate any material contract calling for payments exceeding $50,000
or waive, release, compromise or assign any material rights or claims.
The Agreement and Plan of Merger also provides that from the date of the
Agreement and Plan of Merger until the earlier of the effective time of the
merger or the termination of the Agreement and Plan of Merger, unless Farmers
and Merchants has given prior written consent, and except as otherwise
expressly contemplated by the Agreement and Plan of Merger, Capital City will
not amend the Articles of Incorporation or Bylaws of Capital City in any
manner adverse to the holders of Farmers and Merchants common stock.
Management and Operations after the Merger; Interests of Certain Persons in
the Merger
Following the merger, Farmers and Merchants will be merged with and into
Capital City Bank. Certain members of Farmers and Merchants' management and
the Farmers and Merchants Board of Directors have interests in the merger in
addition to their interests as shareowners of Farmers and Merchants
generally. These include, among other things, provisions in the Agreement
and Plan of Merger relating to indemnification of directors and officers and
eligibility for certain Capital City employee benefits.
Indemnification and Advancement of Expenses.
------------------------------------------- With respect to all claims
brought during the period of three years after the effective time of the
merger, the Agreement and Plan of Merger provides that Capital City will
indemnify, defend and hold harmless the present and former directors,
officers and employees of Farmers and Merchants against all liabilities
arising out of actions or omissions arising out of the Indemnified Party's
service as a director, officer or employee of Farmers and Merchants or, at
Farmers and Merchants' request, of another corporation, partnership, joint
venture, trust or other enterprise occurring at or prior to the effective
time of the merger (including the transactions contemplated by the Agreement
and Plan of Merger) to the fullest extent permitted under Florida law.
Without limiting the foregoing, in any case in which approval by Capital City
is required to effectuate any indemnification, Capital City shall direct, at
the election of the indemnified party, that the determination of any such
approval will be made by independent counsel mutually agreed upon between
Capital City and the indemnified party.
Capital City shall, to the extent available (and Farmers and Merchants
shall cooperate prior to the effective time of the merger in these efforts),
maintain in effect for a period of three
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years after the effective time of the merger Farmers and Merchants' existing
directors' and officers' liability insurance policy provided that Capital
City may substitute therefor:
* policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous, or
* with the consent of Farmers and Merchants given prior to the effective
time of the merger, any other policy with respect to claims arising from
facts or events that occurred prior to the effective time of the merger
and covering persons who are currently covered by such insurance;
provided that Capital City will not be obligated to make aggregate premium
payments for such three-year period in respect of such policy (or coverage
replacing such policy) which exceed, for the portion related to Farmers and
Merchants' directors and officers, 125% of the annual premium payments on
Farmers and Merchants' current policy in effect as of the date of the
Agreement and Plan of Merger.
Other Matters Relating to Employee Benefit Plans.
------------------------------------------------ The Agreement and Plan
of Merger also provides that, following the effective time of the merger,
Capital City will provide generally to officers and employees of Farmers and
Merchants employee benefits under employee benefit and welfare plans (other
than stock option or other plans involving the potential issuance of Capital
City common stock), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the Capital City
entities to their similarly situated officers and employees. Capital City
will waive any pre-existing condition exclusion under any employee health
plan for which any employees and/or officers and dependents covered by
Farmers and Merchants plans as of the effective time of the merger of Farmers
and Merchants will become eligible by virtue of the preceding sentence, to
the extent:
* the pre-existing condition was covered under the corresponding plan
maintained by Farmers and Merchants, and
* the individual affected by the pre-existing condition was covered by
Farmers and Merchants' corresponding plan on the date which immediately
precedes the effective time; provided further, however, that any portion
of a pre-existing condition exclusion period imposed by a Capital City
employee health plan will not be enforced to the extent it exceeds in
duration any corresponding provision in effect under a Farmers and
Merchants benefit plan immediately prior to closing. In addition,
Capital City will credit Farmers and Merchants employees for amounts
paid under Farmers and Merchants benefit plans for the applicable plan
year that contains the closing date for purposes of applying
deductibles, co-payments and out-of-pocket limitations under Capital
City health plans.
For purposes of participation and vesting (but not benefit accrual)
under Capital City's employee benefit plans, the service of the employees of
Farmers and Merchants prior to the effective time of the merger will be
treated as service with a Capital City entity participating in such employee
benefits plans.
Capital City, Capital City Bank and Farmers and Merchants expressly
agreed that Capital City and Capital City Bank will not adopt or maintain the
Farmers and Merchants Profit Sharing
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Plan for the benefit of any employee previously or currently employed by
Farmers and Merchants. As of the closing date, each Farmers and Merchants
Profit Sharing Plan participant will cease to accrue any benefits under the
Farmers and Merchants Profit Sharing Plan. Not less than three days prior to
the closing date, Farmers and Merchants must have taken all steps necessary
to terminate the Farmers and Merchants Profit Sharing Plan (or have taken all
steps necessary to terminate the participation of any other entity in the
Farmers and Merchants Profit Sharing Plan). In connection with the
foregoing, Farmers and Merchants will cause each adopting employer of the
Farmers and Merchants Profit Sharing Plan to adopt appropriate resolutions:
* authorizing and directing the termination of (or the termination of
participation in) the Farmers and Merchants Profit Sharing Plan,
* fully vesting each participant's account balances within the Farmers and
Merchants Profit Sharing Plan,
* prohibiting contributions with respect to all periods after the Farmers
and Merchants Profit Sharing Plan's termination date, and
* requiring the officers of each adopting employer to provide each
participant with a notice of termination with respect to the Farmers and
Merchants Profit Sharing Plan prior to the closing date.
In addition, Farmers and Merchants will cause the employers that have
adopted the Farmers and Merchants Profit Sharing Plan to prepare and adopt,
not less than three days prior to the closing date, an amendment to the
Farmers and Merchants Profit Sharing Plan that will provide for all necessary
and appropriate modifications to the terms of the Farmers and Merchants
Profit Sharing Plan in order to provide for the termination of contributions,
fully-vested account balances, and the distribution of account balances after
a favorable determination letter has been obtained from the Internal Revenue
Service with respect to the termination of the Farmers and Merchants Profit
Sharing Plan. Farmers and Merchants, Capital City, and Capital City Bank
agree to request a favorable determination letter from the Internal Revenue
Service with respect to such termination, and to facilitate distributions to
participants in accordance with the requirements of applicable Treasury
Regulations after they have received a favorable determination letter. Not
less than three days prior to the closing, Farmers and Merchants will provide
Capital City and Capital City Bank with copies of all documentation
associated with the termination of the Farmers and Merchants Profit Sharing
Plan.
Farmers and Merchants will freeze the Farmers and Merchants Bank Dublin
Defined Benefit Pension Plan effective as of the closing date so that no new
participant may thereafter enter the Defined Benefit Plan and so that benefit
accruals cease as to existing participants from and after the closing date.
In connection with the foregoing, Farmers and Merchants shall cause each
adopting employer of the Defined Benefit Plan to adopt appropriate
resolutions authorizing and directing the freezing of the Defined Benefit
Plan and requiring the officers of each adopting employer to provide each
participant with a notice of termination with respect to the freezing of the
Defined Benefit Plan at least fifteen days prior to the closing date. In
addition, Farmers and Merchants will cause the employers that have adopted
the Defined Benefit Plan to prepare and adopt, not later than the closing
date, an amendment to the Defined Benefit Plan that will provide for all
necessary and appropriate modifications to the terms of the Defined Benefit
Plan in order
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to provide for the freezing, as contemplated in this paragraph. Not later
than three days prior to the closing date, Farmers and Merchants will provide
Capital City and Capital City Bank with copies of all documentation
associated with the freezing of the Defined Benefit Plan.
Farmers and Merchants will take all actions reasonably necessary prior
to the closing date to satisfy applicable Treasury Regulations that apply to
the lump sum distribution paid from the Defined Benefit Plan on or about
December 31, 2003. Such actions will include any and all actions by Farmers
and Merchants that may be necessary, including, but not limited to, those
contemplated by IRS Revenue Procedure 2003-44 and, if and to the extent
applicable, the filing of any report to the Pension Benefit Guaranty
Corporation under PBGC Regulations Section 4043.27, unless an appropriate
exemption from filing is available. Farmers and Merchants will consult with
Capital City prior to taking any such actions and shall provide for Capital
City's input in connection with any IRS or PBGC submissions, filings, or
applications, and will provide Capital City at closing with documentation of
the actions ultimately implemented.
Although the actuarial valuation for the Defined Benefit Plan as of
January 1, 2004 has not been completed as of the date of the Agreement and
Plan of Merger, Farmers and Merchants expects that as of January 1, 2004, the
current liability under the Defined Benefit Plan as of that date will be in
excess of its assets. Subject to any limitations under the Internal Revenue
Code governing the amount of deductible contributions to a tax-qualified
pension plan like the Defined Benefit Plan, Farmers and Merchants will make
one or more contributions to the Defined Benefit Plan prior to the closing
date that, in the aggregate, equal or exceed the amount by which the current
liability, determined as of a date prior to the closing date that is mutually
agreed to by the parties, exceeds the value of the assets of the Defined
Benefit Plan as of such date. In making such determination, the actuary for
the Defined Benefit Plan will assume that the plan has been frozen, as
contemplated above. Farmers and Merchants shall provide Capital City with a
copy of the January 1, 2004 actuarial valuation as soon as practicable
following its issuance and will provide Capital City at closing with
documentation of the contributions it makes to the Defined Benefit Plan from
January 1, 2004 through the Closing Date.
Certain Federal Income Tax Consequences
This section summarizes the material anticipated federal income tax
consequences of the merger for shareowners who do not execute dissenter's
rights. This summary is based on the federal income tax laws now in effect.
It does not take into account possible changes in these laws or
interpretations, including amendments to applicable statutes or regulations
or changes in judicial decisions or administrative rulings, some of which may
have retroactive effect. This summary does not purport to address all
aspects of the possible federal income tax consequences of the merger and is
not intended as tax advice to any person. This summary does not address the
federal income tax consequences of the merger to shareowners in light of
their particular circumstances or status (for example, as foreign persons,
tax-exempt entities, dealers in securities, and insurance companies, among
others), nor does this summary address any consequences of the merger under
any state, local, estate, or foreign tax laws. You are urged to consult your
own tax advisers as to the specific tax consequences of the merger to you,
including tax return reporting requirements, the application and effect of
federal, foreign, state, local, and other tax laws, and the implications of
any proposed changes in the tax laws.
The parties to the merger have not required, and will not request, a
federal income tax ruling from the Internal Revenue Service ("IRS") as to the
tax consequences of the merger.
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Instead, Gunster, Yoakley & Stewart, P.A., counsel to Capital City, will
render an opinion to Capital City and Farmers and Merchants concerning the
material federal income tax consequences of the proposed merger under federal
income tax law. It is such firm's opinion, based upon the assumption that
the merger is consummated in accordance with the Agreement and Plan of Merger
and the accuracy of representations made by the management of Capital City
and Farmers and Merchants, that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and that neither Capital
City nor Farmers and Merchants will recognize gain or loss by reason of the
merger.
Assuming the merger qualifies as a reorganization pursuant to Section
368(a) of the Code, the shareowners of Farmers and Merchants will have the
following federal income tax consequences:
* Farmers and Merchants shareowners will recognize gain (but not loss)
from the exchange, but not in excess of the cash received; the
computation of gain is made on a share by share basis; it is not
anticipated that any portion of such gain will be characterized as a
dividend;
* the basis of the Capital City common stock received by the Farmers and
Merchants shareowners in the merger will, in each instance, be the same
as the basis of the Farmers and Merchants common stock surrendered in
exchange therefor, (i) decreased by the cash received and (ii) increased
by the gain recognized in the exchange;
* the holding period of the Capital City common stock received by the
Farmers and Merchants shareowners will, in each instance, include the
period during which the Farmers and Merchants common stock surrendered
in exchange therefor was held, provided that the Farmers and Merchants
common stock was held as a capital asset on the date of the exchange;
and
* the payment of cash to Farmers and Merchants shareowners in lieu of
fractional shares of Capital City 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 Capital City; it is
anticipated that any gain or loss recognized upon such exchange will be
capital gain or loss (rather than a dividend), provided the fractional
share constitutes a capital asset in the hands of the exchanging
shareowner.
Each Farmers and Merchants shareowner who receives Capital City common
stock in the merger will be required to attach to his or her federal income
tax return for the year of the merger a complete statement of all facts
pertinent to the non-recognition of gain, including the shareowner's basis in
the Farmers and Merchants common stock exchanged, and the number of shares of
Capital City common stock and cash received in exchange for Farmers and
Merchants common stock. Each shareowner should also keep as part of such
shareowner's permanent records information necessary to establish such
shareowner's basis in, and holding period for, the Capital City common stock
received in the merger.
Accounting Treatment
The merger will be accounted for as a "purchase," as that term is used
under accounting principles generally accepted in the United States, for
accounting and financial reporting
-48-
purposes. Under purchase accounting, the assets and liabilities of Farmers
and Merchants as of the effective time of the merger will be recorded at
their respective fair values and added to those of Capital City. Any excess
of purchase price over the fair values is recorded as goodwill. Financial
statements of Capital City issued after the merger would reflect such fair
values and would not be restated retroactively to reflect the historical
financial position or results of operations of Farmers and Merchants.
There are certain conditions on the exchange of Farmers and Merchants
common stock for Capital City common stock by affiliates of Farmers and
Merchants, and there are certain restrictions on the transferability of the
Capital City common stock received by those affiliates. See "- Resales of
Capital City Common Stock," on page 49.
Expenses and Fees
The Agreement and Plan of Merger provides that each of the parties will
bear and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated by the Agreement and Plan of
Merger, including filing, registration and application fees, printing fees,
and fees and expenses of financial or other consultants, investment bankers,
accountants, and counsel, except that each of the parties shall bear and pay
one-half of the filing fees payable, and printing costs incurred, in
connection with the registration statement of which this Proxy
Statement/Prospectus is a part.
In the event that Farmers and Merchants terminates the Agreement and
Plan of Merger by entering into a definitive agreement with respect to the
sale of Farmers and Merchants to any person or entity who or which has made a
proposal to acquire Farmers and Merchants, Farmers and Merchants will pay
Capital City $3,200,000 for losses and damages of Capital City incurred in
connection with the merger.
Resales of Capital City Common Stock
The Capital City common stock issued to shareowners of Farmers and
Merchants in connection with the merger will be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will be freely
transferable by those shareowners of Farmers and Merchants and Capital City
not considered to be "Affiliates" of Farmers and Merchants or Capital City.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Farmers and Merchants or
Capital City (generally, directors, executive officers and 10% shareowners).
Rules 144 and 145 under the Securities Act restrict the sale of Capital
City common stock received in the merger by Affiliates and certain of their
family members and related interests. Generally speaking, during the one-
year period following the effective time of the merger, Affiliates of Farmers
and Merchants may resell publicly the Capital City common stock received by
them in the merger within certain limitations as to the amount of Capital
City common stock sold in any three-month period and as to the manner of
sale. After this one-year period, Affiliates of Farmers and Merchants who
are not Affiliates of Capital City may resell their shares without
restriction. The ability of Affiliates to resell shares of Capital City
common stock received in the merger under Rule 144 or 145 as summarized in
this Proxy Statement/Prospectus generally will be subject to Capital City's
having satisfied its reporting requirements under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act") for specified periods
-49-
prior to the time of sale. Affiliates also would be permitted to resell
Capital City common stock received in the merger pursuant to an effective
registration statement under the Securities Act or an available exemption
from the Securities Act registration requirements. This Proxy
Statement/Prospectus does not cover any resales of Capital City common stock
received by persons who may be deemed to be Affiliates of Farmers and
Merchants or Capital City.
Farmers and Merchants has caused each person Farmers and Merchants
reasonably believes to be an Affiliate of Farmers and Merchants to sign and
deliver to Capital City an agreement providing that such Affiliate will not
sell, pledge, transfer, or otherwise dispose of any Capital City common stock
obtained as a result of the merger except in compliance with the Securities
Act and the rules and regulations of the SEC. The certificates representing
Capital City common stock issued to Affiliates in the merger may bear a
legend summarizing these restrictions. See "- Conditions to Consummation of
the Merger," on page 34.
The receipt of the Farmers and Merchants Affiliate Agreements by Capital
City is a condition to Capital City's obligations to consummate the merger.
DESCRIPTION OF CAPITAL CITY CAPITAL STOCK
Capital City is authorized to issue 90,000,000 shares of Capital City
common stock ($.01 par value per share), of which 13,282,090 shares were
issued and outstanding as of the record date. Capital City is also
authorized to issue 3,000,000 shares of Capital City preferred stock ($.01
par value per share), none of which is issued and outstanding.
Holders of Capital City common stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. The ability of Capital City to pay dividends is affected
by the ability of its subsidiary depository institution to pay dividends.
The approval of the Florida Department of Financial Services is required if
the total of all dividends declared by Capital City's subsidiary bank,
Capital City Bank, in any calendar year exceeds Capital City Bank's net
profits (as defined in the Florida Statutes) for that year combined with its
retained net profits for the preceding two calendar years. In 2004, Capital
City Bank may declare dividends without regulatory approval of $24.7 million
plus an additional amount equal to the net profits of Capital City Bank for
2004 up to the date of any such dividend declaration. See "BUSINESS -
Supervision and Regulation - The Bank - Dividends" and "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - Note 15 - Dividend Restrictions" in Capital City's
2003 Form 10-K.
For a further description of Capital City capital stock, See "EFFECT OF
THE MERGER ON RIGHTS OF SHAREOWNERS - Authorized Capital Stock," on page 52.
EFFECT OF THE MERGER ON RIGHTS OF SHAREOWNERS
In the merger, shareowners of Farmers and Merchants will exchange their
shares of Farmers and Merchants for shares of Capital City. Farmers and
Merchants is a Georgia chartered commercial bank headquartered in Dublin,
Georgia and is governed by Georgia law and the Charter Application and
Bylaws, as amended, adopted by Farmers and Merchants. Capital City is a
registered bank holding company headquartered in Tallahassee, Florida and is
governed by Florida law and Capital City's Articles of Incorporation and
Bylaws, as amended. There are significant differences between the rights of
Farmers and Merchants' shareowners and
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Capital City shareowners. The following is a summary of the principal
differences between the current rights of Farmers and Merchants' shareowners
and those of Capital City's shareowners.
The following summary is not intended to be complete and is qualified in
its entirety by reference to the Financial Institutions Code of Georgia, the
Georgia Business Corporation Code and the Florida Act, as well as the Charter
Application or Articles of Incorporation and Bylaws, as amended, of Farmers
and Merchants and Capital City.
Anti-Takeover Provisions Generally
Capital City's Articles of Incorporation and Bylaws contain certain
provisions designed to assist the Capital City Board of Directors in playing
a role if any group or person attempts to acquire control of Capital City so
that the Capital City Board of Directors can protect the interests of Capital
City and its shareowners under the circumstances. These provisions may help
the Capital City Board of Directors determine that a sale of control is in
the best interests of Capital City's shareowners, or enhance the Capital City
Board of Directors' ability to maximize the value to be received by the
shareowners upon a sale of control of Capital City. In addition, as of
September 17, 2004, William G. Smith, Jr., President and Chief Executive
Officer of Capital City, and his brother, Robert Hill Smith, Vice President
of Capital City, together beneficially owned approximately 35.8% of Capital
City's outstanding common stock. Such ownership could also have the effect
of deterring takeover proposals.
Although Capital City's management believes that these provisions are
beneficial to Capital City's shareowners, they also may tend to discourage
some takeover bids. As a result, Capital City's shareowners may be deprived
of opportunities to sell some or all of their shares at prices that represent
a premium over prevailing market prices. On the other hand, defeating
undesirable acquisition offers can be a very expensive and time-consuming
process. To the extent that these provisions discourage undesirable
proposals, Capital City may be able to avoid those expenditures of time and
money.
These provisions also may discourage open market purchases by a company
that may desire to acquire Capital City. Those purchases may increase the
market price of Capital City common stock temporarily, and enable shareowners
to sell their shares at a price higher than they might otherwise obtain. In
addition, these provisions may decrease the market price of Capital City
common stock by making the stock less attractive to persons who invest in
securities in anticipation of price increases from potential acquisition
attempts. The provisions also may make it more difficult and time consuming
for a potential acquiror to obtain control of Capital City by replacing the
Board of Directors and management. Furthermore, the provisions may make it
more difficult for Capital City's shareowners to replace the Board of
Directors or management, even if a majority of the shareowners believes that
replacing the Board of Directors or management is in the best interests of
Capital City. Because of these factors, these provisions may tend to
perpetuate the incumbent Board of Directors and management. For more
information about these provisions, see "- Authorized Capital Stock," on page
52, "- Amendment of Articles of Incorporation and Bylaws," on page 53, "-
Classified Board of Directors and Absence of Cumulative Voting," on page 54,
"- Director Removal and Vacancies," on page 55, "- Indemnification," on page
56, "- Ability of Directors to Consider Interests Other than Shareowner
Interests" on page 60, "- Actions by Shareowners Without a Meeting," on page
61, "- Shareowner Nominations," on page 61.
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Authorized Capital Stock
Capital City.
------------ Capital City's Articles of Incorporation authorize the
issuance of up to (1) 90,000,000 shares of Capital City $.01 par value
common stock, of which 13,282,090 shares were issued and outstanding as of
the record date, and (2) 3,000,000 shares of $.01 par value preferred stock,
of which no shares are issued. Capital City's Board of Directors may
authorize the issuance of additional shares of Capital City common stock
without further action by Capital City's shareowners, unless such action is
required in a particular case by applicable laws or regulations or by any
stock exchange upon which Capital City's capital stock may be listed.
Capital City's shareowners do not have the preemptive right to purchase or
subscribe to any unissued authorized shares of Capital City common stock or
any option or warrant for the purchase thereof.
Capital City's Board of Directors may issue, without any further action
by the shareowners, shares of Capital City preferred stock, in one or more
classes or series, with such voting, conversion, dividend, redemption and
liquidation rights as the Board may specify. In establishing and issuing
shares of Capital City preferred stock, Capital City's Board of Directors may
designate that Capital City preferred stock will vote as a separate class on
any or all matters, thus diluting the voting power of the Capital City common
stock. The existence of this ability could render more difficult or
discourage an attempt to gain control of Capital City by means of a tender
offer, merger, proxy contest or otherwise. The Board also may designate that
Capital City preferred stock will have dividend rights that are cumulative
and that receive preferential treatment compared to Capital City common
stock, and that Capital City preferred stock will have liquidation rights
with priority over Capital City common stock in the event of Capital City's
liquidation. The Board of Directors also may designate whether or not
Capital City preferred stock shall be subject to the operation of retirement
or sinking funds to be applied to the purchase or redemption of such
preferred shares, and the terms and provisions relative to the operation
thereof.
Subject to the payment of cash in lieu of fractional shares and payments
made to dissenting shareowners, Capital City will issue between 740,555 and
876,973 shares of Capital City common stock in the merger. Based on the
number of shares of Capital City common stock outstanding on the record date,
it is anticipated that, following the consummation of the merger, a minimum
of approximately 14,022,645 and a maximum of approximately 14,159,063 shares
of Capital City common stock will be outstanding.
The authority to issue additional shares of Capital City common stock
provides Capital City with the flexibility necessary to meet its future needs
without the delay resulting from seeking shareowner approval. The authorized
but unissued shares of Capital City common stock will be issuable from time
to time for any corporate purpose, including, without limitation, stock
splits, stock dividends, employee benefit and compensation plans,
acquisitions, and public or private sales for cash as a means of raising
capital. Such shares could be used to dilute the stock ownership of persons
seeking to obtain control of Capital City. In addition, the sale of a
substantial number of shares of Capital City common stock to persons who have
an understanding with Capital City concerning the voting of such shares, or
the distribution or declaration of a dividend of shares of Capital City
common stock (or the right to receive Capital City common stock) to Capital
City shareowners, may have the effect of discouraging or increasing the cost
of unsolicited attempts to acquire control of Capital City.
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Farmers and Merchants.
--------------------- Farmers and Merchants is currently authorized to
issue 50,000 shares of Farmers and Merchants $20.00 par value common stock,
of which all 50,000 are outstanding as of the record date. Farmers and
Merchants has no other classes of authorized capital stock. Farmers and
Merchants shareowners do generally have the preemptive right to purchase or
subscribe to any unissued authorized shares of Farmers and Merchants common
stock, subject to the limitation set forth in Section 7-1-431 of the
Financial Institutions Code of Georgia.
Amendment of Articles of Incorporation and Bylaws
Capital City.
------------ Capital City's Articles of Incorporation provide that the
affirmative vote of the holders of at least two-thirds of all the issued and
outstanding voting shares of capital stock is required to amend them.
However, if such amendment has received the prior approval by an affirmative
vote of a majority of "Disinterested Directors," as defined in Section
607.0901(1)(h), Florida Statutes, then the affirmative vote of the holders of
a majority of all the shares of capital stock of Capital City issued and
outstanding and entitled to vote, or such greater percentage approval as is
required by Florida law, is sufficient to amend the Articles. A
"Disinterested Director" is defined in Section 607.0901(1)(h), Florida
Statutes, as:
* any member of the Board of Directors who was a member of the Board of
Directors before the later of January 1, 1987, or the date on which an
interested shareowner became an interested shareowner; and
* any member of the Board of Directors who was recommended for election
by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on the Board.
Subject to certain restrictions set forth below, either the Board of
Directors or the shareowners of Capital City may amend Capital City's Bylaws
by majority vote. The Board of Directors may amend the Bylaws and adopt new
Bylaws provided that:
* the Board of Directors may not alter, amend or repeal any bylaw adopted
by shareowners if the shareowners specifically provide that such bylaw
is not subject to amendment or repeal by the Board; and
* in the case of any shareowner action, two-thirds of the shareowners,
acting only by voting at a special meeting, is required to amend any
bylaw provision pertaining to:
- meetings of shareowners,
- directors,
- indemnification of directors, officers and employees, and
- amendments.
Farmers and Merchants.
--------------------- Farmers and Merchant's Charter Application is
silent as to any vote requirement to amend such charter. Accordingly,
amendments to the Farmers and Merchants Charter Application are subject to
the Financial Institutions Code of Georgia as it
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relates to amendments made to articles of incorporation for Georgia state
banks. The Financial Institutions Code of Georgia references the Georgia
Business Corporation Code regarding the amendment of a bank's articles of
incorporation and bylaws. The Georgia Business Corporation Code provides
that other than in the case of certain routine amendments which may be made
by the corporation's Board of Directors without shareowner action (such as
changing the corporate name), and other amendments which the Georgia Business
Corporation Code specifically allows without shareowner action, an amendment
to a corporation's articles requires the affirmative vote of a majority of
the issued and outstanding shares of each voting group.
The Farmers and Merchants Bylaws may be amended by the affirmative vote
of a majority of the shareowners at an annual meeting or at a special
meeting; provided, however, that, if such action is to be taken at a meeting
of the shareowners, notice of the proposed amendment to the Bylaws shall be
given in the notice of meeting. The notice must set forth the exact text of
the proposed amendment. If notice of the proposed amendment to the Bylaws is
not given in the notice of meeting, the Bylaws may be amended by the
affirmative vote of three-fourths of the shareowners at an annual meeting or
special meeting where a quorum is present. Without limiting the generality
of the foregoing, no amendment to the Bylaws shall affect the term of office
for which the Directors of Farmers and Merchants then holding office have
been elected.
Classified Board of Directors and Absence of Cumulative Voting
Capital City.
------------ Capital City's Articles of Incorporation provide that
Capital City's Board of Directors is divided into three classes, with each
class to be as nearly equal in number as possible. The term of the Class I
directors terminates on the date of the 2007 annual meeting of shareowners,
the term of the Class II directors terminates on the date of the 2005 annual
meeting of shareowners and the term of the Class III directors terminates on
the date of the 2006 annual meeting of shareowners. At each annual meeting
of shareowners, successors to the class of directors whose term expires at
that annual meeting are to be elected for a three-year term. The effect of
Capital City having a classified Board of Directors is that only
approximately one-third of the members of the Board is elected each year,
which effectively requires two annual meetings for Capital City's shareowners
to change a majority of the members of the Board of Directors. The purpose
of dividing Capital City's Board of Directors into classes is to facilitate
continuity and stability of leadership of Capital City by ensuring that
experienced personnel familiar with Capital City will be represented on
Capital City's Board of Directors at all times, and to permit Capital City's
management to plan for the future for a reasonable time. However, by
potentially delaying the time within which an acquiror could obtain working
control of the Board of Directors, this provision may discourage some
potential mergers, tender offers, or takeover attempts.
Pursuant to the Capital City Bylaws, each shareowner is entitled to one
vote for each share of Capital City common stock held and is not entitled to
cumulative voting rights in the election of directors. With cumulative
voting, a shareowner has the right to cast a number of votes equal to the
total number of such holder's shares multiplied by the number of directors to
be elected. The shareowner has the right to distribute all of his or her
votes in any manner among any number of candidates or to accumulate such
shares in favor of one candidate. Directors are elected by a plurality of
the total votes cast by the shares entitled to vote in the election. With
cumulative voting, it may be possible for minority shareowners to obtain
representation on the Board of Directors. Without cumulative voting, the
holders of more than
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50% of the shares of Capital City common stock generally have the ability to
elect 100% of the directors. As a result, the holders of the remaining
Capital City common stock effectively may not be able to elect any person to
the Board of Directors. The absence of cumulative voting thus could make it
more difficult for a shareowner who acquires less than a majority of the
shares of Capital City common stock to obtain representation on Capital
City's Board of Directors.
Farmers and Merchants.
--------------------- In accordance with the Financial Institutions
Code of Georgia, each director of Farmers and Merchants is subject to annual
elections. In addition, pursuant to Farmers and Merchants' Bylaws, Farmers
and Merchants shareowners do not have cumulative voting rights.
Director Removal and Vacancies
Capital City.
------------ Capital City's Articles of Incorporation provide that:
* a director may be removed by the shareowners upon the affirmative vote
of the holders of two-thirds of the voting power of all shares of
capital stock entitled to vote generally in the election of directors;
and
* subject to the rights of the holders of any series of preferred stock,
then outstanding vacancies on the Board of Directors may be filled only
by the affirmative vote of a majority of the remaining directors.
The purpose of this provision is to prevent a majority shareowner from
circumventing the classified board system by removing directors and filling
the vacancies with new individuals selected by that shareowner. Accordingly,
the provision may have the effect of impeding efforts to gain control of the
Board of Directors by anyone who obtains a controlling interest in Capital
City common stock. The term of a director appointed to fill a vacancy shall
coincide with the term of the class of which such director shall have been
elected.
Farmers and Merchants.
--------------------- Farmers and Merchants' Bylaws do not provide for
the removal of a director by the shareowners or directors of Farmers and
Merchants. The Financial Institutions Code of Georgia references the Georgia
Business Corporation Code regarding the requirements for the removal of a
director. Pursuant to the Georgia Business Corporation Code, the shareowners
may remove, with or without cause, the entire board of directors or an
individual director.
Farmers and Merchants' Bylaws also provide that if any vacancy shall
occur among the directors for any reason, the vacancy may be filled by a
majority vote of the remaining directors pending the next annual meeting of
the shareowners.
Indemnification
Capital City.
------------ The Florida Act provides that a director, officer,
employee or other agent of a Florida corporation:
* shall be indemnified by the corporation for all expenses of such
litigation actually and reasonably incurred when he or she is successful
on the merits on any legal proceeding;
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* may be indemnified by the corporation for liability incurred in
connection with such legal proceedings (other than a derivative suit),
even if he or she is not successful on the merits, if he or she acted in
good faith and in a manner reasonably believed to be in the best
interest of the corporation (and in the case of a criminal preceding, he
or she had no reasonable cause to believe that such conduct was
unlawful); and
* may be indemnified by the corporation for expenses of a derivative suit
(a suit by a shareowner alleging a breach by a director or officer of a
duty owed to the corporation) and amounts paid in settlement not to
exceed, in the judgment of the Board of Directors, the estimated costs
and expenses of litigating the proceeding to conclusion, even if he or
she is not successful on the merits, if he or she acted in good faith
and in a manner he or she reasonably believed to be in the best interest
of the corporation and the shareowners. If he or she is adjudged liable
in the performance of his or her duties to the corporation,
indemnification may be made in accordance with this paragraph if and
only to the extent that a court determines that in view of all of the
circumstances, he or she is fairly and reasonably entitled to
indemnification for expenses to the extent permitted by such court.
The indemnification described in the second and third bullet-points
above will be made only upon a determination by:
* a majority of a quorum of disinterested directors;
* if a quorum of disinterested directors is not obtainable, or even if
obtainable, by majority vote of a committee duly designated by the Board
of Directors (in which directors who are parties may participate)
consisting solely of two or more directors who are not at the time
parties to the proceeding;
* independent legal counsel in a written opinion;
* the shareowners (excluding the shares owned by the person seeking
indemnification); or
* the court in which the proceeding is or was pending, if indemnification
is proper under the circumstances because the applicable standard of
conduct has been met.
The Board of Directors may authorize the advancement of litigation
expenses to a director or officer upon receipt of an undertaking by the
director or officer to repay such expenses if it is ultimately determined
that he or she is not entitled to be indemnified for them.
The Florida Act's statutory scheme of indemnification is not exclusive
and allows expanded indemnification by bylaw, agreement, vote of shareowners
or disinterested directors, or otherwise if the Articles of Incorporation are
amended to permit expanded indemnification. Notwithstanding the expansion of
indemnification rights, the Florida Act does not permit indemnification for:
* acts or omissions that involve a violation of the criminal law, unless
the director, officer employee or agent had reasonable cause to believe
his or her conduct was lawful or had no reasonable cause to believe his
or her conduct was unlawful;
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* any transaction from which a director, officer or agent derived an
improper personal benefit;
* willful misconduct that shows a conscious disregard for the best
interest of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or
in the right of a shareowner; or
* approving an improper distribution to shareowners.
Capital City's Bylaws provide for the mandatory indemnification of any
of its officers and directors for costs and expenses actually and reasonably
incurred in connection with a legal proceeding, including amounts paid in
settlement of such a proceeding, to the fullest extent permitted by the
Florida Act, and requires advancement of such costs and other expenses during
pending proceedings. The Board of Directors has discretionary ability to
provide indemnification with respect to other persons, such as agents and
employees.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling Capital
City pursuant to the foregoing provisions, Capital City has been informed
that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Farmers and Merchants.
--------------------- The Financial Institutions Code of Georgia
references the Georgia Business Corporation Code regarding indemnification of
directors and officers. The Georgia Business Corporation Code provides that
a director or officer of a Georgia bank:
* shall be indemnified by the bank for reasonable expenses incurred in
connection with a proceeding when he or she is wholly successful, on the
merits or otherwise, in the defense of any proceeding to which he or she
is a party because he or she was a director or officer of the bank; and
* may be indemnified by the bank against liability incurred in the
proceeding if he or she is a party to the proceeding because he or she
is or was a director or officer if such individual conducted himself or
herself in good faith and such individual reasonably believed, in the
case of conduct in his or her official capacity, that such conduct was
in the best interest of the bank and, in all other cases, that such
conduct was at least not opposed to the best interest of the bank and,
in the case of criminal proceedings, such individual had no reasonable
cause to believe such conduct was unlawful.
Indemnification pursuant to the Georgia Business Corporation Code will
be made only upon a determination by:
* the Board of Directors, if there are two or more disinterested
directors, by a majority vote of all disinterested directors (a majority
of whom for such purpose shall constitute a quorum) or by a majority of
the members of a committee of two or more disinterested directors
appointed by such a vote;
* by special legal counsel, selected by the Board of Directors, if there
are two or more disinterested directors or by a majority of the members
of a committee of two or more disinterested directors;
-57-
* by the shareowners, but shares owned by or voted under the control of a
director who at the time does not qualify as a disinterested director
may not be voted in the determination; or
* the court in which the proceeding is or was pending, if indemnification
is fair and reasonable under the circumstances, even if the director has
not met the relevant standard of conduct.
The Board of Directors or shareowners may, before final disposition of a
proceeding and in accordance with the bullet points above, authorize the bank
to advance funds to pay for or reimburse the reasonable expenses incurred by
an officer or director upon receipt of an affirmation by the director or
officer of his or her good faith belief that he or she met the relevant
standard of conduct described in the bullet points above and an undertaking
to repay any funds advanced if it is determined that the director or officer
is not entitled to indemnification.
The Georgia Business Corporation Code's statutory scheme of
indemnification is not exclusive and allows expanded indemnification by the
articles of incorporation, bylaws, contract or resolution approved or
ratified by the shareowners by a majority of the votes entitled to be cast,
but shares owned or voted under the control of a director who at the time
does not qualify as a disinterested director with respect to any existing or
threatened proceeding that would be covered by the authorization may not be
voted on the authorization. A bank can reimburse and indemnify litigation
liabilities and expenses of directors, officers and employees pursuant to
agreements with them or otherwise and can purchase and maintain liability
insurance for them, unless otherwise limited by the Georgia Business
Corporation Code.
The Articles of Incorporation of Farmers and Merchants provide that a
director of Farmers and Merchants shall not be personally liable to the
shareowners of Farmers and Merchants for monetary damages for breach of
fiduciary duty, duty of care or other duty as a director owed to the
shareowners of Farmers and Merchants. Any repeal or modification of such
provision in the Articles of Incorporation by the shareowners of Farmers and
Merchants would not adversely affect any right or protection of a director
existing at the time of such repeal or modification.
If a bank indemnifies or advances expenses to a director or officer in
connection with a proceeding by or in the right of the bank, the bank must
report the indemnification or advance in writing to the shareowners with or
before the notice of the next shareowners' meeting.
Pursuant to the Georgia Business Corporation Code and the Articles of
Incorporation of Farmers and Merchants, a bank may not indemnify the director
or officer for any liability incurred in a proceeding in which the director
is adjudged liable to the bank or is subject to injunctive relief in favor of
the corporation:
* for any appropriation, in violation of the director or officer's duties,
of any business opportunity of the bank;
* for acts or omissions which involve intentional misconduct or a knowing
violation of the law;
* voting or assenting to an unlawful distribution to shareowners; or
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* any transaction from which the director or officer received an improper
personal benefit.
Special Meetings of Shareowners
Capital City.
------------ Capital City's Bylaws provide that special meetings of the
shareowners shall be held:
* when directed by the Board of Directors through a resolution adopted by
a majority of the total number of directors (whether or not any
vacancies of previously authorized directorships exist at the time the
Board is presented with such resolution); or
* when requested in writing and upon appropriate notice by the holders of
not less than 50% of all the shares entitled to vote on any issue at the
meeting.
As a result, this provision, taken together with the restriction on the
removal of directors, would prevent a substantial shareowner who held less
than 50% of Capital City's common stock from compelling shareowner
consideration of any proposal (such as a proposal for a merger) over the
opposition of Capital City's Board of Directors by calling a special meeting
of shareowners at which such shareowner could replace the entire Board of
Directors with nominees who were in favor of such proposal.
Farmers and Merchants.
--------------------- Farmers and Merchants' Bylaws provide that
special meetings of the shareowners may be called at any time by a majority
of the Board of Directors and as provided by Georgia law. The Financial
Institutions Code of Georgia references the Georgia Business Corporation Code
regarding special meetings of shareowners. The Georgia Business Corporation
Code provides that a special meeting of the shareowners of a bank shall be
held:
* on the call of the president, the chairman of the Board of Directors or
the Board of Directors;
* on the call of the person or persons authorized to do so by the Articles
of Incorporation or Bylaws;
* on the demand of holders of at least 25% (or such lesser or greater
amount provided in the Bylaws or Articles of Incorporation) of all votes
entitled to be cast on any issue to be considered at the Special
Meeting; or
* on the order of the superior court of the county where a bank's office
is located on application of the shareowners of the bank if an annual
meeting has not been called and held during any calendar year.
Ability of Directors to Consider Interests Other Than Shareowners' Interests
Capital City.
------------ Capital City's Articles of Incorporation expressly require
the Board of Directors to consider all factors it deems relevant in
evaluating a proposed share exchange, tender offer, merger, consolidation, or
other similar transaction, including:
* the best interests of the shareowners;
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* the social, legal and economic effects on employees, customers,
depositors and communities served by Capital City and its subsidiary;
* the consideration offered in relation to the then current market value
of Capital City or its subsidiary in a freely negotiated transaction;
* estimations of future value of the stock of Capital City or any
subsidiary as an independent entity; and
* any other factor deemed relevant by the Board of Directors.
This gives the Board the ability to consider factors other than
shareowner value in considering acquisition overtures and places such
considerations within the duty of the Board of Directors. This requires the
Board to evaluate all factors in considering a potential future acquisition
offer, including the long-term value of Capital City as a going concern
versus the short-term benefit to shareowners, in order to maximize shareowner
value.
This provision might have the effect of discouraging some tender offers
which are above market price or which might otherwise be favorable to
shareowners in the short run. A decrease in the likelihood of tender or
acquisition offers could lower shareowner value by minimizing or eliminating
acquisition market premiums associated with Capital City's capital stock.
This constituency provision of Capital City's Articles of Incorporation
may discourage or make more difficult certain acquisition proposals or
business combinations and, therefore, may adversely affect the ability of
shareowners to benefit from certain transactions opposed by the Capital City
Board of Directors. The constituency provision would allow the Capital City
Board of Directors to take into account the effects of an acquisition
proposal on a broad number of constituencies and to consider any potential
adverse effects in determining whether to accept or reject such proposal.
Farmers and Merchants.
--------------------- Farmers and Merchants' Charter Application and
Bylaws do not contain provisions allowing the directors to consider the
effect of potential transactions on any constituency other than the Farmers
and Merchants shareowners.
Actions by Shareowners Without a Meeting
Capital City.
------------ Capital City's Bylaws provide that any action required or
permitted to be taken at a meeting of shareowners may not be effected by the
written consent of the shareowners entitled to vote on the action.
Farmers and Merchants.
--------------------- Farmers and Merchants' Bylaws do not provide for
action required or permitted to be taken at a meeting of shareowners to be
taken without a meeting. The Financial Institutions Code of Georgia
references the Georgia Business Corporation Code regarding the ability of
shareowners to take action without a meeting. The Georgia Business
Corporation Code provides that action required or permitted to be taken at a
meeting of the shareowners can be taken without a meeting if the action is
taken by all shareowners entitled to vote.
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Shareowner Nominations
Capital City.
------------ Capital City's Articles of Incorporation and Bylaws
provide that nominations of persons for election to the Board of Directors at
an annual or special meeting of shareowners may be made:
* by or at the direction of the Board of Directors by any nominating
committee of or person appointed by the Board of Directors, or
* by any shareowner of Capital City entitled to vote for the election of
directors at the meeting who complies with the applicable notice
procedures set forth in the Articles of Incorporation and the Bylaws.
Despite these provisions, nominations for Board of Directors positions
at special meetings may be made only if the election of directors is one of
the purposes described in the special meeting notice.
Nominations of individuals for election at annual meetings, other than
nominations made by or at the direction of the Board of Directors, including
by any nominating committee, shall be made according to the notice procedures
set forth in the Articles of Incorporation and Bylaws.
Farmers and Merchants.
--------------------- The Georgia Business Corporation Code and Farmers
and Merchants' Charter Application Bylaws do not provide for nominations of
persons for election to the Board of Directors.
Shareowner Votes Required For Certain Actions
Capital City.
------------ The Florida Act provides that a corporation may merge into
another corporation if a plan of merger is:
* adopted by the Board of Directors, and
* approved by a majority of the votes entitled to be cast on the plan,
unless the Florida Act, the Articles of Incorporation, or the Board of
Directors (acting pursuant to the Florida Act) requires a greater vote.
Affiliated Transactions. Section 607.0901 of the Florida Act provides a
super-majority requirement for certain proposed transactions ("Section
607.0901") which applies to all Florida corporations unless a corporation
expressly chooses to "opt out" of the applicability of such law or the
corporation falls under one of the exemptions from the statute's application.
Under the Florida Act, any merger, share exchange, dissolution or sale of all
or substantially all of the assets of a corporation other than in the usual
and regular course of business must be approved by the affirmative vote of
the holders of a majority of the shares of stock entitled to vote on the
matter. Section 607.0901 requires that, in addition to any vote required by
the Florida Act and subject to the exceptions described below, any
"Affiliated Transaction" between Capital City and any beneficial owner of 10%
or more of Capital City's voting shares, including shares held by any
associate or affiliate of such a person (an "Interested Shareowner"), be
approved by the affirmative vote of the holders of two-thirds of the voting
shares of Capital City's stock, excluding for such purposes any shares held
by the Interested Shareowner.
-61-
An "Affiliated Transaction" includes, among other transactions:
* any merger or consolidation of Capital City or its subsidiary with an
Interested Shareowner or an associate or affiliate of an Interested
Shareowner,
* any sale, exchange, mortgage, pledge, transfer or other disposition of
assets of Capital City to an Interested Shareowner or an associate or
affiliate of an Interested Shareowner, having an aggregate market value
of 5% or more of the outstanding shares of Capital City having an
aggregate value of 5% or more of the assets, on a consolidated basis, of
Capital City, or representing 5% or more of the earning power or net
income of Capital City, and
* the issuance or transfer to the Interested Shareowner or an associate or
affiliate of the Interested Shareowner, by Capital City, of the shares
of Capital City or its subsidiary which have an aggregate market value
equal to 5% or more of the aggregate market value of all of the
outstanding shares of Capital City.
However, the voting requirements of Section 607.0901 do not apply to an
Affiliated Transaction if, among other things:
* the Affiliated Transaction has been approved by a majority of Capital
City's disinterested directors,
* the Interested Shareowner has been the beneficial owner of at least 80%
of Capital City's outstanding voting shares for at least five years,
* certain fair price requirements have been met, or
* Capital City has not had more than 300 shareowners of record at any time
during the three years preceding the date of the first general public
announcement of a proposed Affiliated Transaction.
Capital City may also "opt out" entirely from the applicability of
Section 607.0901 through a provision in Capital City's original Articles of
Incorporation or through an amendment to its Articles of Incorporation or
Bylaws. However, any such amendment to its Articles of Incorporation or
Bylaws to expressly exclude Capital City from the applicability of Section
607.0901 must be approved by the affirmative vote of the holders, other than
Interested Shareowners, of a majority of the outstanding voting shares of
Capital City and such amendment will not be effective until 18 months
following such a vote. The opt out provision shall not apply to any
Affiliated Transaction with an Interested Shareowner who became an Interested
Shareowner on or prior to the effective time of such amendment.
Capital City is subject to Section 607.0901, thus any Affiliated
Transaction would be subject to a two-thirds vote of the holders of the
outstanding shares of Capital City entitled to vote, unless otherwise exempt.
Section 607.0901 protects shareowners of Capital City because it increases
the difficulty and expense for a potential acquiror seeking to gain control
of Capital City by freezing out certain minority shareowners in a "two-step"
merger transaction. Thus, Section 607.0901 serves to protect shareowners
from the inequitable results of certain transactions between a corporation
and an Interested Shareowner.
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Control Share Acquisitions. The control share acquisition provisions of
the Florida Act ("Section 607.0902") impose conditions and restrictions on
"control share acquisitions." These provisions provide that any "control
shares" (shares which represent at least 20% of the outstanding stock of a
Florida corporation) that are acquired in a "control share acquisition" have
no voting rights except to the extent approved by the affirmative vote of a
majority of all votes entitled to be cast on the matter, excluding all
"interested shares," which are shares which may be voted directly or
indirectly by the person proposing to make the "control share acquisition,"
by any officer of the corporation or by any employee who is also a director
of the corporation. Section 607.0902 also exempts from its application
shares acquired:
* by gift, will, or intestacy;
* in satisfaction of a security interest;
* as a result of a merger or share exchange which the issuer is a party to
such transaction;
* by participating in a savings, employee stock or other benefit plans of
the corporation or its subsidiary; or
* by a group of two or more persons acting together with respect to the
voting of shares provided that such persons are
* related by blood or marriage, and
* have been shareowners of the corporation since July 1, 1987.
These provisions are inapplicable if a Florida corporation's charter or
bylaws are amended to "opt out" of Section 607.0902 in order to permit the
acquisition of shares prior to the acquiring person's acquisition thereof.
The purpose of Section 607.0902 is to protect shareowners of Florida
corporations by providing them with an opportunity to decide whether a change
in corporate control is desirable. This statute effectively places Capital
City's shareowners on equal ground with a potential acquiror by nullifying
the voting power of "control shares" acquired by those who may seek to
acquire Capital City without first approaching the Board of Directors. The
application of Section 607.0902 to Capital City by virtue of the Florida Act
has the effect of limiting the voting power of any Capital City shareowner,
even those who are not intent on soliciting a change in control of Capital
City without first conferring with management, upon such shareowner's
acquisition of a threshold amount of Capital City voting stock.
Farmers and Merchants.
--------------------- The Financial Institutions Code of Georgia
directly governs shareowner vote requirements for Farmers and Merchants;
however, in some cases, the Financial Institutions Code of Georgia references
the Georgia Business Corporation Code regarding the shareowner vote required
for certain actions. Pursuant to Section 7-1-531 of the Financial
Institutions Code of Georgia, the shareowner vote requirement applicable to
the approval of any merger or other similar reorganization or transaction
requires the approval of a majority of the board of directors and the
affirmative vote of at least two-thirds of the outstanding shares of each
voting group.
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Georgia's "Business Combination Statute" contained in Sections 14-2-1131
through 14-2-1133 of the Georgia Business Corporation Code and "Fair Price
Statute" contained in Sections 14-2-1110 through 14-2-1113 of the Georgia
Business Corporation Code are only applicable to Georgia banks that have
adopted Bylaws specifically evidencing a desire to be governed by these
statutes. The Farmers and Merchants Bylaws are silent with respect to these
provisions and they are therefore inapplicable to Farmers and Merchants.
Dissenters' Rights of Appraisal
Capital City.
------------ The Florida Act generally gives shareowners of a Florida
corporation the right to dissent from, and obtain payment of the fair value
of their shares in the event of, a merger, share exchange, sale or exchange
of property and certain other corporate transactions. The rights contained
in the Florida Act do not apply, however, with respect to a plan of merger or
share exchange or a proposed sale or exchange of property, to the holders of
securities registered on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders as of the record date for determining shareowners entitled
to vote on the proposed action and the market value of such securities is at
least $10 million, excluding the value of shares held by certain company
insiders. Farmers and Merchants' shareowners are to receive shares of
Capital City common stock in the merger, and Capital City common stock is
traded on the Nasdaq National Market. Therefore, subsequent to this merger,
shareowners of Farmers and Merchants that receive Capital City common stock
in the merger will not have dissenters' rights with respect to the Capital
City common stock.
Farmers and Merchants.
--------------------- The Financial Institutions Code of Georgia,
through reference to the Georgia Business Corporation Code, generally gives
shareowners of a Georgia bank the right to dissent from, and obtain payment
of the fair value of their shares in the event of, a merger, share exchange,
sale or exchange of property and certain other bank transactions. To do
this, shareowners must follow certain procedures, including filing certain
notices and refraining from voting their shares in favor of the transaction.
The applicable provisions of the Georgia Business Corporation Code are
attached in their entirety to this Proxy Statement/Prospectus as Appendix E.
For a more detailed discussion of Dissenters' Rights, see "DESCRIPTION
OF THE MERGER - Dissenters' Rights," on page 38.
Shareowners' Rights To Examine Books And Records
Capital City.
------------ The Florida Act gives a shareowner of a Florida
corporation the right to inspect and copy books and records of the
corporation during regular business hours, if he or she gives the corporation
written notice of his or her demand at least five business days before the
date of the inspection. In order to inspect certain records, written demand
must also be made in good faith and for a proper purpose and must describe
with reasonable particularity the purpose of the request and the records the
shareowner desires to inspect.
Farmers and Merchants.
--------------------- The Georgia Business Corporation Code gives
shareowners the same type of rights to inspect and copy books and records as
the Florida Act.
-64-
Dividends
Capital City.
------------ Capital City's ability to pay dividends on its common
stock is governed by Florida corporate law. Under Florida corporate law,
dividends may be paid so long as the corporation would be able to pay its
debts as they become due in the usual course of business and the
corporation's total assets would not be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to
be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution to shareowners whose preferential rights are superior
to those receiving the distribution.
There are various statutory limitations on the ability of Capital City's
banking subsidiary, Capital City Bank, to pay dividends to Capital City. See
"BUSINESS - Regulatory Considerations - Dividends" in Capital City's 2003
Form 10-K.
Farmers and Merchants.
--------------------- The Financial Institutions Code of Georgia gives
a Georgia bank the ability to pay dividends in cash, property or in its
shares, except when the bank is insolvent or when the payment of a dividend
would render the bank insolvent or when the declaration or payment of a
dividend would be contrary to any provision in the bank's articles of
incorporation. There are various statutory limitations on the ability of
Farmers and Merchants to pay dividends, including a restriction against
paying dividends so long as its paid-in capital and appropriated retained
earnings do not, in combination, equal at least 20 percent of its capital
stock.
COMPARATIVE MARKET PRICES AND DIVIDENDS
Price Range of Common Stock
Capital City common stock is traded on the Nasdaq National Market under
the symbol "CCBG." Farmers and Merchants common stock is not publicly
traded. The following table sets forth, for the indicated periods, the high
and low closing sale prices for Capital City common stock as reported by the
Nasdaq National Market. The stock prices do not include retail mark-ups,
mark-downs or commissions. Effective June 13, 2003, Capital City declared a
5-for-4 stock split. The amounts below have been adjusted to reflect this
stock split.
-65-
Capital City
------------------------
Price Range
High Low
---------- ----------
2004
Second Quarter $43.15 $35.50
First Quarter 45.55 39.05
2003
Fourth Quarter 46.83 36.62
Third Quarter 40.93 35.00
Second Quarter 36.43 29.74
First Quarter 32.32 26.81
2002
Fourth Quarter 32.04 22.26
Third Quarter 29.55 22.32
Second Quarter 27.84 20.60
First Quarter 22.00 18.12
2001
Fourth Quarter 19.74 17.52
Third Quarter 20.20 16.70
Second Quarter 20.00 15.90
First Quarter 20.90 18.50
2000
Fourth Quarter 21.40 15.10
Third Quarter 16.40 15.00
Second Quarter 16.40 14.40
First Quarter 18.40 12.00
On May 12, 2004, the last day prior to the public announcement of
Capital City's proposed acquisition of Farmers and Merchants, the last
reported sale price per share of Capital City common stock on the Nasdaq
National Market was $37.88, thus the minimum exchange price of $38.00 would
be used to calculate the resulting equivalent pro forma price per share of
Farmers and Merchants common stock, which, including the cash portion of the
consideration, was approximately $1,330.98. On September 17, 2004, the
latest practicable date prior to the mailing of this Proxy
Statement/Prospectus, the last reported sale price per share of Capital City
common stock on the Nasdaq National Market was $40.05, and the resulting
equivalent pro forma price per share of Farmers and Merchants common stock
was $1,333.00. The equivalent per share price of a share of Farmers and
Merchants common stock at each specified date represents the last reported
sale price of a share of Capital City common stock on such date multiplied by
the exchange ratio plus $666.50 in cash (exclusive of any withholdings). The
market price of Capital City common stock on the effective time of the merger
may be higher or lower than the market price at the time the merger proposal
was announced, at the time the Agreement and Plan of Merger was executed, at
the time of mailing of this Proxy Statement/Prospectus, or at the time of the
Special Meeting. Holders of Farmers and Merchants common stock are not
assured of receiving any specific market value of Capital City common stock
on the effective time of the merger, and such value may be substantially more
or less than the current value of Capital City common stock.
-66-
There is no established public trading market for the Farmers and
Merchants common stock. To the knowledge of Farmers and Merchants, the most
recent trade of Farmers and Merchants common stock prior to May 12, 2004, the
last day prior to the public announcement of the proposed merger between
Capital City and Farmers and Merchants, was the sale of 200 shares on
February 28, 2003, at $2,000 per share. To the knowledge of Farmers and
Merchants, there have been no trades of Farmers and Merchants common stock
since the announcement of the merger.
Farmers and Merchants' practice is to declare and pay dividends to its
shareowners quarterly, and Farmers and Merchants intends to continue this
policy through the consummation of the merger (subject to such approvals as
may be required). In the first and second quarters of 2004, the Board of
Directors for Farmers and Merchants declared a cash dividend of $33.50 per
share (which were paid in March and June of 2004, respectively), and the
total dividend paid by Farmers and Merchants each quarter was $1,675,000. In
addition to the regular quarterly dividends planned for Farmers and Merchants
as discussed above, Farmers and Merchants intends to pay a cash distribution
to shareowners prior to effecting the merger with Capital City in an amount
that represents that portion of Farmers and Merchants' net worth that is in
excess of the $30 million threshold, subject to adjustment, set forth in the
Agreement and Plan of Merger.
The information regarding Farmers and Merchants common stock is provided
for informational purposes only and, due to the absence of an active market
for Farmers and Merchants' shares, you should not view it as indicative of
the actual or market value of Farmers and Merchants common stock.
Stock Purchase Program
Capital City has been engaged in an ongoing program to purchase shares
of its common stock on the open market from time to time, depending upon
market conditions and other factors, however, Capital City did not make any
purchases of its common stock during 2003 or the first two quarters of 2004.
Comparative Dividends
The holders of Capital City common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. Although Capital City currently intends to continue to
pay quarterly cash dividends on the Capital City common stock, there can be
no assurance that Capital City's dividend policy will remain unchanged after
completion of the merger. The declaration and payment of dividends
thereafter will depend upon business conditions, operating results, capital
and reserve requirements, and the Capital City Board of Directors'
consideration of other relevant factors.
Capital City is a legal entity separate and distinct from its subsidiary
and its revenues depend in significant part on the payment of dividends from
their respective subsidiary institutions. Capital City's subsidiary
depository institution is subject to certain legal restrictions on the amount
of dividends it is permitted to pay. See "BUSINESS - Regulatory
Considerations - Dividends" in Capital City's 2003 Form 10-K.
-67-
The following table sets forth cash dividends declared per share of
Capital City common stock, as adjusted for Capital City's stock split on June
13, 2003, and Farmers and Merchants common stock for the periods indicated.
Farmers and
Capital City Merchants
Quarterly Cash Quarterly
Dividends Dividends
Declared Declared
Per Share Per Share
-------------- --------------
YEAR ENDING DECEMBER 31, 2004
Second Quarter $0.180 $33.50
First Quarter 0.180 33.50
-------------- --------------
Total $0.360 $67.00
============== ==============
YEAR ENDED DECEMBER 31, 2003
Fourth Quarter $0.180 $62.00
Third Quarter 0.170 30.50
Second Quarter 0.170 30.50
First Quarter 0.136 30.50
-------------- --------------
Total $0.656 $153.50
============== ==============
YEAR ENDED DECEMBER 31, 2002
Fourth Quarter $0.136 $40.00
Third Quarter 0.122 30.50
Second Quarter 0.122 30.50
First Quarter 0.122 30.50
-------------- --------------
Total $0.502 $131.50
============== ==============
YEAR ENDED DECEMBER 31, 2001:
Fourth Quarter $0.122 $40.00
Third Quarter 0.118 28.00
Second Quarter 0.118 27.00
First Quarter 0.118 27.00
-------------- --------------
Total $0.476 $122.00
============== ==============
YEAR ENDED DECEMBER 31, 2000:
Fourth Quarter $0.118 $28.00
Third Quarter 0.106 28.00
Second Quarter 0.106 28.00
First Quarter 0.106 28.00
-------------- --------------
Total $0.436 $112.00
============== ==============
Farmers and Merchants is restricted under the Agreement and Plan of
Merger from paying dividends or making any distributions in respect of
Farmers and Merchants' common stock, except as consistent with past practice,
that would cause Farmers and Merchants' net worth to fall below $30 million.
-68-
BUSINESS OF FARMERS AND MERCHANTS
General
Farmers and Merchants is a Georgia chartered commercial bank
headquartered in Dublin, Georgia. Founded in 1910, Farmers and Merchants is
one of the oldest and largest community banks in Georgia operating three
full-service banking offices in Laurens County, Georgia. As of June 30,
2004, Farmers and Merchants had total assets of approximately $403 million,
total deposits of approximately $305 million, and total shareowners' equity
of approximately $69.2 million.
Management Stock Ownership
The following table presents information about the amount of Farmers and
Merchants common stock beneficially owned by each of the directors and
executive officers of Farmers and Merchants and all executive officers and
directors as a group as of the record date. Unless otherwise indicated, each
person has sole voting and investment power over the indicated shares.
Information relating to beneficial ownership of the Farmers and Merchants
common stock is based upon "beneficial ownership" concepts set forth in rules
promulgated under the Exchange Act. Under those rules, a person is
considered to be a beneficial owner of a security if that person has or
shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose or to direct the disposition of such security. Under the rules, more
than one person may be deemed to be a beneficial owner of the same
securities.
Position with Farmers Number of
Beneficial Owner and Merchants Shares Percentage
--------------------- ----------------------- ------------ ------------
Keen, McGrath Jr. President & Director 27,096 54.19%
Miller, Roger W. Exec. V.P. & Director 4,290 8.58%
Miller, Wallace E. Chairman & CEO 861 1.72%
Hall, Ben Director 400 *
Herrin, Ed Director 200 *
Carswell, Nelson M.D. Director 100 _*
* - less than one percent
The Farmers and Merchants directors and executive officers have
committed to vote their shares of Farmers and Merchants common stock in favor
of the Agreement and Plan of Merger.
Voting Securities and Principal Shareowners of Farmers and Merchants
The following lists each shareowner of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
50,000 outstanding shares of Farmers and Merchants common stock as of the
record date who are not a director or executive officer of the bank. Unless
otherwise indicated, each person has sole voting and investment powers over
the indicated shares. Information relating to beneficial ownership of the
Farmers and Merchants common stock is based upon "beneficial ownership"
concepts set forth in rules under the Exchange Act (discussed above).
-69-
Number of Shares
Beneficially Owned at Percent of Class
Name and Address Record Date (%)
--------------------------------- --------------------- ----------------
L.M. Keen Marital Trust (McGrath 9,456 18.92%
Keen and Regena Keen)
1629 Bellevue Road, Dublin, GA
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Management's discussion and analysis is provided to assist in the
understanding and evaluation of Farmers and Merchants' financial condition
and results of operations. The following discussion should be read in
conjunction with Farmers and Merchants' audited financial statements and
accompanying notes which are also included in this joint Proxy
Statement/Prospectus and Appendix C, and interim financial statements,
included in this Proxy Statement/Prospectus as Appendix D.
Results of Operations
Farmers and Merchants' results of operations are determined by its
ability to effectively manage interest income and expense, to minimize loan
and investment losses, to generate noninterest income and to control
noninterest expense. Since market forces and economic conditions beyond the
control of Farmers and Merchants determine interest rates, the ability to
generate net interest income is dependent upon Farmers and Merchants' ability
to obtain an adequate spread between the rate earned on earning assets and
the rate paid on interest-bearing liabilities. Thus, the key performance
measure for net interest income is the interest margin or net yield, which is
taxable-equivalent net interest income divided by average earning assets.
Net Income
----------
Farmers and Merchants' net income was $11,347,000 and $11,265,000 for
the years 2003 and 2002, respectively. Farmers and Merchants' return on
average assets totaled 2.94 percent for 2003 and 3.02 percent for 2002. The
return on average equity was 17.95 percent and 19.25 percent, respectively.
Farmers and Merchants' net income was $5,768,000 and $5,729,000 for the
six months ended June 30, 2004 and 2003, respectively. Farmers and
Merchants' return on average assets totaled 2.87 percent for 2004 and 2.98
percent for 2003. The return on average equity was 17.25 percent and 18.13
percent, respectively.
Net Interest Margin
-------------------
The following table represents Farmers and Merchants' average yield on
interest earning assets, average cost on interest bearing liabilities and net
interest spread:
-70-
Average yield on Average cost on Net
interest earning interest bearing interest
assets liabilities spread
---------------- ---------------- --------
Fiscal year ended
2003 6.21% 2.48% 3.73%
2002 7.04% 3.18% 3.86%
Six months ended:
June 30, 2004 5.77% 1.93% 3.84%
June 30, 2003 6.29% 2.45% 3.84%
Net interest income was $16,297,000 and $16,717,000 in 2003 and 2002,
respectively. Average earning assets at December 31, 2003 and 2002
represented 97.20% and 96.57% of total assets. For each of the fiscal years
average loans were $259,166,000 in 2003 and $239,466,000 in 2002, average
deposits were $286,472,000 in 2003 and $279,345,000 in 2002 and average
investment securities were $110,113,000 in 2003 and $116,690,000 in 2002.
Net interest income was $8,148,000 and $8,038,000 for the six months
ended June 30, 2004 and 2003, respectively. Average earning assets for the
six months ended June 30, 2004 and 2003 represented 97.12% and 97.13% of
total assets. For each of the six month periods average loans were
$273,287,000 in 2004 and $253,713,000 in 2003, average deposits were
$302,906,000 in 2004 and $285,820,000 in 2003 and average investment
securities were $110,999,000 in 2004 and $113,763,000 in 2003.
Provision for Loan Losses
-------------------------
The allowance for loan losses represents a reserve for probable losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due and other loans that management
believes require attention. The provision for loan losses is a charge to
earnings in the current period to replenish the allowance for loan losses and
maintain it at a level management has determined to be adequate. The
provision for loan losses was $450,000 in 2003 and $900,000 in 2002. Net
loan charge-offs represented less than 47% and 61%, of the provision for loan
losses in 2003 and 2002, respectively.
The provision for loan losses was $150,000 and $300,000 for the six
months ended June 30, 2004 and 2003, respectively.
Farmers and Merchants experienced net loan charge-offs as a percent of
average loans of .08% and .23% for the years ended December 31, 2003 and
2002, respectively. Net loan charge-offs were $210,000 in 2003 and $542,000
in 2002.
Farmers and Merchants experienced net loan charge-offs as a percent of
average loans of .06% and .04% for the six months ended June 30, 2004 and
2003, respectively. Net loan charge-offs were $166,000 in 2004 and $105,000
in 2003.
Farmers and Merchants had nonperforming assets totaling $5,283,000 and
$4,051,000, respectively, as of December 31, 2003 and 2002.
-71-
Farmers and Merchants had nonperforming assets totaling $5,077,000 and
$4,036,000, respectively, as of June 30, 2004 and 2003.
The determination of the reserve rests upon management's judgment about
factors affecting loan quality and assumptions about the economy. Management
considers the year-end allowance for loan losses adequate to cover potential
losses in the loan portfolio. The allowance for loan losses was $4,137,000 or
1.58% and $3,897,000 or 1.58%, of total loans as of December 31, 2003 and
2002, respectively. The allowance for loan losses was 1.60% and 1.63% of
average loans for 2003 and 2002, respectively.
The allowance for loan losses was $4,121,000 or 1.50% and $4,092,000 or
1.59%, of total loans as of June 30, 2004 and 2003, respectively. The
allowance for loan losses was 1.51% and 1.65% of average loans for the six
months ended June 30, 2004 and 2003, respectively.
Noninterest Income
------------------
Noninterest income consists primarily of service charges on deposit
accounts. Service charges on deposit accounts totaled $1,359,000 and
$1,296,000 in 2003 and 2002, respectively. Noninterest income represented
9.01% and 7.08% of all income sources in 2003 and 2002, respectively. The
increase in noninterest income is attributable to overall loan and deposit
growth of Farmers and Merchants.
Service charges on deposit accounts totaled $657,000 and $653,000 for
the six months ended June 30, 2004 and 2003, respectively. Noninterest
income represented 8.31% and 9.30% of all income sources for the six months
ended June 30, 2004 and 2003, respectively. The increase in noninterest
income is attribute to overall loan and deposit growth of Farmers and
Merchants.
Noninterest Expense
-------------------
The following table depicts Farmers and Merchants' noninterest expense
components and the percentage of the individual components to the total:
December 31, 2003 December 31, 2002
--------------------- ---------------------
Amount % Amount %
---------- ----- ---------- -----
Salaries and employee benefits $3,666,000 54.02 $3,499,000 53.99
Occupancy and equipment 840,000 12.38 755,000 11.65
Other operating 2,280,000 33.60 2,227,000 34.36
At December 31, 2003 and 2002, Farmers and Merchants had 79 and 83
employees, respectively.
June 30, 2004 June 30, 2003
--------------------- ---------------------
Amount % Amount %
---------- ----- ---------- -----
Salaries and employee benefits $1,668,000 51.43 $1,630,000 50.87
Occupancy and equipment 435,000 13.41 478,000 14.92
Other operating 1,140,000 35.16 1,096,000 34.21
-72-
At June 30, 2004 and 2003, Farmers and Merchants had 69 and 83
employees, respectively.
As of June 30, 2004, the decrease in employees over the past twelve
months is due to normal attrition and management's emphasis on increased
productivity from existing employees. Management continues to evaluate its
staffing levels in an effort to balance optimal customer service coverage and
Farmers and Merchants Bank's internal cost control initiatives.
The efficiency ratio, or noninterest operating expenses divided by the
sum of taxable-equivalent net interest income and noninterest income measures
how much of a bank's revenue is consumed by operating expenses. Farmers and
Merchants' efficiency ratio, calculated using the operating expense totals,
was 36.5% in 2003 and 34.8% in 2002. Farmers and Merchants' efficiency ratio
was 35.4% and 34.7%, respectively, for the six months ended June 30, 2004 and
2003.
Financial Condition
-------------------
The following is a presentation of the average daily balance sheet of
Farmers and Merchants for the fiscal years ended December 31, 2003 and 2002
and the six months ended June 30, 2004 and 2003. This presentation includes
all major categories of interest earning assets and interest bearing
liabilities, the amount of interest earned and paid, and the weighted average
yields or rates for the fiscal years ended December 31, 2003 and 2002 and the
six months ended June 30, 2004 and 2003.
Assets
------
Average Balance Sheet:
(dollars in thousands) December 31, 2003
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Earning Assets
Loans, net of unearned income taxable $ 259,166 $ 18,410 7.10%
----------- ----------- --------
Investment securities
Taxable 86,541 3,852 4.45
Tax-exempt 23,572 909 3.86
----------- ----------- --------
Total investment securities 110,113 4,761 4.32
----------- ----------- --------
Funds sold 4,940 51 1.03
----------- ----------- --------
Total interest-earning assets 374,219 23,222 6.21
----------- ----------- --------
Noninterest-Earning Assets
Cash 7,788
Allowance for loan losses (4,057)
Other assets 7,724
-----------
Total noninterest-earning assets 11,455
===========
Total assets $ 385,674
===========
-73-
Liabilities and Stockholders' Equity
Average Income/ Yields/
Balances Expense Rates
---------- --------- -------
Interest-Bearing Liabilities
Interest-bearing deposits
Interest-bearing demand and savings $ 73,875 $ 1,165 1.58%
Other time deposits 169,481 4,654 2.75
---------- --------- -------
Total interest-bearing deposits 243,356 5,819 2.39
---------- --------- -------
Other Interest-Bearing Liabilities
Debt 22,411 747 3.33
Funds purchased and securities sold
under agreement to repurchase 6,125 170 2.78
---------- --------- -------
Total other interest-bearing liabilities 28,536 917 3.21
---------- --------- -------
Total interest-bearing liabilities 271,892 6,736 2.48
---------- --------- -------
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand deposits 43,116
Other liabilities 7,469
Stockholders' equity 63,197
----------
Total noninterest-bearing liabilities and
stockholders' equity 113,782
----------
Total liabilities and stockholders' equity $385,674
==========
Net interest margin 3.73%
=======
Net interest income $16,486
=========
-74-
Assets
------
Average Balance Sheet:
(dollars in thousands) December 31, 2002
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Earning Assets
Loans, net of unearned income taxable $ 239,466 $ 19,449 8.12%
----------- ----------- --------
Investment securities
Taxable 95,254 4,961 5.21
Tax-exempt 21,436 891 4.16
----------- ----------- --------
Total investment securities 116,690 5,852 5.01
----------- ----------- --------
Funds sold 3,961 61 1.54
----------- ----------- --------
Total interest-earning assets 360,117 25,362 7.04
----------- ----------- --------
Noninterest-Earning Assets
Cash 8,878
Allowance for loan losses (3,676)
Other assets 8,208
-----------
Total noninterest-earning assets 13,410
-----------
Total assets $ 373,527
===========
Liabilities and Stockholders' Equity
------------------------------------
Interest-Bearing Liabilities
Interest -bearing deposits
Interest-bearing demand and savings $ 68,599 1,496 2.18%
Other time deposits 170,856 6,055 3.54
Total interest-bearing deposits 239,455 7,551 3.15
Other Interest-Bearing Liabilities
Federal Home Loan Bank advances 20,298 688 3.39
Funds purchased and securities sold
under agreement to repurchase 6,744 224 3.32
----------- ----------- --------
Total other interest-bearing liabilities 27,042 912 3.37
----------- ----------- --------
Total interest-bearing liabilities 266,497 8,463 3.18
----------- ----------- --------
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand deposits 39,890
Other liabilities 8,621
Stockholders' equity 58,519
-----------
Total noninterest-bearing liabilities and
stockholders' equity 107,030
-----------
Total liabilities and stockholders' equity $ 373,527
===========
Net interest margin 3.86%
========
Net interest income $ 16,899
===========
-75-
Assets
------
Average Balance Sheet:
(dollars in thousands) June 30, 2004
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Earning Assets
Loans, net of unearned income taxable $ 273,287 $ 9,032 6.61%
----------- ----------- --------
Investment securities
Taxable 89,251 1,799 4.03
Tax-exempt 21,748 406 3.73
----------- ----------- --------
Total investment securities 110,999 2,205 3.97
----------- ----------- --------
Funds sold 6,001 27 0.90
----------- ----------- --------
Total interest-earning assets 390,287 11,264 5.77
----------- ----------- --------
Noninterest-Earning Assets
Cash 8,772
Allowance for loan losses (4,124)
Other assets 7,498
-----------
Total noninterest-earning assets 12,146
-----------
Total assets $ 402,433
===========
Liabilities and Stockholders' Equity
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Bearing Liabilities
Interest -bearing deposits
Interest-bearing demand and savings $ 81,976 $ 553 1.35%
Other time deposits 174,788 2,037 2.33
----------- ----------- --------
Total interest-bearing deposits 256,764 2,590 2.02
----------- ----------- --------
Other Interest-Bearing Liabilities
Debt 22,391 96 0.86
Funds purchased and securities sold
under agreement to repurchase 5,110 62 2.43
----------- ----------- --------
Total other interest-bearing liabilities 27,501 158 1.15
----------- ----------- --------
Total interest-bearing liabilities 284,265 2,748 1.93
----------- ----------- --------
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand deposits 46,142
Other liabilities 5,157
Stockholders' equity 66,869
-----------
Total noninterest-bearing liabilities and
stockholders' equity 118,168
-----------
Total liabilities and stockholders' equity $ 402,433
===========
Net interest margin 3.84%
========
Net interest income $ 8,516
===========
-76-
Assets
------
Average Balance Sheet:
(dollars in thousands) June 30, 2003
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Earning Assets
Loans, net of unearned income taxable $ 253,713 $ 9,141 7.21%
----------- ----------- --------
Investment securities
Taxable 90,516 2,093 4.62
Tax-exempt 23,247 457 3.93
----------- ----------- --------
Total investment securities 113,763 2,550 4.48
----------- ----------- --------
Funds sold 5,311 30 1.13
----------- ----------- --------
Total interest-earning assets 372,787 11,721 6.29
----------- ----------- --------
Noninterest-Earning Assets
Cash 7,740
Allowance for loan losses (3,955)
Other assets 7,967
-----------
Total noninterest-earning assets 11,752
-----------
Total assets $ 384,539
===========
Liabilities and Stockholders' Equity
------------------------------------
Average Income/ Yields/
Balances Expense Rates
----------- ----------- --------
Interest-Bearing Liabilities
Interest -bearing deposits
Interest-bearing demand and savings $ 73,323 $ 648 1.77%
Other time deposits 169,709 2,488 2.93
----------- ----------- --------
Total interest-bearing deposits 243,032 3,136 2.58
----------- ----------- --------
Other Interest-Bearing Liabilities
Debt 22,307 99 0.89
Funds purchased and securities sold
under agreement to repurchase 6,867 98 2.85
----------- ----------- --------
Total other interest-bearing liabilities 29,174 197 1.35
----------- ----------- --------
Total interest-bearing liabilities 272,206 3,333 2.45
----------- ----------- --------
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand deposits 42,788
Other liabilities 6,348
Stockholders' equity 63,197
-----------
Total noninterest-bearing liabilities and
stockholders' equity 112,333
-----------
Total liabilities and stockholders' equity $ 384,539
===========
Net interest margin 3.84%
========
Net interest income $ 8,388
===========
-77-
Interest Rate Sensitivity
-------------------------
The following table represents the Farmers and Merchants'
interest-sensitivity gap between interest-earning assets and interest-bearing
liabilities as of December 31, 2003 and 2002 and as of June 30, 2004 and 2003.
December 31, 2003
Assets and Liabilities Repricing Within
------------------------------------------------
(dollars in thousands)
<3 4-12 1-3 over 3
months months years years TOTAL
-------- -------- -------- -------- --------
Loans $ 56,287 $ 65,956 $ 84,216 $ 55,340 $261,799
Investments 10,512 9,963 21,992 65,686 108,153
Fed Funds sold 8,850 -- -- -- 8,850
Risk sensitive assets 75,649 75,919 106,208 121,026 378,802
-------- -------- -------- -------- --------
Savings & other 57,555 -- -- -- 57,555
MMDA 34,748 -- -- -- 34,748
CD's < $100,000 31,488 66,424 9,313 8,430 115,655
CD's > $100,000 14,335 30,191 1,576 6,650 52,752
Other borrowings -- 4,000 -- 17,197 21,197
Other liabilities -- -- -- 6,150 6,150
Risk sensitive liabilities 138,126 100,615 10,889 38,427 288,057
Interest sensitivity gap (62,477) (24,696) 95,319 82,599 $ 90,745
-------- -------- -------- -------- ========
Cumulative interest
sensitivity gap $(62,477) $(87,173) $ 8,146 $ 90,745
======== ======== ======== ========
Ratio of sensitive assets
to sensitive liabilities 54.77% 75.45% 975.37% 314.95%
======== ======== ======== ========
Cumulative ratio of
sensitive assets to
sensitive liabilities 54.77% 63.49% 103.26% 131.50%
======== ======== ======== ========
-78-
December 31, 2002
Assets and Liabilities Repricing Within
------------------------------------------------
(dollars in thousands)
<3 4-12 1-3 over 3
months months years years TOTAL
-------- -------- -------- -------- --------
Loans $ 53,805 $ 56,974 $ 84,550 $ 50,642 $245,971
Investments 8,874 9,294 29,401 69,410 116,979
Fed Funds sold 5,350 -- -- -- 5,350
Risk sensitive assets 68,029 66,268 113,951 120,052 368,300
-------- -------- -------- -------- --------
Savings & other 52,440 -- -- -- 52,440
MMDA 34,538 -- -- -- 34,538
CD's < $100,000 32,947 75,523 11,237 4,220 123,927
CD's > $100,000 13,871 27,946 2,377 1,760 45,954
Other borrowings -- 4,000 -- 17,364 21,364
Other liabilities -- -- -- 8,427 8,427
Risk sensitive liabilities 133,796 107,469 13,614 31,771 286,650
-------- -------- -------- -------- --------
Interest sensitivity gap (65,767) (41,201) 100,337 88,281 $ 81,650
-------- -------- -------- -------- ========
Cumulative interest
sensitivity gap $(65,767)$(106,968) $ (6,631) $81,650
======== ======== ======== ========
Ratio of sensitive assets
to sensitive liabilities 50.85% 61.66% 837.01% 377.87%
======== ======== ======== ========
Cumulative ratio of
sensitive assets to
sensitive liabilities 50.85% 55.66% 97.40% 128.48%
======== ======== ======== ========
-79-
June 30, 2004
Assets and Liabilities Repricing Within
------------------------------------------------
(dollars in thousands)
<3 4-12 1-3 over 3
months months years years TOTAL
-------- -------- -------- -------- --------
Loans $ 75,656 $ 67,567 $ 77,061 $ 55,314 $275,598
Investments 3,444 16,987 22,720 63,687 106,838
Fed Funds sold 7,000 -- -- -- 7,000
Risk sensitive assets 86,100 84,554 99,781 119,001 389,436
-------- -------- -------- -------- --------
Savings 53,975 -- -- -- 53,975
MMDA 45,087 -- -- -- 45,087
CD's < $100,000 29,094 66,946 10,099 7,612 113,751
CD's > $100,000 30,527 20,832 2,264 6,391 60,014
Other borrowings 4,000 -- -- 17,114 21,114
Other liabilities -- -- -- 6,572 6,572
Risk sensitive liabilities 162,683 87,778 12,363 37,689 300,513
-------- -------- -------- -------- --------
Interest sensitivity gap (76,583) (3,224) 87,418 81,312 $ 88,923
-------- -------- -------- -------- ========
Cumulative interest
sensitivity gap $(76,583) $(79,807) $ 7,611 $ 88,923
======== ======== ======== ========
Ratio of sensitive assets
to sensitive liabilities 52.93% 96.33% 807.09% 315.74%
======== ======== ======== ========
Cumulative ratio of
sensitive assets to
sensitive liabilities 52.93% 68.14% 102.90% 129.59%
======== ======== ======== ========
-80-
June 30, 2003
Assets and Liabilities Repricing Within
------------------------------------------------
(dollars in thousands)
<3 4-12 1-3 over 3
months months years years TOTAL
-------- -------- -------- -------- --------
Loans $ 59,791 $ 61,084 $ 80,552 $ 56,583 $258,010
Investments 3,623 18,171 27,488 62,679 111,961
Fed Funds sold 3,500 -- -- -- 3,500
Risk sensitive assets 66,914 79,255 108,040 119,262 373,471
-------- -------- -------- -------- --------
Savings & Other 50,702 -- -- -- 50,702
MMDA 37,108 -- -- -- 37,108
CD's < $100,000 35,072 67,543 10,706 6,172 119,493
CD's > $100,000 18,316 24,757 2,040 4,708 49,821
Other borrowings -- -- 4,000 17,281 21,281
Other liabilities -- -- -- 7,694 7,694
Risk sensitive liabilities 141,198 92,300 16,746 35,855 286,099
-------- -------- -------- -------- --------
Interest sensitivity gap (74,284) (13,045) 91,294 83,407 $ 87,372
-------- -------- -------- -------- ========
Cumulative interest
sensitivity gap $(74,284) $(87,329) $ 3,965 $ 87,372
======== ======== ======== ========
Ratio of sensitive assets
to sensitive liabilities 47.39% 85.87% 645.17% 332.62%
======== ======== ======== ========
Cumulative ratio of
sensitive assets to
sensitive liabilities 47.39% 62.60% 101.58% 130.54%
======== ======== ======== ========
-81-.
Investment Portfolio
--------------------
The following tables present carrying values of investment securities
held by Farmers and Merchants as of December 31, 2003 and 2002 and as of
June 30, 2004 and 2003.
December 31,
------------
2003 2002
---------- ----------
(in thousands)
Securities Available-for-Sale
U. S. Government Agencies $34,719 $38,271
State, County and Municipal 23,165 21,462
Mortgage Backed 24,813 29,854
Corporate Bonds 22,907 23,638
---------- ----------
$105,604 $113,225
========== ==========
Securities Held-to-Maturity
U. S. Government Agencies $1,000 $1,000
State, County and Municipal 1,540 2,740
Mortgage Backed 9 14
---------- ----------
$2,549 $3,754
========== ==========
June 30,
--------
2003 2002
---------- ----------
(in thousands)
2004 2003
(in thousands)
Securities Available-for-Sale
U. S. Government Agencies $42,597 $31,976
State, County and Municipal 19,019 23,738
Mortgage Backed 24,313 29,297
Corporate Bonds 19,362 24,398
---------- ----------
$105,291 $109,409
========== ==========
Securities Held-to-Maturity
U. S. Government Agencies $-- $1,000
State, County and Municipal 1,540 1,540
Mortgage Backed 7 12
---------- ----------
$1,547 $2,552
========== ==========
-82-
The following tables illustrate contractual maturities and weighted
average yields of investment securities held at June 30, 2004. Expected
maturities will differ from contractual maturities because certain issuers
have the right to call or prepay obligations with or without call or
prepayment penalties. No prepayment assumptions have been estimated in the
table. The weighted average yields are calculated on the basis of the
amortized cost and effective yields of each security weighted for the
scheduled maturity of each security. The weighted average yields for each
time horizon presented below are the combined yields for both classifications
of investment securities. A calculation of actual yields by classification,
which would differ nominally from those presented below, has not been
prepared.
Average Amortized Fair
Yield Cost Value
-------- ---------- ---------
Securities Available-for-Sale
-------------------------------
Due within one year 3.35% $ 29,384 $ 29,261
Due after one year through five years 4.54% 62,334 62,533
Due after five years through ten years 5.49% 8,777 8,776
Due after ten years 3.55% 4,824 4,721
-------- ---------- ---------
4.25% $ 105,319 $ 105,291
======== ========== =========
Securities Held-to-Maturity
-------------------------------
Due within one year 3.35% $ 150 $ 157
Due after one year through five years 4.54% 717 754
Due after five years through ten years 5.49% 680 715
Due after ten years 3.55% -- --
-------- ---------- ---------
4.25% $ 1,547 $ 1,626
======== ========== =========
As of December 31, 2003 and 2002 and as of June 30, 2004 and 2003,
Farmers and Merchants had no holdings of securities of a single issuer in
which the aggregate book value and aggregate market value of the securities
exceeded ten percent of stockholders' equity, with the exception of U.S.
Government Agency securities.
Loan Portfolio
--------------
The following table presents the composition of Farmers and Merchants'
loan portfolio as of December 31, 2003 and 2002 and June 30, 2004 and 2003.
-83-
December 31,
------------
2003 2002
-------- --------
(dollars in thousands)
Real estate
Residential 1-4 family $ 33,478 $ 36,683
Residential 5 or more family 4,373 3,688
Construction and land development 12,064 10,533
Second mortgages 1,500 2,575
Farmland 136 1,473
Non-farm, nonresidential properties 164,243 142,221
Commercial, financial and agricultural 23,274 24,708
Consumer Installment loans 20,856 22,701
Other 4,151 4,646
Less: Unearned income (2,276) (3,257)
-------- --------
261,799 245,971
Allowance for loan losses (4,137) (3,897)
-------- --------
Loans, net $257,662 $242,074
======== ========
June 30,
--------
2004 2003
-------- --------
(dollars in thousands)
Real estate
Residential 1-4 family $ 31,514 $ 35,824
Residential 5 or more family 5,887 4,149
Construction and land development 14,380 11,940
Second mortgages 2,568 2,230
Farmland 153 785
Non-farm, nonresidential properties 174,518 156,793
Commercial, financial and agricultural 23,356 22,970
Consumer Installment loans 19,619 21,172
Other 5,479 4,871
Less: Unearned income (1,876) (2,724)
-------- --------
275,598 258,010
Allowance for loan losses (4,121) (4,092)
-------- --------
Loans, net $271,477 $253,918
======== ========
-84-
The following table presents total loans less unearned discount as of
December 31, 2003 and 2002 according to maturity distribution.
December 31,
------------
2003 2002
------------ ------------
(dollars in thousands)
One year or less $ 122,243 $ 110,779
After one year through five years 121,883 119,991
After five years 17,673 15,201
------------ ------------
$ 261,799 $ 245,971
The following table presents total loans less unearned discount as of June
30, 2004 and 2003 according to maturity distribution.
June 30,
--------
2004 2003
------------ ------------
(dollars in thousands)
One year or less $ 143,223 $ 120,875
After one year through five years 115,307 114,806
After five years 17,068 22,329
------------ ------------
$ 275,598 $ 258,010
The following table presents an interest rate sensitivity analysis of the
Bank's loan portfolio as of December 31, 2003 and 2002 and as of June 30,
2004 and 2003.
December 31, 2003
---------------------------------------------
(dollars in thousands)
Within 1 to 5 After 5
1 year years years Total
----------- ----------- ---------- -----------
Loans with
Predetermined interest rates $ 113,613 $ 113,278 $ 16,424 $ 243,315
Floating or adjustable interest
rates 8,630 8,605 1,249 18,484
----------- ----------- ---------- -----------
Loans, net of unearned income $ 122,243 $ 121,883 $ 17,673 $ 261,799
=========== =========== ========== ===========
December 31, 2002
---------------------------------------------
(dollars in thousands)
Within 1 to 5 After 5
1 year years years Total
---------- ----------- ---------- -----------
Loans with
Predetermined interest rates $ 100,898 $ 109,288 $ 13,845 $ 224,031
Floating or adjustable interest
rates 9,881 10,703 1,356 21,940
----------- ----------- ---------- -----------
Loans, net of unearned income $ 110,779 $ 119,991 $ 15,201 $ 245,971
=========== =========== ========== ===========
June 30, 2004
---------------------------------------------
-85-
(dollars in thousands)
Within 1 to 5 After 5
1 year years years Total
---------- ----------- ---------- -----------
Loans with
Predetermined interest rates $ 129,528 $ 104,281 $ 15,436 $ 249,245
Floating or adjustable interest
rates 13,695 11,026 1,632 26,353
----------- ----------- ---------- -----------
Loans, net of unearned income $ 143,223 $ 115,307 $ 17,068 $ 275,598
=========== =========== ========== ===========
June 30, 2003
---------------------------------------------
(dollars in thousands)
Within 1 to 5 After 5
1 year years years Total
---------- ----------- ---------- -----------
Loans with
Predetermined interest rates $ 109,706 $ 104,198 $ 20,266 $ 234,170
Floating or adjustable interest
rates 11,169 10,608 2,063 23,840
----------- ----------- ---------- -----------
Loans, net of unearned income $ 120,875 $ 114,806 $ 22,329 $ 258,010
Nonperforming Loans
-------------------
A loan is placed on nonaccrual status when, in management's judgment,
the collection of interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have
doubtful collectibility is charged to the allowance for loan losses.
Interest on loans that are classified as nonaccrual is recognized when
received. Past due loans are loans whose principal or interest is past due
90 days or more. In some cases, where borrowers are experiencing financial
difficulties, loans may be restructured to provide terms significantly
different from the original contractual terms.
As of December 31, 2003 and 2002, loans contractually past due 90 days
or more amounted to $30,000 and $229,000, respectively. Nonaccrual loans
were $5,283,000 and $4,051,000 at December 31, 2003 and 2002, respectively.
As of June 30, 2004 and 2003, loans contractually past due 90 days or
more amounted to $410,000 and $191,000, respectively. Nonaccrual loans were
$5,077,000 and $4,036,000, respectively.
During the years ended December 31, 2003 and 2002, $259,000 and $575,000
of loans were charged-off, respectively, and $49,000 and $33,000 were
recovered on charged-off loans, respectively.
During the six months ended June 30, 2004 and 2003, $175,000 and
$131,000, respectively, of loans were charged off and $9,000 and $26,000,
respectively, were recovered on previously charged-off loans.
-86-
Off Balance Sheet Arrangements
------------------------------
Farmers and Merchants does not currently engage in the use of derivative
instruments to hedge interest rate risks. However, in the ordinary course of
business, Farmers and Merchants has entered into off balance sheet financial
instruments, which are not reflected in the financial statements. These
instruments include commitments to extend credit, standby letters of credit,
commercial letters of credit and credit card arrangements. Such financial
instruments are recorded in the financial statements when funds are disbursed
or the instruments become payable. Farmers and Merchants uses the same
credit policies for these off balance sheet financial instruments as it does
for instruments that are recorded in the financial statements.
The following is an analysis of the significant off balance sheet
financial instruments as of December 31, 2003 and 2002 and June 30, 2004 and
2003:
December 31,
------------
2003 2002
---------- ----------
(dollars in thousands)
Commitments to extend credit $ 20,218 $ 16,889
Unused credit card lines 2,606 2,263
Standby letters of credit 731 326
---------- ----------
$ 23,555 $ 19,478
========== ==========
June 30,
---------- ----------
2004 2003
---------- ----------
(dollars in thousands)
Commitments to extend credit $ 26,038 $ 21,723
Unused credit card lines 2,594 2,602
Standby letters of credit 543 505
---------- ----------
$ 29,175 $ 24,830
========== ==========
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitment
amounts expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit risk involved in
issuing these financial instruments is essentially the same as that involved
in extending loans to customers. Farmers and Merchants does not anticipate
any material losses as a result of the commitments and contingent
liabilities.
If commitments arising from these financial instruments continue to
require funding at historical levels, management does not anticipate that
such funding will adversely impact its ability to meet ongoing obligations.
In the event these commitments require funding in excess of historical
levels, management believes current liquidity, available borrowings from the
Federal Home Loan Bank of Atlanta and investment security maturities provide
a sufficient source of funds to meet these commitments.
-87-
Summary of Loan Loss Experience
-------------------------------
The allowance for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period
in which such loans, in management's opinion, become uncollectible.
Recoveries during the period are credited to this allowance. The factors
that influence management's judgment in determining the amount charged to
operating expense are past loan experience, composition of the loan
portfolio, evaluation of possible future losses, current economic conditions
and other relevant factors. As of December 31, 2003 and 2002, Farmers and
Merchants' allowance for loan losses was approximately $4,137,000 and
$3,897,000, respectively, which represented 1.58% and 1.58% of year-end total
loans outstanding, respectively.
As of June 30, 2004 and 2003, Farmers and Merchants' allowance for loan
losses was approximately $4,121,000 and $4,092,000, respectively, which
represented 1.50% and 1.59% of total loans outstanding, respectively.
The allowance for loan losses is reviewed based on management's
evaluation of current risk characteristics of the loan portfolio as well as
the impact of prevailing and expected economic business conditions.
Management considers the allowance for loan losses adequate to cover possible
loan losses on the loans outstanding.
Management has allocated the reserve for loan losses to specific loan
classes as follows:
December 31, 2003 December 31, 2002
----------------- ------------------
Percent of Loans Percent of Loans
Amount in Category to Amount in Category to
(in thousands) Total Loans (in thousands) Total Loans
-------------- ----------- -------------- -----------
Real estate, net $ 3,374 81.56% $ 3,073 78.86%
Commercial, financial and
agricultural 368 8.89% 391 10.03%
Consumer and other 395 9.55% 433 11.11%
-------------- ----------- -------------- -----------
$ 4,137 100.00% $ 3,897 100.00%
=============== =========== ============== ===========
June 30, 2004 June 30, 2003
------------- -------------
Percent of Loans Percent of Loans
Amount in Category to Amount in Category to
(in thousands) Total Loans (in thousands) Total Loans
-------------- ----------- -------------- -----------
Real estate, net $ 3,397 82.43% $ 3,314 81.01%
Commercial, financial and
agricultural 349 8.47% 364 8.90%
Consumer and other 375 9.10% 413 10.09%
-------------- ----------- -------------- -----------
$ 4,121 100.00% $ 4,092 100.00%
=============== =========== ============== ===========
-88-
The following table presents an analysis of Farmers and Merchants' loan
loss experience for the periods indicated.
December 31,
------------
For the year ended 2003 2002
-------- --------
(dollars in thousands)
Allowance for loan losses at beginning of year $ 3,897 $ 3,539
Charge-offs
Real estate - mortgage (40) (81)
Commercial, financial and agricultural (10) (381)
Consumer (209) (113)
Recoveries
Real estate - mortgage 13 --
Commercial, financial and agricultural 2 --
Consumer 34 33
Net charge-offs (210) (542)
Provision for loans losses 450 900
Allowance for loan losses at end of year 4,137 3,897
Ratio of net charge-offs to average loans .08% .23%
June 30,
--------
For the year ended 2004 2003
-------- --------
(dollars in thousands)
Allowance for loan losses at beginning of year $ 4,137 $ 3,897
Charge-offs
Real estate - mortgage (109) (25)
Commercial, financial and agricultural -- (10)
Consumer (66) (96)
Recoveries
Real estate - mortgage -- 14
Commercial, financial and agricultural -- 1
Consumer 9 11
Net charge-offs (166) (105)
Provision for loans losses 150 300
Allowance for loan losses at June 30 4,121 4,092
Ratio of net charge-offs to average loans .06% .04%
Deposits
--------
The following table presents the average amount outstanding and the
average rate paid on deposits by Farmers and Merchants for the years 2003
and 2002 and for the six months ended June 30, 2004 and 2003.
-89-
December 31, 2003
-----------------
Average
Amount Average
(in thousands) Rate
-------------- --------------
Noninterest-bearing demand deposits $ 43,116 --
Interest-bearing demand and savings 73,875 1.58%
Time deposits 169,481 2.75
-------------- --------------
$ 286,472 2.39%
============== ==============
December 31, 2002
-----------------
Average
Amount Average
(in thousands) Rate
-------------- --------------
Noninterest-bearing demand deposits $ 39,890 --
Interest-bearing demand and savings 68,599 2.18%
Time deposits 170,856 3.54
-------------- --------------
$ 279,345 3.15%
============== ==============
June 30, 2004
-------------
Average
Amount Average
(in thousands) Rate
-------------- --------------
Noninterest-bearing demand deposits $ 46,142 --
Interest-bearing demand and savings 81,976 1.35%
Time deposits 174,788 2.33
-------------- --------------
$ 302,906 2.02%
============== ==============
June 30, 2003
-------------
Average
Amount Average
(in thousands) Rate
-------------- --------------
Noninterest-bearing demand deposits $ 42,788 --
Interest-bearing demand and savings 73,323 1.77%
Time deposits 169,709 2.93
-------------- --------------
$ 285,820 2.58%
============== ==============
-90-
The following table presents the maturities of Farmers and Merchants'
time deposits as of December 31, 2003 and 2002 and as of June 30, 2004
and 2003.
December 31, 2003
-------------------------------------
(in thousands)
Time Time
Deposits Deposits
$100,000 Less Than
or Greater $100,000 Total
---------- ---------- ----------
Months to maturity
Three months or less $ 14,335 $ 31,488 $ 45,823
Over three months
through 12 months 30,191 66,424 96,615
Over 12 months 8,226 17,743 25,969
---------- ---------- ----------
$ 52,752 $ 115,655 $ 168,407
December 31, 2002
-------------------------------------
(in thousands)
Time Time
Deposits Deposits
$100,000 Less Than
or Greater $100,000 Total
---------- ---------- ----------
Months to maturity
Three months or less $ 13,871 $ 32,947 $ 46,818
Over three months
through 12 months 27,946 75,523 103,469
Over 12 months 4,137 15,457 19,594
---------- ---------- ----------
$ 45,954 $ 123,927 $ 169,881
June 30, 2004
-------------------------------------
(in thousands)
Time Time
Deposits Deposits
$100,000 Less Than
or Greater $100,000 Total
---------- ---------- ----------
Months to maturity
Three months or less $ 30,527 $ 29,094 $ 59,621
Over three months
through 12 months 20,832 66,946 87,778
Over 12 months 8,655 17,711 26,366
---------- ---------- ----------
$ 60,014 $ 113,751 $ 173,765
-91-
June 30, 2003
-------------------------------------
(in thousands)
Time Time
Deposits Deposits
$100,000 Less Than
or Greater $100,000 Total
---------- ---------- ----------
Months to maturity
Three months or less $ 18,316 $ 35,072 $ 53,388
Over three months
through 12 months 24,757 67,543 92,300
Over 12 months 6,748 16,878 23,626
---------- ---------- ----------
$ 49,821 $ 119,493 $ 169,314
Borrowings
----------
For liquidity purposes and for customer convenience, Farmers and
Merchants also utilizes borrowings, principally the Federal Home Loan Bank of
Atlanta ("FHLB"), and has lines to purchase overnight funds from
correspondent banks. The following tables set forth certain information
regarding Farmers and Merchants' borrowings at the dates indicated.
December 31
(in thousands)
Interest Rate Maturity Date 2003 2002
------------- ----------------- --------- ---------
1.69% July 12, 2004 $ 2,000 $ 2,000
1.54% August 5, 2004 2,000 2,000
4.00% April 4, 2011 5,000 5,000
3.49% November 10, 2011 6,000 6,000
3.54% November 16, 2011 4,000 4,000
5.41% October 3, 2016 385 415
5.16% October 30, 2016 861 928
5.53% June 27, 2017 951 1,021
--------- ---------
$ 21,197 $ 21,364
June 30,
(in thousands)
Interest Rate Maturity Date 2004 2003
------------- ----------------- --------- ---------
1.69% July 12, 2004 $ 2,000 $ 2,000
1.54% August 5, 2004 2,000 2,000
4.00% April 4, 2011 5,000 5,000
3.49% November 10, 2011 4,000 4,000
3.54% November 16, 2011 6,000 6,000
5.41% October 3, 2016 370 400
5.16% October 30, 2016 828 895
5.53% June 27, 2017 916 986
--------- ---------
$ 21,114 $ 21,364
The FHLB has a blanket floating lien on Farmers and Merchants' loan
portfolio as collateral for these advances. The FHLB has established a
credit availability for Farmers and
-92-
Merchants at 10% of Farmers and Merchants' total assets as of the most recent
quarterly financial information submitted by Farmers and Merchants to the
appropriate regulatory agencies.
Liquidity and Capital Resources
Liquidity represents the ability to provide adequate funds for loan
commitments and investment activities, as well as deposit withdrawals,
payment of debt and financing of operations. The funds are obtained by
converting assets to cash (representing primarily proceeds from collections
on loans and maturities of investment securities) or by attracting and
obtaining new deposits. Farmers and Merchants maintains relationships with
the FHLB and several correspondent banks that can provide funds on short
notice. Farmers and Merchants had FHLB borrowings of $21,197,000 and
$21,364,000, as of December 31, 2003 and 2002, respectively. Farmers and
Merchants had FHLB borrowings of $21,114,000 and $21,281,000 as of June 30,
2004 and 2003, respectively. As of December 31, 2003 and 2002, Farmers and
Merchants has available FHLB advances of approximately $18,000,000 and
$17,000,000 and Federal fund lines with correspondent banks of approximately
$12,500,000 and $ 12,000,000, respectively. Farmers and Merchants' liquidity
is monitored on a regular basis by management. Management believes Farmers
and Merchants' liquidity position remained satisfactory in 2003 and 2002.
Average loans represented 90.47%, and 85.72% of average deposits in 2003 and
2002, respectively. Average loans represented 90.22% and 88.77% of average
deposits during the six months ended June 30, 2004 and 2003, respectively.
Management is keenly aware of the importance of acquiring and maintaining
deposits in order to continue growth.
The Federal Banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to deposit institutions. The rules
establish five capital tiers: "well capitalized," "adequately capitalized."
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." The various Federal banking regulatory agencies have
adopted regulations to implement the capital rules by, among other things,
defining the relevant capital measures for the five capital categories. An
institution is deemed to be "well capitalized" if it has a total risk-based
capital ratio of 10 percent or greater, a Tier 1 risk-based capital ratio of
6 percent or greater and a Tier 1 leverage ratio of 5 percent or greater and
is not subject to a regulatory order, agreement, or directive to meet and
maintain a specific capital level. At June 30, 2004, Farmers and Merchants
met the necessary benchmark capital ratios to be considered a "well
capitalized" financial institution.
The following table demonstrates capital ratio calculations as of
December 31, 2003 and 2002 and as of June 30, 2004 and 2003.
-93-
CAPITAL RATIOS
(dollars in thousands)
December 31, June 30,
------------------ ------------------
As of End of Period 2003 2002 2004 2003
-------- -------- -------- --------
Tier 1 Capital
Stockholders' Equity $ 69,322 $ 67,074 $ 69,260 $ 70,091
Unrealized losses (gains) (2,453) (3,878) 2,480 (4,215)
-------- -------- -------- --------
Total Tier 1 Capital 66,869 63,196 71,740 65,876
-------- -------- -------- --------
Tier 2 Capital
Eligible Portion of Reserve for Loan Losses 3,760 3,505 3,902 3,623
Subordinated and other Qualifying Debt -- -- -- --
-------- -------- -------- --------
Total Tier 2 Capital 3,760 3,505 3,902 3,623
-------- -------- -------- --------
Total Risk Based Capital $ 70,629 $ 66,701 $ 75,642 $ 69,499
======== ======== ======== ========
Total Net Risk Weighted Assets $300,440 $280,019 $311,921 $289,394
======== ======== ======== ========
Total Risk Based Capital Ratio 23.51% 23.82% 24.25% 24.02%
Tier 1 Capital Ratio 22.26% 22.57% 23.00% 22.76%
Tier 1 Capital to Average Assets 17.21% 16.72% 17.76% 17.31%
Regulatory Requirement
----------------------
Well
Minimum Capitalized
------- ------------
Total Risk Based Capital Ratio 8% 10%
Tier 1 Capital Ratio 4% 6%
Tier 1 Capital Ratio 4% 5%
As of June 30, 2004, management was not aware of any recommendations by
regulatory authorities, which if implemented, would have a material effect on
the Bank's liquidity, capital resources or results of operations. However,
while management is not aware of any specific concerns, it is possible that
examinations by regulatory authorities in the future could result in
additional loss charge-offs, which could materially impact the Bank's
liquidity, capital resources and result of operations.
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Return on Assets and Stockholders' Equity
The following tables present selected financial ratios for the years
ended December 31, 2003 and 2002 and for the six months ended June 30, 2004
and 2003.
December 31,
------------
2003 2002
------ ------
Return on average assets (1) 2.94% 3.02%
Return on equity (2) 17.95% 19.25%
Dividend payout (3) 67.64% 58.37%
Equity to assets (4) 16.39% 15.67%
June 30,
2004 2003
------ ------
Return on average assets (1) 2.87% 2.98%
Return on equity (2) 17.25% 18.13%
Dividend payout (3) 58.08% 53.24%
Equity to assets (4) 16.61% 16.43%
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
Inflation
Inflation has an important impact on the growth of total assets in the
banking industry and may create a need to increase equity capital at higher
than normal rates in order to maintain an appropriate equity to assets ratio.
The Bank deals with the effects of inflation by managing its interest rate
sensitivity gap position through its asset/liability management program and
by periodically adjusting its pricing of services and banking products to
take into consideration current costs.
Recently Issued Accounting Standards
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") Statement No. 149 ("FAS
149"), Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. FAS 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for hedging
activities under FAS 133, Accounting for Derivative Instruments and Hedging
Activities. FAS 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003.
-95-
In May 2003, the FASB issued FAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. FAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
FAS 150 requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. FAS 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments
of nonpublic entities. For nonpublic entities, mandatorily redeemable
financial instruments are subject to the provisions of FAS 150 for the first
fiscal period beginning after December 15, 2003. Subsequent to the issuance
of FAS 150, the FASB has issued four FASB Staff Positions (FSPs) addressing
FAS 150. One FSP, FSP No. 150-3, contains information for nonpublic entities
with certain stock buyback agreements with their major stockholders. FSP No.
150-3 defers indefinitely the effective date of the mandatory redemption
provisions of FAS 150 and all related FSPs for nonpublic entities if the
redemption date either is not fixed or if the payout amount is variable and
not based on an index.
In December 2003, the FASB issued FAS 132 (revised 2003), Employers'
Disclosures about Pensions and Other Postretirement Benefits, to improve
financial statement disclosures for defined benefit plans. The change
replaces existing FASB disclosure requirements for pensions. In an effort to
provide the public with better and more complete information, FAS 132
requires that companies provide more details about their plan assets, benefit
obligations, cash flows, benefit costs and other relevant information. FAS
132 is effective for fiscal years ending after December 15, 2003, and for
quarters beginning after December 15, 2003.
In December 2003, the FASB issued a revision to FASB Interpretation No.
46 ("FIN 46R") to clarify some of the provisions of FASB Interpretation No.
46 ("FIN 46"), Consolidation of Variable Interest Entities, and to exempt
certain entities from its requirements. Under FIN 46R, special effective
date provisions apply to enterprises that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for
periods ending after December 15, 2003. Application by public entities,
other than small business issuers, for all other types of variable interest
entities is required in financial statements for periods ending after March
15, 2004. Application by small business issuers to variable interest
entities other than special-purpose entities is required at various dates in
2004 and 2005. In some instances, entities have the option of applying or
continuing to apply FIN 46 for a short period of time before applying FIN
46R.
The provisions of FAS 149, FAS 150, FAS 132 and FIN 46R are not expected
to have a material impact on Farmers and Merchants' financial statements.
Critical Accounting Policies
Farmers and Merchants' accounting policies are integral to understanding
the results reported. Accounting policies are described in detail in Note 1
to the financial statements. Farmers and Merchants' most complex accounting
policies require management's judgment to ascertain the valuation of assets,
liabilities, commitments and contingencies. A variety of factors could affect
the ultimate value that is obtained either when earning income, recognizing
an expense, recovering an asset or reducing a liability. In instances where
required by generally
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accepted accounting principles, Farmers and Merchants uses a discount factor
to determine the present value of assets and liabilities. A change in the
discount factor could increase or decrease the values of those assets and
liabilities. That change could result in either a beneficial or adverse
impact on the financial results. Farmers and Merchants has established
detailed policies and control procedures that are intended to ensure
valuation methods are well controlled and applied consistently from period to
period. In addition, the policies and procedures are intended to ensure that
the process for changing methodologies occurs in an appropriate manner. The
following is a brief description of Farmers and Merchants' current accounting
policies involving significant management valuation judgments.
Allowance for Loan Losses
-------------------------
The allowance for loan losses represents management's estimate of losses
inherent in the existing loan portfolio. The allowance for loan losses is
increased by the provision for loan losses charged to expense and reduced by
loans charged off, net of recoveries. The allowance for loan losses is
determined based on management's assessment of several factors: reviews and
evaluations of specific loans, changes in the nature and volume of the loan
portfolio, current economic conditions and the related impact on segments of
the loan portfolio, historical loan loss experience and the level of
classified and nonperforming loans.
Loans are considered impaired if, based on current information and
events, it is probable that Farmers and Merchants will be unable to collect
the scheduled payments of principal or interest according to the contractual
terms of the loan agreement. When a loan is deemed impaired, impairment is
measured by using the fair value of the underlying collateral, the present
value of the future cash flows discounted at the effective interest rate
stipulated in the loan agreement, or the estimated market value of the loan.
In measuring the fair value of the collateral, management uses assumptions
(e.g., discount rate) and methodologies (e.g., comparison to the recent
selling price of similar assets) consistent with those that would be utilized
by unrelated third parties.
Changes in the financial condition of individual borrowers, economic
conditions, historical loss experience, or the condition of the various
markets in which collateral may be sold may affect the required level of the
allowance for loan losses and the associated provision for loan losses.
Should cash flow assumptions or market conditions change, a different amount
may be recorded for the allowance for loan losses and the associated
provision for loan losses.
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Selected Financial Data
(dollars in thousands)
For the year: December 31,
------------
2003 2002
---------- ----------
Net income $ 11,347 $ 11,265
Return on average assets 2.94% 3.02%
Return on average stockholders' equity 17.95% 19.25%
Per share:
Net income 226.94 225.30
Book value (based on outstanding shares of
50,000) 1,386.44 1,341.48
At year end:
Assets 394,140 384,698
Securities 108,153 116,979
Loans, net 257,662 242,074
Deposits 293,027 283,859
Stockholders' equity 69,322 67,074
Average balance for the year:
Assets 385,674 373,527
Securities 110,113 116,690
Loans 259,166 239,466
Deposits 286,472 279,345
Stockholders' equity 63,197 58,519
For the six months ended: June 30,
--------
2003 2002
---------- ----------
Net income $ 5,768 $ 5,729
Return on average assets 2.87% 2.98%
Return on average stockholders' equity 17.25% 18.13%
Per share:
Net income 115.36 114.58
Book value 1,385.20 1,401.82
At June 30:
Assets 403,370 387,800
Securities 106,838 111,961
Loans, net 271,477 253,918
Deposits 305,224 287,293
Stockholders' equity 69,260 70,091
Average balance for the six months ended:
Assets 402,433 384,539
Securities 110,999 113,763
Loans 273,287 253,713
Deposits 302,906 285,820
Stockholders' equity 66,869 63,197
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BUSINESS OF CAPITAL CITY
General
Capital City is a financial holding company registered under the Gramm-
Leach-Bliley Act of 1999, and is subject to the Bank Holding Company Act of
1956, as amended. At June 30, 2004, Capital City had consolidated total
assets of approximately $2.0 billion and shareowners' equity of approximately
$210 million. Its principal asset is the capital stock of Capital City Bank.
Capital City Bank accounted for approximately 100% of the consolidated assets
at June 30, 2004 and approximately 100% of consolidated net income of Capital
City for the year ended December 31, 2003. In addition to its banking
subsidiary, Capital City has seven other indirect subsidiaries, all of which
are wholly-owned subsidiaries of Capital City Bank:
* Capital City Trust Company
* Capital City Mortgage Company (inactive)
* Capital City Securities, Inc.
* Capital City Services Company
* First Insurance Agency of Grady County, Inc.
* Southern Oaks, Inc.
* FNB Financial Services, Inc.
On March 19, 2004, Capital City Bank completed its merger with Quincy
State Bank, an affiliate of Synovus Financial Corp. Results of Quincy's
operations have been included in Capital City's consolidated financial
statements since March 20, 2004. Quincy had $116.6 million in assets with
one office in Quincy, Florida and one office in Havana, Florida. The
transaction was accounted for as a purchase and resulted in approximately
$14.9 million of intangible assets, including approximately $12.5 million in
goodwill and a core deposit intangible of $2.4 million. The core deposit
intangible is being amortized over a 7-year period.
Banking Services
Capital City Bank is a Florida chartered full-service bank engaged in
the commercial and retail banking business. Significant services offered by
the Bank include:
* Business Banking -
---------------- Capital City Bank provides banking services to
corporations and other business clients. Loans are made for a wide
variety of general business purposes, including financing for commercial
business properties, equipment, inventories and accounts receivable, as
well as commercial leasing, letters of credit, treasury management
services, and merchant credit card transaction processing.
* Commercial Real Estate Lending -
------------------------------ Capital City Bank provides a wide
range of products to meet the financing needs of commercial developers
and investors, residential builders and developers, and community
development.
* Residential Real Estate Lending -
------------------------------- Capital City Bank provides products
to help meet the home financing needs of consumers, including
conventional permanent and construction/ permanent (fixed or adjustable
rate) financing arrangements, and FHA/VA loan products.
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Capital City Bank offers these products through its existing network of
branch offices. Geographical expansion of the delivery of this product
line has occurred over the past three years through the opening of four
mortgage lending offices in Gainesville (Alachua County), Lakeland (Polk
County), Ocala (Marion County), and Panacea (Wakulla County).
* Retail Credit -
------------- Capital City Bank provides a full range of loan
products to meet the needs of consumers, including personal loans,
automobile loans, boat/RV loans, home equity loans, and credit card
programs.
* Institutional Banking -
--------------------- Capital City Bank provides banking services to
meet the needs of state and local governments, public schools and
colleges, charities, membership and not-for-profit associations
including customized checking and savings accounts, cash management
systems, tax- exempt loans, lines of credit, and term loans.
* Retail Banking -
-------------- Capital City Bank provides a full range of consumer
banking services, including checking accounts, savings programs,
automated teller machines, overdraft facilities, debit/credit cards,
night deposit services, safe deposit facilities, and PC/Internet
banking. Customers can use the "Star-Line" system to gain 24-hour access
to their deposit and loan account information, and transfer funds
between linked accounts. The Bank is a member of the "Star" ATM Network
that permits banking customers to access cash at automatic teller
machines ("ATMs") or point of sale merchants at locations throughout the
United States.
Data Processing Services
Capital City Services Company provides data processing services to
financial institutions (including Capital City Bank), government agencies and
commercial customers located throughout North Florida and South Georgia. As
of June 30, 2004, the Services Company was providing computer services to six
correspondent banks, which have relationships with Capital City Bank.
Trust Services and Asset Management
Capital City Trust Company is the investment management arm of Capital
City Bank. The Trust Company provides asset management for individuals
through agency, personal trust, IRA's and personal investment management
accounts. Administration of pension, profit sharing and 401(k) plans is a
significant product line. Associations, endowments and other non-profit
entities hire the Trust Company to manage their investment portfolios.
Individuals requiring the services of a trustee, personal representative or a
guardian are served by a staff of well trained professionals. The market
value of trust assets under discretionary management exceeded $632 million as
of June 30, 2004, with total assets under administration exceeding $703
million.
Brokerage Services
Capital City offers access to retail investment products through Capital
City Securities, Inc., a wholly-owned subsidiary of Capital City Bank. These
products are offered through INVEST Financial Corporation, a member of NASD
and SIPC. Non-deposit investment and insurance products are: (1) not FDIC
insured; (2) not deposits, obligations, or guaranteed by any
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bank; and (3) subject to investment risk, including the possible loss of
principal amount invested. Capital City Securities, Inc.'s brokers are
licensed through INVEST Financial Corporation, and offer a full line of
retail securities products, including U.S. Government bonds, tax-free
municipal bonds, stocks, mutual funds, unit investment trusts, annuities,
life insurance and long-term health care. Capital City and its subsidiary
are not affiliated with INVEST Financial Corporation.
Expansion of Business
Since 1984, Capital City has completed 13 acquisitions totaling $1.3
billion in deposits within existing and new markets. In addition, in 2003,
Capital City opened four new offices - two in Tallahassee and one each in
Springhill and Starke (replacement office) - to improve service and product
delivery within these Florida markets.
Capital City plans to continue its expansion, emphasizing a combination
of growth in existing markets and acquisitions. Acquisitions will be focused
on a three state area including Florida, Georgia, and Alabama with a
particular focus on acquiring banks and branches.
Directors and Executive Officers
The directors of Capital City after the merger will be:
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
----------------- ------------------ -------------------
Cader B. Cox, III Thomas A. Barron Dubose Ausley
McGrath Keen, Jr. J. Everitt Drew Frederick Carroll, III
Ruth A. Knox Lina S. Knox John K. Humphress
William G. Smith, Jr. John R. Lewis Henry Lewis III
The executive officers of Capital City after the merger will be:
William G. Smith, Jr. Chairman, President and Chief Executive Officer
J. Kimbrough Davis Executive Vice President and Chief Financial Officer
Thomas A. Barron President of Capital City Bank
The following section sets forth certain information regarding each of
the persons who, after the consummation of the merger, will be a director or
executive officer of Capital City. Except as otherwise indicated, each of
the named persons has been engaged in his or her present principal occupation
for more than five years.
CLASS I DIRECTORS:
------------------
(Term Expiring in 2007)
CADER B. COX, III
Mr. Cox, 50, has been a director since October 1994. Since 1976, he has
served as President of Riverview Plantation, Inc., a resort and agricultural
company.
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MCGRATH KEEN, JR.
Mr. Keen, 50, has served as President (since 2000) and director (1980-2004)
of Farmers and Merchants, prior to its merger with Capital City. He was a
principal shareowner of Farmers and Merchants at the time of the merger.
RUTH A. KNOX
Ms. Knox, 50, has been a director since July 1, 2003. Since 2003, she has
served as President of Wesleyan College, Macon, Georgia. Prior to this
appointment, she practiced law in Atlanta and Macon, Georgia for 25 years.
WILLIAM G. SMITH, JR.
Mr. Smith, 50, is the Chairman of the Board of Capital City and has been a
director since 1982. In 1995, he was appointed President and Chief
Executive Officer of Capital City and Chairman of Capital City Bank. In
2003, Mr. Smith was elected Chairman of the Board of Directors. Mr. Smith is
the first cousin of Lina S. Knox.
CLASS II DIRECTORS:
-------------------
(Term Expiring in 2005)
THOMAS A. BARRON
Mr. Barron, 51, has been a director since 1982. He is Treasurer of Capital
City and was appointed President of Capital City Bank in 1995.
J. EVERITT DREW
Mr. Drew, 48, has been a director since July 1, 2003. Since 2000, he has
been the President of St. Joe Land Company where his duties include
overseeing the sale and development efforts of several hundred thousand acres
of St. Joe property in northwest Florida and southwest Georgia.
LINA S. KNOX
Ms. Knox, 56, has been a director since January 1998. She is a dedicated
community volunteer. Ms. Knox is the first cousin of William G. Smith, Jr.
JOHN R. LEWIS
Mr. Lewis, 61, has been a director since 1999. He is President and Chief
Executive Officer of Super-Lube, Inc., Tallahassee, Florida which he founded
in 1979.
CLASS III DIRECTORS:
--------------------
(Term Expiring in 2006)
DUBOSE AUSLEY
Mr. Ausley, 66, has been a director since 1982. He is employed by the law
firm of Ausley & McMullen and was Chairman of this firm and its predecessor
for more than 20 years. Since 1992, he has served as a director of TECO
Energy, Inc. Since 1993, Mr. Ausley has served as a director of Sprint
Corporation. In addition, Mr. Ausley has been nominated, and has consented
to serve, as a director of Huron Consulting Group, Inc.
-102-
FREDERICK CARROLL, III
Mr. Carroll, 53, has been a director since July 1, 2003. Since 1990, he has
been the Managing Partner of Carroll and Company, an accounting firm
specializing in tax and audit based in Tallahassee, Florida.
JOHN K. HUMPHRESS
Mr. Humphress, 55, has been a director since 1994. Since 1973, he has been a
shareowner of Krause Humphress Pace & Wadsworth, Chartered CPA's.
HENRY LEWIS III
Dr. Lewis, 54, has been a director since July 1, 2003. Since 1994, he has
served as Dean of the College of Pharmacy and Pharmaceutical Studies at
Florida A&M University.
NON-DIRECTOR EXECUTIVE OFFICER:
-------------------------------
J. KIMBROUGH DAVIS
Mr. Davis, 50, was appointed Executive Vice President and Chief Financial
Officer of Capital City in 1997. He served as Senior Vice President and
Chief Financial Officer from 1991 to 1997. In 1998, he was appointed
Executive Vice President and Chief Financial Officer of Capital City Bank.
FINANCIAL INFORMATION
Pro Forma Consolidated Statements of Income
The following unaudited pro forma consolidated statements of income have
been prepared for (i) the six months ended June 30, 2004, and give effect to
the merger, assuming the merger is accounted for as a purchase and occurred
at the beginning of the period and (ii) for the year ended December 31, 2003
and give effect to the merger, assuming the merger is accounted for as a
purchase and occurred at the beginning of the period. The unaudited pro
forma consolidated statements of income should be read in conjunction with
the notes thereto and the historical consolidated financial statements of
Capital City, including the notes thereto, which are incorporated by
reference in this Proxy Statement/Prospectus. See "WHERE YOU CAN FIND MORE
INFORMATION ABOUT CAPITAL CITY," on page 1, "SUMMARY - Historical and Pro
Forma Comparative Per Share Data," on page 15, and "- Selected Financial
Data," on page 14. The pro forma combined condensed statements of income are
not necessarily indicative of the results that actually would have occurred
if the merger had been consummated at the dates indicated or which may be
obtained in the future.
-103-
Capital City Bank Group, Inc.
Pro Forma Consolidated Statements of Income for the Six Months Ended June 30, 2004
(unaudited)
Farmers and
(Dollars in thousands, except per share data) Capital City Merchants Adjustments Consolidated
---------------- -------------- ---------------- ----------------
Short-Term Investments $339 $27 $-33 (A) $333
Investment Securities 2,402 2,225 -791 (A) 3,836
Loan Income & Fees 44,194 8,922 0 53,116
---------------- -------------- ---------------- ----------------
TOTAL INTEREST INCOME $46,935 $11,174 $-824 $57,285
INTEREST EXPENSE
Interest on Deposits $4,779 $2,590 $0 $7,369
Short-Term Borrowings 536 62 0 598
Long-Term Debt 1,084 374 591 (B) 2,049
---------------- -------------- ---------------- ----------------
TOTAL INTEREST EXPENSE $6,399 $3,026 $591 $10,016
NET INTEREST INCOME $40,536 $8,148 $-1,415 $47,269
PROVISION FOR LOAN LOSSES $1,541 $150 $0 $1,691
NONINTEREST INCOME
Service Charges $8,371 $657 $0 $9,028
Data Processing 1,336 0 0 1,336
Trust 1,691 0 0 1,691
Gain (Loss) on Sale of Investments 19 38 0 57
Gain on the Sale of RE Loans 1,680 0 0 1,680
Other 7,815 318 0 8,133
---------------- -------------- ---------------- ----------------
TOTAL NONINTEREST INCOME $20,912 $1,013 $0 $21,925
OPERATING REVENUES $61,448 $9,161 $-1,415 $69,194
NONINTEREST EXPENSE
Compensation $21,549 $1,668 $0 $23,217
Occupancy 3,366 204 12 (C ) 3,582
FF&E 4,040 231 0 4,271
---------------- -------------- ---------------- ----------------
Total Occupancy and FF&E $7,406 $435 $12 $7,853
Merger 46 0 0 46
Intangible Amortization 1,752 0 902 (D) 2,654
Other 11,923 1,140 0 13,063
---------------- -------------- ---------------- ----------------
TOTAL NONINTEREST EXPENSE $42,676 $3,243 $914 $46,833
OPERATING PROFIT $17,231 $5,768 $-2,329 $20,670
Provision For Income Taxes $5,941 $0 $1,327 (E) $7,268
---------------- -------------- ---------------- ----------------
NET INCOME BEFORE MERGER EXPENSES $11,290 $5,768 $-3,656 $13,402
================ ============== ================ ================
Earnings Per Share:
Basic $0.85 $0.95
Diluted $0.85 $0.95
Basic Shares Outstanding 13,275 877 14,152(*)
Diluted Shares Outstanding 13,277 877 14,154(*)
-----------------------------------------
(*) Assumes a merger conversion ratio of 17.54 Capital City shares per Farmers and Merchants share.
-104-
Footnotes:
(A) Reduction in Farmers and Merchants Bank interest income primarily resulting from reduced federal
funds sold ("FFS") and investment securities used to fund distribution to Farmers and Merchants
shareowners prior to merger as determined below:
Total Total
Assumed
Amount Yield (Per Year) Six Month
----------------------------------------------- ----------------
Reduction in FFS $ (7,000) 0.96% $ (67) $ (33)
Reduction in Securities $ (32,260) 4.93% $ (1,591) $ (791)
--------------- ---------------- ----------------
Net Change in Cash $ (39,260) $ (1,658) $ (824)
(B) Capital City will fund the cash portion of the purchase price through
FHLB advances and its line of credit with a bank resulting in increased
long-term debt interest expense as follows:
Total Total
Amount Rates Total Six Month
----------------------------------------------- ----------------
FHLB $ 25,000 4.03% $ 1,008 $ 501
SunTrust LOC $ 10,325 1.75% $ 181 $ 90
--------------- ---------------- ----------------
Net Change in Cash $ 35,325 $ 1,189 $ 591
(C) Represents additional depreciation resulting from purchase accounting adjustments to
record buildings acquired at fair value:
Life Total Total
Amount (In Years) Per Year Six Month
----------------------------------------------- ----------------
Buildings $ 625 25 $ 25 $ 12
(D) Represents amortization of identifiable intangible assets recorded in the acquisition
Life Total Total
Amount (In Years) Per Year Six Month
----------------------------------------------- ----------------
Non-competes $ 1,000 2 $ 500 $ 249
Core Deposit Intangibles (3% of
Total Deposits) $ 9,200 7 $ 1,314 $ 653
Goodwill $ 27,825 $ - $ -
--------------- 0 ---------------- ----------------
Total Intangibles $ 38,025 $ 1,814 $ 902
(E) Represents income tax effect of pro forma adjustments:
12/31/2003 6/30/2004
---------- ----------
Farmers & Merchants pretax income $ 11,347 $ 5,768
Merger Adjustments $ (4,686) $ (2,329)
Total $ 6,661 $ 3,439
Assumed marginal tax rate 38.60% 38.60%
---------- ----------
Total Tax Provision $ 2,571 $ 1,327
========== ==========
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Capital City Bank Group, Inc.
Pro Forma Consolidated Statements of Income for the Twelve Months Ended December 31, 2003
(unaudited)
Farmers and
(Dollars in thousands, except per share data) Capital City Merchants Adjustments Consolidated
---------------- -------------- ---------------- ----------------
Short-Term Investments $1,261 $51 $-67 (A) $1,245
Investment Securities 6,135 4,761 -1,591 (A) 9,305
Loan Income & Fees 87,434 18,410 0 105,844
---------------- -------------- ---------------- ----------------
TOTAL INTEREST INCOME $94,830 $23,222 $-1,658 $116,394
INTEREST EXPENSE
Interest on Deposits $11,567 $5,819 $0 $17,386
Short-Term Borrowings 1,270 170 0 1,440
Long-Term Debt 2,002 747 1,189 (B) 3,938
---------------- -------------- ---------------- ----------------
TOTAL INTEREST EXPENSE $14,839 $6,736 $1,189 $22,764
NET INTEREST INCOME $79,991 $16,486 $-2,847 $93,630
PROVISION FOR LOAN LOSSES $3,436 $450 $0 $3,886
NONINTEREST INCOME
Service Charges $16,319 $1,476 $0 $17,795
Data Processing 2,403 0 0 2,403
Trust 2,650 0 0 2,650
Gain (Loss) on Sale of Investments 1 0 0 1
Gain on the Sale of RE Loans 6,090 0 0 6,090
Other 14,476 615 0 15,091
---------------- -------------- ---------------- ----------------
TOTAL NONINTEREST INCOME $41,939 $2,091 $0 $44,030
OPERATING REVENUES $121,930 $18,577 $-2,847 $137,660
NONINTEREST EXPENSE
Compensation $40,462 $3,666 $0 $44,128
Occupancy 5,972 417 25 (C ) 6,414
FF&E 7,840 467 0 8,307
---------------- -------------- ---------------- ----------------
Total Occupancy and FF&E $13,812 $884 $25 $14,721
Merger 0 0 0 0
Intangible Amortization 3,241 0 1,814 (D) 5,055
Other 22,206 2,230 0 24,436
---------------- -------------- ---------------- ----------------
TOTAL NONINTEREST EXPENSE $79,721 $6,780 $1,839 $88,340
OPERATING PROFIT $38,773 $11,347 $-4,686 $45,434
Provision For Income Taxes $13,580 $0 $2,571 (E) $16,151
---------------- -------------- ---------------- ----------------
NET INCOME BEFORE MERGER EXPENSES $25,193 $11,347 $-7,257 $29,283
================ ============== ================ ================
Earnings Per Share:
Basic $1.91 $2.08
Diluted $1.90 $2.07
Basic Shares Outstanding 13,222 877 14,099(*)
Diluted Shares Outstanding 13,251 877 14,128(*)
-----------------------------------------
(*) Assumes a merger conversion ratio of 17.54 Capital City shares per Farmers and Merchants share.
-106-
Footnotes:
(A) Reduction in Farmers and Merchants Bank interest income primarily resulting from reduced federal
funds sold ("FFS") and investment securities used to fund distribution to Farmers and Merchants
shareowners prior to merger as determined below:
Total Total
Assumed
Amount Yield (Per Year) Six Month
----------------------------------------------- ----------------
Reduction in FFS $ (7,000) 0.96% $ (67) $ (33)
Reduction in Securities $ (32,260) 4.93% $ (1,591) $ (791)
--------------- ---------------- ----------------
Net Change in Cash $ (39,260) $ (1,658) $ (824)
(B) Capital City will fund the cash portion of the purchase price through
FHLB advances and its line of credit with a bank resulting in increased
long-term debt interest expense as follows:
Total Total
Amount Rates Total Six Month
----------------------------------------------- ----------------
FHLB $ 25,000 4.03% $ 1,008 $ 501
SunTrust LOC $ 10,325 1.75% $ 181 $ 90
--------------- ---------------- ----------------
Net Change in Cash $ 35,325 $ 1,189 $ 591
(C) Represents additional depreciation resulting from purchase accounting adjustments to
record buildings acquired at fair value:
Life Total Total
Amount (In Years) Per Year Six Month
----------------------------------------------- ----------------
Buildings $ 625 25 $ 25 $ 12
(D) Represents amortization of identifiable intangible assets recorded in the acquisition
Life Total Total
Amount (In Years) Per Year Six Month
----------------------------------------------- ----------------
Non-competes $ 1,000 2 $ 500 $ 249
Core Deposit Intangibles (3% of
Total Deposits) $ 9,200 7 $ 1,314 $ 653
Goodwill $ 27,825 $ - $ -
--------------- 0 ---------------- ----------------
Total Intangibles $ 38,025 $ 1,814 $ 902
(E) Represents income tax effect of pro forma adjustments:
12/31/2003 6/30/2004
---------- ----------
Farmers & Merchants pretax income $ 11,347 $ 5,768
Merger Adjustments $ (4,686) $ (2,329)
Total $ 6,661 $ 3,439
Assumed marginal tax rate 38.60% 38.60%
---------- ----------
Total Tax Provision $ 2,571 $ 1,327
========== ==========
-107-
0.0
Pro Forma Consolidated Balance Sheet
The following unaudited pro forma consolidated balance sheet presents
the historical unaudited consolidated balance sheets of Capital City and
Farmers and Merchants at June 30, 2004, giving effect to the merger, assuming
the merger is accounted for as a purchase and had occurred on June 30, 2004.
The unaudited pro forma consolidated balance sheet should be read in
conjunction with the notes thereto and the historical consolidated financial
statements of Capital City, including the notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus. See "WHERE YOU
CAN FIND MORE INFORMATION ABOUT CAPITAL CITY," on page 1, "SUMMARY -
Historical and Pro Forma Comparative Per Share Data," on page 15, and "-
Selected Financial Data," on page 14. The pro forma consolidated balance
sheet is not necessarily indicative of the consolidated financial position
that actually would have occurred if the merger had been consummated at the
date indicated or which may be obtained in the future.
-108-
Capital City Bank Group, Inc.
Pro Forma Consolidated Statement of Condition at June 30, 2004
(unaudited)
Farmers and
(Dollars in thousands, except per share data) Capital City Merchants Adjustments Consolidated
---------------- -------------- ---------------- ----------------
ASSETS:
Short-Term Investments $ 107,399 $ 7,000 $ -7,000 (A) $ 107,399
Investment Securities - AFS 183,732 105,291 -30,713 (A) 258,310
Investment Securities - HTM 0 1,547 -1,547 (A) 0
---------------- -------------- ---------------- ----------------
Total Investment Securities 183,732 106,838 -32,260 258,310
Loans, Net of Unearned Interest 1,521,497 275,598 0 1,797,095
Earning Assets 1,812,628 389,436 -39,260 2,162,804
Cash and Due From Banks 97,154 9,508 0 106,662
Bank Premises and FF&E 56,263 3,859 625 (C) 60,747
Other Real Estate Owned 1,064 60 0 1,124
Intangible Assets 40,608 0 38,025 (D) 78,633
Other 32,770 4,628 0 37,398
Reserve For Loan Loss -13,657 -4,121 0 -17,778
---------------- -------------- ---------------- ----------------
Total Other Assets 214,202 13,934 38,650 266,786
TOTAL ASSETS $ 2,026,830 $ 403,370 $ -610 $ 2,429,590
================ ============== ================ ================
LIABILITIES
Noninterest Bearing DDA 520,118 32,397 0 552,515
Interest Bearing 1,092,618 272,827 0 1,365,445
---------------- -------------- ---------------- ----------------
Total Deposits 1,612,736 305,224 0 1,917,960
Short-Term Borrowings 127,012 5,124 0 132,136
Long-Term Debt 58,427 22,562 35,325 (B) 116,314
Other Liabilities 18,934 1,200 0 20,134
TOTAL LIABILITIES 1,817,109 334,110 35,325 2,186,544
SHAREOWNERS' EQUITY
Common Stock 133 1,000 -991 (E) 142
Surplus 17,922 9,000 24,316 (E) 51,238
Other Comprehensive Gain/Loss 21 -28 28 (E) 21
Retained Earnings 191,645 59,288 -59,288 (E) 191,645
---------------- -------------- ---------------- ----------------
TOTAL SHAREOWNERS' EQUITY 209,721 69,260 -35,935 243,046
TOTAL LIABILITIES &
SHAREOWNERS' EQUITY $ 2,026,830 $ 403,370 $ -610 $ 2,429,590
================ ============== ================ ================
Footnotes:
(A) Represents liquidation of Farmers and Merchants Federal Funds Sold and Investment Securities
to be used to fund distribution to Farmers and Merchants shareowners prior to merger, including
a reclassification of held-to-maturity securities to available-for-securities as follows:
Amount
-----------
Federal Funds Sold $ (7,000)
Investment Securities $ (32,260)
-----------
Total $ (39,260)
(B) Debt to be incurred to fund the cash portion of the purchase price through FHLB advances
and line of credit with a bank as follows:
Amount
-----------
FHLB $ 25,000
Bank line of credit $ 10,325
-----------
Total $ 35,325
(C) Represents purchase accounting adjustments to record buildings acquired
at fair market value as follows:
Amount
-----------
Buildings $ 625
(D) Represents purchase accounting adjustments to record identifiable
intangible assets in connection with the acquisition as follows:
Life
Amount (in Years)
----------- ------------
Non-competes $ 1,000 2
Core Deposit Intangibles (3% of $ 9,200 7
Total Deposits)
Goodwill $ 27,825 0
-----------
Total Intangibles $ 38,025
(E) Represents equity transactions involved in the merger as well as elimination
entries for consolidation as follows:
Issue Total
Beginning Capital City Pro Forma
Balance Elimination Stock Adjustments
--------------------------------------- ------------
Common Stock $ 1,000 $ (1,000) $ 9 $ (991)
Surplus $ 9,000 $ (9,000) $ 33,316 $ 24,316
Other Comprehensive Loss $ (28) $ 28 $ - $ 28
Retained Earnings $ 59,288 $ (59,288) $ - $ (59,288)
-110-
Farmers and Merchants Bank Supplemental Financial Information
(unaudited)
Quarterly Financial Data
(dollars in thousands, except per
share data)
2004 2003
----------------------- -------------------------------------------------
Second First Fourth Third Second First
Summary of Operations:
Interest Income $5,614 $5,560 $5,768 $5,752 $5,817 $5,885
Interest Expense 1,515 1,511 1,525 1,603 1,766 1,842
Net Interest Income 4,099 4,049 4,243 4,149 4,051 4,043
Provision for Loan Loss 150 0 0 150 150 150
Net Interest Income
After Provisions for Loan Loss 3,949 4,049 4,243 3,999 3,901 3,893
Noninterest Income 548 465 439 519 687 446
Merger Expense
Noninterest Expense 1,627 1,616 2,029 1,553 1,602 1,596
Income Before
Provision for Income Taxes 2,870 2,898 2,653 2,965 2,986 2,743
Net Income 2,870 2,898 2,653 2,965 2,986 2,743
Per Common Share:
Net Income Basic $57.40 $57.96 $53.06 $59.30 $59.72 $54.86
Net Income Diluted 57.40 57.96 53.06 59.30 59.72 54.86
Dividends Declared 33.50 33.50 62.00 30.50 30.50 30.50
Book Value 1,385.20 1,417.84 1,386.44 1,399.12 1,401.82 1,359.46
Selected Average Balances:
Total Assets $404,055 $402,496 $391,076 $387,909 $386,979 $386,569
Earning Assets 390,287 383,496 372,825 370,182 368,002 367,313
Loans 277,683 265,202 260,603 258,708 250,753 247,125
Total Deposits 306,094 299,682 290,650 285,820 285,805 284,461
Total Shareowners' Equity 66,869 70,107 69,639 70,024 68,379 67,525
Common Equivalent Shares:
Basic 1,337.38 1,402.14 1,392.78 1,400.48 1,367.58 1,350.48
Diluted 1,337.38 1,402.14 1,392.78 1,400.48 1,367.58 1,350.48
Ratios:
ROA 2.87% 2.88% 2.71% 3.06% 2.96% 2.84%
ROE 17.25% 16.53% 15.24% 16.94% 16.76% 16.25%
Net Interest Margin 3.84% 4.22% 4.48% 4.41% 4.41% 4.37%
Efficiency Ratio 39.40% 35.82% 43.34% 33.27% 34.72% 35.55%
-111-
Quarterly Financial Data
(dollars in thousands, except per
share data)
2002
Fourth Third Second First
Summary of Operations:
Interest Income $6,155 $6,462 $6,362 $6,201
Interest Expense 1,956 2,080 2,119 2,308
Net Interest Income 4,199 4,382 4,243 3,893
Provision for Loan Loss 100 600 100 100
Net Interest Income
After Provisions for Loan Loss 4,099 3,782 4,143 3,793
Noninterest Income 489 518 453 460
Merger Expense
Noninterest Expense 1,889 1,445 1,526 1,621
Income Before
Provision for Income Taxes 2,699 2,855 3,079 2,632
Net Income 2,699 2,855 3,079 2,632
Per Common Share:
Net Income Basic $53.98 $57.10 $61.58 $52.64
Net Income Diluted 53.98 57.10 61.58 52.64
Dividends Declared 40.00 30.50 30.50 30.50
Book Value 1,341.48 1,325.56 1,276.24 1,201.00
Selected Average Balances:
Total Assets $382,323 $380,220 $369,296 $359,237
Earning Assets 363,224 362,306 352,193 342,068
Loans 243,858 240,850 231,815 225,771
Total Deposits 282,133 282,096 279,212 273,819
Total Shareowners' Equity 66,676 65,045 61,931 59,800
Common Equivalent Shares:
Basic 1,333.52 1,300.90 1,238.62 1,196.00
Diluted 1,333.52 1,300.90 1,238.62 1,196.00
Ratios:
ROA 2.82% 3.00% 3.33% 2.93%
ROE 16.19% 17.56% 19.89% 17.61%
Net Interest Margin 4.62% 4.84% 4.82% 4.55%
Efficiency Ratio 40.29% 29.49% 32.50% 37.24%
SHAREOWNER PROPOSALS
Shareowner proposals that are to be included in the Capital City proxy
statement for the 2005 annual meeting of shareowners must be received by
December 3, 2004. Shareowner proposals for the 2005 annual meeting that are
not intended to be included in the proxy statement for that meeting must be
received by February 18, 2005 or the Board of Directors can vote the proxies
in its discretion on the proposal. Proposals must comply with the proxy
rules and be submitted in writing to: J. Kimbrough Davis, Corporate
Secretary, Capital City Bank Group, Inc., 217 North Monroe Street,
Tallahassee, Florida 32301.
EXPERTS
The consolidated financial statements of Capital City Bank Group, Inc.
and subsidiary (the "Company") as of December 31, 2003 and 2002, and for the
years then ended, have been incorporated by reference herein in reliance upon
the report of KPMG LLP, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The audit report covering the consolidated financial statements refers
to the Company's change in method of recording stock-based compensation in
2003 and a change in method of accounting for goodwill and other intangible
assets in 2002. The audit report also refers to KPMG LLP's audit of the
transitional disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, to revise the 2001
consolidated financial statements, as more fully described in Note 6 to the
consolidated financial statements. However, KPMG LLP was not engaged to
audit, review, or apply any procedures to the 2001 consolidated financial
statements other than with respect to such disclosures.
The audited financial statements of Farmers and Merchants as of and for
the years ended December 31, 2003 and 2002 included with this Proxy
Statement/Prospectus as Exhibit C have been audited by Nichols, Cauley &
Associates, LLC, independent certified public accountants, as indicated
herein in reliance upon the authority of said firm as experts in giving said
reports.
LEGAL MATTERS
The legality of the shares of Capital City common stock to be issued in
the merger and certain tax consequences of the merger will be passed upon by
Gunster, Yoakley & Stewart P.A., Ft. Lauderdale, Florida.
OTHER MATTERS
Management of Farmers and Merchants does not know of any matters to be
brought before the Special Meeting other than those described above. If any
other matters properly come before the Special Meeting, the persons
designated as Proxies will vote on such matters in accordance with their best
judgment.
-113-
Appendix A
AGREEMENT AND PLAN OF MERGER BY AND AMONG CAPITAL CITY BANK GROUP, INC.,
CAPITAL CITY BANK AND FARMER'S AND MERCHANTS BANK, DATED AS OF MAY 12, 2004
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CAPITAL CITY BANK GROUP, INC.,
CAPITAL CITY BANK
AND
FARMERS AND MERCHANTS BANK
Dated as of May 12, 2004
TABLE OF CONTENTS
Page
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGERS
1.1 BANK MERGER 1
1.2 ASSUMPTION OF DEPOSIT LIABILITIES 2
1.3 HOLDING COMPANY MERGER 2
1.4 TRANSFER OF BANK ASSETS AND LIABILITIES TO CCB 2
1.5 TIME AND PLACE OF CLOSING 2
1.6 EFFECTIVE TIME 2
1.7 ARTICLES OF INCORPORATION 3
1.8 BYLAWS 3
1.9 DIRECTORS AND OFFICERS 3
ARTICLE 2 - MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES 3
2.2 ANTI-DILUTION PROVISIONS 4
2.3 SHARES HELD BY FMB SHAREHOLDERS OR CCBG 4
2.4 DISSENTING SHAREHOLDERS 4
2.5 FRACTIONAL SHARES 5
ARTICLE 3 - EXCHANGE OF SHARES
3.1 EXCHANGE PROCEDURES 5
3.2 RIGHTS OF FORMER FMB SHAREHOLDERS 6
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF FMB
4.1 ORGANIZATION, STANDING, AND POWER 6
4.2 AUTHORITY OF FMB; NO BREACH BY AGREEMENT 7
4.3 CAPITAL STOCK 8
4.4 INVESTMENTS; NO SUBSIDIARIES 8
4.5 FINANCIAL STATEMENTS 8
4.6 ABSENCE OF UNDISCLOSED LIABILITIES 8
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS 9
4.8 TAX MATTERS 9
4.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES 12
4.10 ASSETS 12
4.11 INTELLECTUAL PROPERTY 13
i
TABLE OF CONTENTS
(continued)
Page
4.12 ENVIRONMENTAL MATTERS. 14
4.13 COMPLIANCE WITH LAWS 15
4.14 LABOR RELATIONS 16
4.15 EMPLOYEE BENEFIT PLANS 16
4.16 MATERIAL CONTRACTS 20
4.17 LEGAL PROCEEDINGS 20
4.18 REPORTS 21
4.19 STATEMENTS TRUE AND CORRECT 21
4.20 OPINION OF FINANCIAL ADVISOR 22
4.21 BOARD RECOMMENDATION 22
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CCBG
5.1 ORGANIZATION, STANDING, AND POWER 22
5.2 AUTHORITY OF CCBG; NO BREACH BY AGREEMENT 22
5.3 CAPITAL STOCK 23
5.4 CCBG SUBSIDIARIES 23
5.5 SEC FILINGS; FINANCIAL STATEMENTS 24
5.6 ABSENCE OF UNDISCLOSED LIABILITIES 24
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS 25
5.8 ALLOWANCE FOR POSSIBLE LOAN LOSSES 25
5.9 INTELLECTUAL PROPERTY 25
5.10 COMPLIANCE WITH LAWS 26
5.11 LEGAL PROCEEDINGS 26
5.12 REPORTS 27
5.13 STATEMENTS TRUE AND CORRECT 27
5.14 ACCOUNTING, TAX AND REGULATORY MATTERS 27
ARTICLE 6 - CONDUCT OF BUSINESS PENDING CONSUMMATION
6.1 AFFIRMATIVE COVENANTS OF FMB 28
6.2 NEGATIVE COVENANTS OF FMB 28
6.3 COVENANTS OF CCBG 30
6.4 ADVERSE CHANGES IN CONDITION 31
6.5 REPORTS 31
ii
TABLE OF CONTENTS
(continued)
Page
6.6 TAXES 32
ARTICLE 7 - ADDITIONAL AGREEMENTS
7.1 REGISTRATION STATEMENT; PROXY STATEMENT;
SHAREHOLDER APPROVAL 35
7.2 NASDAQ LISTING 35
7.3 APPLICATIONS 35
7.4 FILINGS WITH STATE OFFICES 35
7.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE 36
7.6 INVESTIGATION AND CONFIDENTIALITY 36
7.7 PRESS RELEASES 37
7.8 CERTAIN ACTIONS 38
7.9 ACCOUNTING AND TAX TREATMENT 38
7.10 STATE TAKEOVER LAWS 38
7.11 CHARTER PROVISIONS 38
7.12 FMB MEETINGS 39
7.13 AGREEMENT OF AFFILIATES 39
7.14 EMPLOYEE BENEFITS AND CONTRACTS 39
7.15 INDEMNIFICATION 41
7.16 CERTAIN POLICIES OF FMB 43
7.17 DIRECTOR'S AGREEMENTS 43
7.18 PAYMENT OF BONUSES 43
7.19 REAL PROPERTY MATTERS 43
7.20 FAIRNESS OPINION 44
7.21 FORMATION OF INTERIM GEORGIA BANK SUBSIDIARY 44
ARTICLE 8 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY 45
8.2 CONDITIONS TO OBLIGATIONS OF CCBG 46
8.3 CONDITIONS TO OBLIGATIONS OF FMB 47
ARTICLE 9 - TERMINATION
9.1 TERMINATION 48
9.2 EFFECT OF TERMINATION 50
iii
TABLE OF CONTENTS
(continued)
Page
9.3 ALTERNATE TRANSACTION 50
9.4 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS 50
ARTICLE 10 - MISCELLANEOUS
10.1 DEFINITIONS 50
10.2 EXPENSES 60
10.3 BROKERS AND FINDERS 60
10.4 ENTIRE AGREEMENT 60
10.5 AMENDMENTS 60
10.6 WAIVERS 61
10.7 ASSIGNMENT 61
10.8 NOTICES 61
10.9 GOVERNING LAW 62
10.10 COUNTERPARTS 62
10.11 CAPTIONS; ARTICLES AND SECTIONS 62
10.12 INTERPRETATIONS 63
10.13 ENFORCEMENT OF AGREEMENT 63
10.14 ENFORCEMENT COSTS 63
10.15 SEVERABILITY 63
iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of May __, 2004, by and among CAPITAL CITY BANK GROUP, INC., a
Florida corporation ("CCBG"), CAPITAL CITY BANK, a Florida chartered
commercial bank ("CCB"), and FARMERS AND MERCHANTS BANK, a Georgia chartered
commercial bank ("FMB").
PREAMBLE
The respective Boards of Directors of FMB, CCB, and CCBG are of the
opinion that the transactions described herein are in the best interests of
the parties to this Agreement and their respective shareholders. This
Agreement provides for CCBG to acquire FMB by merging a to-be-formed Georgia
chartered, interim banking subsidiary of CCBG ("Interim") with and into FMB
with FMB surviving and being the resulting bank (the "Bank Merger").
Immediately following the Bank Merger, the deposit liabilities of FMB shall
be assumed by CCB. Immediately thereafter, FMB will merge with and into CCBG
with CCBG being the resulting corporation (the "Holding Company Merger")
(collectively, the "Mergers"). Immediately following the Holding Company
Merger, CCBG shall transfer the assets and remaining liabilities of FMB to
CCB. At the effective time of the Mergers, the outstanding shares of the
capital stock of FMB shall be converted into the right to receive a
combination of shares of the common stock of CCBG and cash as described in
this Agreement. As a result, shareholders of FMB shall become shareholders
of CCBG, and CCBG and CCB shall conduct the business and operations of FMB.
The transactions described in this Agreement are subject to the approvals of
the shareholders of FMB and CCB, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Florida
Department of Financial Services, the Florida Secretary of State, and the
Georgia Department of Banking and Finance, and the satisfaction of certain
other conditions described in this Agreement. It is the intention of the
parties to this Agreement that the Mergers collectively shall qualify as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code.
Certain terms used in this Agreement are defined in Section 10.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties,
intending to be legally bound, agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGERS
1.1 BANK MERGER.
----------- Subject to the terms and conditions of this
Agreement, at the Effective Time, Interim shall be merged with and into FMB
in accordance with the
1
provisions of, and with the effect provided in, Sections 7-1-530 et seq. of
the OCGA on terms and subject to the provisions of the Bank Plan of Merger
("Bank Plan"), attached hereto as Exhibit 1. FMB shall be the Surviving Bank
resulting from the Bank Merger and shall continue to be governed by the Laws
of the State of Georgia. The Bank Merger shall be consummated pursuant to
the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of FMB, Interim, and CCB.
1.2 ASSUMPTION OF DEPOSIT LIABILITIES.
---------------------------------
Immediately following the consummation of the Bank Merger, and without
any action on the part of FMB, the Surviving Bank shall transfer and CCB
shall assume the following liabilities (the "Deposit Liabilities"):
(a) the Deposits and all terms and agreements relating to the
Deposit Accounts;
(b) the Surviving Bank's duties and responsibilities relating to
the Deposits with respect to: (i) the abandoned property laws of any state,
(ii) any legal process which is served on FMB on or before the Closing Date
with respect to claims against or for the Deposits; or (iii) any other
applicable law.
1.3 HOLDING COMPANY MERGER.
---------------------- Following the consummation of the Bank
Merger and immediately after the assumption of the Deposit Liabilities as set
forth in Section 1.2, the Surviving Bank shall be merged with and into CCBG
in accordance with the provisions of and with the effect provided in Section
607.1108 of the FBCA and Sections 14-2-1101 et seq. of the OCGA. CCBG shall
be the Surviving Corporation resulting from the Holding Company Merger and
shall continue to be a corporation governed by the laws of the State of
Florida.
1.4 TRANSFER OF BANK ASSETS AND LIABILITIES TO CCB.
---------------------------------------------- Immediately
following the Holding Company Merger, and without any action on the part of
FMB or the Surviving Bank, the Surviving Corporation will transfer to CCB all
assets and liabilities that were on the books of the Surviving Bank
immediately before the Holding Company Merger (after taking into account the
transfer of the Surviving Bank's Deposit Liabilities to CCB pursuant to
Section 1.2).
1.5 TIME AND PLACE OF CLOSING.
------------------------- The closing of the transactions
contemplated hereby (the "Closing") will take place at the close of business
on the date that the Effective Time occurs (or the immediately preceding day
if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their authorized officers, may mutually agree.
The Closing shall be held at such location as may be mutually agreed upon by
the Parties or may be conducted by mail or telefax as may be mutually agreed
upon by the Parties.
1.6 EFFECTIVE TIME.
-------------- The Bank Merger shall become effective as of the
date and at the time specified in the Bank Plan (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the authorized officers of each Party, the Parties shall
use their reasonable efforts to cause
2
the Effective Time to occur within 60 days after the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Mergers, and (ii) the date on which the
shareholders of FMB and CCB approve this Agreement to the extent such
approval is required by applicable Law. The actual Effective Time within the
60-day period shall be mutually agreed upon by CCBG and FMB.
1.7 ARTICLES OF INCORPORATION.
------------------------- The Articles of Incorporation of CCBG
in effect immediately prior to the Holding Company Merger shall be the
Articles of Incorporation of the Surviving Corporation until duly amended or
repealed.
1.8 BYLAWS.
------ The Bylaws of CCBG in effect immediately prior to the
Holding Company Merger shall be the Bylaws of the Surviving Corporation until
duly amended or repealed.
1.9 DIRECTORS AND OFFICERS.
---------------------- With the addition of McGrath Keen, Jr.,
the directors of CCBG in office immediately prior to the Holding Company
Merger, together with such other persons as may thereafter be elected or
appointed, shall serve as the directors of the Surviving Corporation from and
after the Holding Company Merger in accordance with the Bylaws of the
Surviving Corporation. The officers of CCBG in office immediately prior to
the Holding Company Merger, together with such additional persons as may
thereafter be elected, shall serve as the officers of the Surviving
Corporation from and after the Holding Company Merger in accordance with the
Bylaws of the Surviving Corporation.
ARTICLE 2
MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES.
-------------------- Subject to the provisions of this Article
2, at the Effective Time, by virtue of the Mergers and without any action on
the part of CCBG, CCB, FMB, or Interim or the shareholders of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of capital stock of CCBG issued and outstanding
immediately prior to the Holding Company Merger shall remain issued and
outstanding from and after the Holding Company Merger.
(b) Each share of FMB Common Stock, excluding shares held by FMB
or any CCBG Entity, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, and excluding shares held by
shareholders who perfect their statutory dissenters' rights as provided in
Section 2.4, issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for
the right to receive:
3
(1) that multiple of a share of CCBG Common Stock (the "CCBG
Stock Multiple") equal to the quotient obtained by dividing (i) $666.50 by
(ii) the Average Closing Price; provided that for purposes of this
calculation the Average Closing Price shall be deemed to equal (x) $38.00, in
the event the Average Closing Price is less than $38.00, and (y) $45.00, in
the event the Average Closing Price is greater than $45.00 (the "Share
Exchange Ratio"); and
(2) $666.50 in cash (the "Cash Exchange Ratio") (together
with the Share Exchange Ratio, the "Exchange Ratio").
(c) Each share of capital stock of CCB issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(d) Each share of capital stock of Interim issued and outstanding
immediately prior to the Holding Company Merger shall cease to be outstanding
and shall be extinguished from and after the consummation of the Holding
Company Merger.
2.2 ANTI-DILUTION PROVISIONS.
------------------------ In the event CCBG changes the number of
shares of CCBG 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 CCBG Common Stock and the record date
therefor (in the case of a stock dividend) or the effective date thereof (in
the case of a stock split or similar recapitalization for which a record date
is not established) shall be prior to the Effective Time, the Exchange Ratio
shall be proportionately adjusted.
2.3 SHARES HELD BY FMB SHAREHOLDERS OR CCBG.
--------------------------------------- Each of the shares of
FMB Common Stock held by FMB or any CCBG Entity, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be
issued in exchange therefor.
2.4 DISSENTING SHAREHOLDERS.
----------------------- Any holder of shares of FMB Common Stock
who perfects his or her dissenters' rights in accordance with and as
contemplated by Section 14-2-1301 et seq. of the OCGA shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of the OCGA and surrendered to FMB
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting
shareholder of FMB fails to perfect, or effectively withdraws or loses, his
or her right to appraisal and of payment for his or her shares subject to
CCBG's consent in its sole discretion, CCBG shall issue and deliver the
consideration to which such holder of shares of FMB Common Stock is entitled
under this Article 2 (without interest) upon surrender by such holder of the
certificate or certificates representing shares of FMB Common Stock held by
him or her.
4
2.5 FRACTIONAL SHARES.
----------------- Notwithstanding any other provision of this
Agreement, each holder of shares of FMB Common Stock exchanged pursuant to
the Mergers who would otherwise have been entitled to receive a fraction of a
share of CCBG Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of CCBG
Common Stock multiplied by the Average Closing Price. No such holder will be
entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
ARTICLE 3
EXCHANGE OF SHARES
3.1 EXCHANGE PROCEDURES.
------------------- Promptly after the Effective Time, CCBG and
FMB shall cause the exchange agent selected by CCBG (the "Exchange Agent") to
mail to each holder of record of a certificate or certificates which
represented shares of FMB Common Stock immediately prior to the Effective
Time (the "Certificates") appropriate transmittal materials and instructions
(which shall specify that delivery shall be effected, and risk of loss and
title to such Certificates shall pass, only upon proper delivery of such
Certificates to the Exchange Agent). The Certificate or Certificates of FMB
Common Stock so delivered shall be duly endorsed as the Exchange Agent may
require. In the event of a transfer of ownership of shares of FMB Common
Stock represented by Certificates that are not registered in the transfer
records of FMB, the consideration provided in Section 2.1 may be issued to a
transferee if the Certificates representing such shares are delivered to the
Exchange Agent, accompanied by all documents required to evidence such
transfer and by evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. If any Certificate shall
have been lost, stolen, mislaid or destroyed, upon receipt of (i) an
affidavit of that fact from the holder claiming such Certificate to be lost,
mislaid, stolen or destroyed, (ii) such bond, security or indemnity as CCBG
and the Exchange Agent may reasonably require and (iii) any other documents
necessary to evidence and effect the bona fide exchange thereof, the Exchange
Agent shall issue to such holder the consideration into which the shares
represented by such lost, stolen, mislaid or destroyed Certificate shall have
been converted. The Exchange Agent may establish such other reasonable and
customary rules and procedures in connection with its duties as it may deem
appropriate. After the Effective Time, CCBG shall promptly send holders of
FMB Common Stock a letter of transmittal, providing instructions regarding
the surrendering of their FMB Common Stock to the Exchange Agent. In
accordance with such instructions, each holder of shares of FMB Common Stock
(other than shares to be canceled pursuant to Section 2.3 or as to which
statutory dissenters' rights have been perfected as provided in Section 2.4)
issued and outstanding at the Effective Time shall surrender the Certificate
or Certificates representing such shares to the Exchange Agent and shall
promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 2.1, together with all undelivered
dividends or distributions in respect of such shares (without interest
thereon) pursuant to Section 3.2.
5
To the extent required by Section 2.5, each holder of shares of FMB Common
Stock issued and outstanding at the Effective Time also shall receive, upon
surrender of the Certificate or Certificates, cash in lieu of any fractional
share of CCBG Common Stock to which such holder may be otherwise entitled
(without interest). CCBG shall not be obligated to deliver the consideration
to which any former holder of FMB Common Stock is entitled as a result of the
Mergers until such holder surrenders such holder's Certificate or
Certificates for exchange as provided in this Section 3.1. Any other
provision of this Agreement notwithstanding, neither CCBG nor the Exchange
Agent shall be liable to a holder of FMB Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar Law. Adoption of this
Agreement by the shareholders of FMB shall constitute ratification of the
appointment of the Exchange Agent.
3.2 RIGHTS OF FORMER FMB SHAREHOLDERS.
--------------------------------- The stock transfer books of
FMB shall be closed as to holders of FMB Common Stock immediately prior to
the Effective Time and no transfer of FMB Common Stock by any such holder
shall thereafter be made or recognized. Until surrendered for exchange in
accordance with the provisions of Section 3.1, each Certificate theretofore
representing shares of FMB Common Stock (other than shares to be canceled
pursuant to Sections 2.3 and 2.4) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration
provided in Sections 2.1 and 2.5 in exchange therefor, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which have been
declared or made by FMB in respect of such shares of FMB Common Stock in
accordance with the terms of this Agreement and which remain unpaid at the
Effective Time. Whenever a dividend or other distribution is declared by
CCBG on the CCBG Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other
distributions on all shares of CCBG Common Stock issuable pursuant to this
Agreement. No dividend or other distribution payable to the holders of
record of CCBG Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any Certificate until such holder
surrenders such Certificate for exchange as provided in Section 3.1.
However, upon surrender of such Certificate, both the CCBG Common Stock
certificate (together with all such undelivered dividends or other
distributions, without interest) and any undelivered dividends and cash
payments payable hereunder (without interest) shall be delivered and paid
with respect to each share represented by such Certificate.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FMB
FMB hereby represents and warrants to CCBG as follows:
4.1 ORGANIZATION, STANDING, AND POWER.
--------------------------------- FMB is a state chartered bank
duly organized, validly existing, and in good standing under the Laws of the
State
6
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. FMB is
duly qualified or licensed to transact business in good standing in the
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, an FMB Material
Adverse Effect. The minute books and other organizational documents and
corporate records for FMB have been made available to CCBG for its review
and, except as disclosed in Section 4.1 of the FMB Disclosure Memorandum, are
true and complete in all material respects as in effect as of the date of
this Agreement and accurately reflect in all material respects all amendments
thereto and all proceedings of the Board of Directors and shareholders
thereof.
4.2 AUTHORITY OF FMB; NO BREACH BY AGREEMENT.
----------------------------------------
(a) FMB has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery,
and performance of this Agreement and the consummation of the transactions
contemplated herein, including the Mergers, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part
of FMB, subject to the approval of this Agreement by the holders of two-
thirds of the outstanding shares of FMB Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of
the Mergers by FMB. Subject to such requisite shareholder approval, this
Agreement represents a legal, valid, and binding obligation of FMB,
enforceable against FMB in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).
(b) Neither the execution and delivery of this Agreement by FMB,
nor the consummation by FMB of the transactions contemplated hereby, nor
compliance by FMB with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of FMB's Articles of Incorporation or
Bylaws or any resolution adopted by the board of directors or the
shareholders of FMB, or (ii) except as disclosed in Section 4.2 of the FMB
Disclosure Memorandum, constitute or result in a Default under, or require
any Consent pursuant to, or result in the creation of any Lien on any Asset
of FMB under, any Contract or Permit of FMB, where such Default or Lien, or
any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, an FMB Material Adverse Effect or where
such event would cause a breach hereof or a Default hereunder, or (iii)
subject to receipt of the requisite Consents referred to in Section 8.1(b),
constitute or result in a Default under, or require any Consent pursuant to,
any Law or Order applicable to FMB or its material Assets (including any CCBG
Entity or FMB becoming subject to or liable for the payment of any Tax on any
of the Assets owned by any CCBG Entity or FMB being reassessed or revalued by
any Taxing
7
authority), where such Default, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, an FMB Material
Adverse Effect or where such event would cause a breach hereof or a Default
hereunder.
(c) Except for the Consents referred to in Section 8.1(b), no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by FMB of the Mergers and the other
transactions contemplated in this Agreement.
4.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of FMB consists of 50,000 shares
of FMB Common Stock, of which 50,000 shares are issued and outstanding as of
the date of this Agreement and not more than 50,000 shares will be issued and
outstanding at the Effective Time. All of the issued and outstanding shares
of capital stock of FMB are duly and validly issued and outstanding and are
fully paid and nonassessable under the OCGA. None of the outstanding shares
of capital stock of FMB has been issued in violation of any preemptive rights
of the current or past shareholders of FMB.
(b) Except as set forth in Section 4.3(a), or as disclosed in
Section 4.3(b) of the FMB Disclosure Memorandum, there are no shares of
capital stock or other equity securities of FMB outstanding and no
outstanding Equity Rights relating to the capital stock of FMB.
4.4 INVESTMENTS; NO SUBSIDIARIES.
---------------------------- Except as set forth in Section 4.4
of the FMB Disclosure Memorandum, FMB does not own, directly or indirectly,
any shares of common stock of any corporation or any equity investment in any
partnership, association, or other business organization.
4.5 FINANCIAL STATEMENTS.
-------------------- Each of the FMB Financial Statements was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited interim statements, as disclosed in
Section 4.5 of the FMB Disclosure Memorandum), and fairly presents in all
material respects the financial position of FMB as at the respective dates
and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are
not expected to be material in amount or effect.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES.
---------------------------------- FMB has no Liabilities that
are reasonably likely to have, individually or in the aggregate, an FMB
Material Adverse Effect, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of FMB as of December 31, 2003,
included in the FMB Financial Statements delivered prior to the date of this
Agreement or reflected in the notes thereto. Except as set forth in Section
4.6 of the FMB Disclosure Memorandum, FMB has not incurred or paid any
Liability since December 31, 2003, except for such Liabilities incurred or
paid (i) in the ordinary course of business consistent with past
8
business practice or which are not reasonably likely to have, individually or
in the aggregate, an FMB Material Adverse Effect, or (ii) in connection with
the transactions contemplated by this Agreement.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.
------------------------------------ Since December 31, 2003,
except as disclosed in the FMB Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 4.7 of the FMB Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, an
FMB Material Adverse Effect, and (ii) FMB has 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
FMB provided in Article 6.
4.8 TAX MATTERS.
-----------
(a) Filing of Tax Returns. FMB has timely filed with the
appropriate taxing authorities all returns (including, without limitation,
information returns and other material information) in respect of Taxes
required to be filed through the date hereof. All such returns are, and the
information contained therein is, complete and accurate in all material
respects. Except as specified in Section 4.8(a) of the FMB Disclosure
Memorandum, FMB has not requested any extension of time within which to file
returns (including, without limitation, information returns) in respect of
any Taxes. FMB has made available to CCBG copies of such portions of the
federal, state, foreign and local income tax returns of FMB for the last four
years that relate to FMB.
(b) Payment of Taxes. All Taxes in respect of periods beginning
before the date hereof (i) if due and payable, have been timely paid, (ii) if
not yet due and payable, have an adequate reserve established therefor in
accordance with GAAP, as set forth in Section 4.8(b) of the FMB Disclosure
Memorandum, or (iii) are being contested in good faith by FMB pursuant to
appropriate proceedings which are being diligently pursued and an adequate
reserve therefor has been established in accordance with GAAP, as set forth
in Section 4.8(b) of the FMB Disclosure Memorandum. FMB does not have any
material liability for Taxes in excess of the amounts so paid or reserves so
established. FMB has, within the time and manner prescribed by applicable
law, rules and regulations, withheld and paid over to the proper taxing or
other governmental authorities all Taxes required to be withheld and paid
over. Except (i) acts, events or omissions that are ordinary business
activities, (ii) to the extent relating to income FMB receives after the
Closing, or (iii) as set forth in Section 4.8(b) of the FMB Disclosure
Memorandum, no acts, events or omissions have occurred on or before the
Closing Date that would result in material Taxes for which FMB is or may
become liable that will apply in a period or a portion thereof beginning on
or after the Closing Date.
(c) Audit History.
------------- Except as set forth in Section 4.8(c) of the
FMB Disclosure Memorandum, there are no deficiencies for Taxes claimed,
proposed or assessed that have not yet been fully and finally resolved and,
if such resolution
9
required payment of any Taxes, such payment has been made. Except as set
forth in Section 4.8(c) of the FMB Disclosure Memorandum, there are no
pending or, to the best of FMB's Knowledge, threatened audits, investigations
or claims for or relating to Taxes, and there are no matters under discussion
with any taxing or other governmental authority with respect to Taxes, in
each case, that, in the reasonable judgment of FMB or its tax advisers,
likely to result in a material additional amount of Taxes. Audits of
federal, state, foreign and local returns for Taxes of FMB by the relevant
taxing authorities have been completed for each period set forth in Section
4.8(c) of the FMB Disclosure Memorandum. Except as set forth in Section
4.8(c) of the FMB Disclosure Memorandum, no extension of a statute of
limitations relating to Taxes is in effect with respect to FMB.
(d) Tax Elections.
-------------
(1) All material elections with respect to Taxes affecting
FMB that are effective as of the date hereof are set forth in Section 4.8(d)
of the FMB Disclosure Memorandum. FMB elected to be subject to Subchapter S
of the Internal Revenue Code effective as July 1, 1998, and such election is
presently in effect.
(2) Except as set forth in Schedule 4.8(d) of the FMB
Disclosure Memorandum, FMB: (i) has not agreed, and is not required, to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; or (ii) has not made an election, and is not
required, to treat any asset of FMB as owned by another person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform
Act of 1986, (iii) does not own tax-exempt bond financed property within the
meaning of Section 168(g) of the Code and (iv) does not own tax-exempt use
property within the meaning of Section 168(h)(1) of the Code.
(e) Tax Rulings/Binding Agreement.
----------------------------- FMB has not requested or
received any ruling from any taxing authority, or signed any binding
agreement with any taxing authority (including, without limitation, any
advance pricing agreement), that would affect the amount of Taxes after the
Closing Date.
(f) Power of Attorney.
----------------- Except as set forth in Section 4.8(f) of
the FMB Disclosure Memorandum, there is no power of attorney granted by FMB
relating to Taxes that is currently in force.
(g) Prior Affiliated Groups.
----------------------- Section 4.8(g) of the FMB
Disclosure Memorandum lists all combined consolidated or unitary groups of
which FMB has been a member and which has filed a combined, consolidated or
unitary return for federal, state, local or foreign tax purposes.
(h) Tax-Sharing Agreements.
---------------------- FMB is not a party to a tax-sharing
agreement or any similar arrangement.
(i) Existing Partnerships and Single Member LLCs.
-------------------------------------------- Except as set
forth in Section 4.8(i) of the FMB Disclosure Memorandum, FMB (i) is not
subject to any
10
joint venture, partnership or other agreement or arrangement which is treated
as a partnership for federal income tax purposes, (ii) does not own a single
member limited liability company which is treated as a disregarded entity, or
(iii) does not own a qualified Subchapter S subsidiary which is treated as a
disregarded entity under the Code.
(j) Parachute Payments.
------------------ Except as set forth in Section 4.8(j) of
the FMB Disclosure Memorandum, FMB has not made or become obligated to make,
or will, as a result of any event connected with the acquisition of FMB by
CCBG or any other transaction contemplated herein, make or become obligated
to make, any "excess parachute payment" as defined in Section 280G of the Code
(without regard to subsection (b)(4) thereof).
(k) Debt or Stock of Acquiring Group.
-------------------------------- FMB does not own any debt
obligation or any shares issued by any member of CCBG.
(l) Permanent Establishment.
----------------------- FMB does not have, and has not had,
a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States of America and
any such foreign country. Except as set forth in Section 4.8(a) of the FMB
Disclosure Memorandum, FMB has not derived income from or operated a trade or
business in any foreign country, state or locality.
(m) Security for Tax-Exempt Obligations.
----------------------------------- None of the assets of
FMB directly or indirectly secures any debt, the interest on which is tax-
exempt under Section 103(a) of the Code.
(n) U.S. Real Property Holding Corporation.
-------------------------------------- FMB is not, and has
not been, a United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(o) Tax Ownership.
------------- Each asset with respect to which FMB claims
depreciation, amortization or similar expense for Tax purposes is owned for
Tax purposes by FMB.
(p) Tax Qualification as a Reorganization.
------------------------------------- Neither FMB nor any
Affiliate thereof has taken or agreed to take any action or has any Knowledge
of any fact or circumstance that is reasonably likely to (i) prevent the
Mergers from qualifying as a reorganization within the meaning of Section
368(a) of the Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 8.1(b) or result in
the imposition of a condition or restriction of the type referred to in the
last sentence of such Section.
(q) Unpaid Tax.
---------- Except as set forth in Section 4.8(q) of the FMB
Disclosure Memorandum, the unpaid Taxes of FMB do not exceed the reserve for
Tax liability (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth or included
in FMB's most recent
11
balance sheet by a significant amount as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
FMB.
(r) Timing Differences.
------------------ Except as set forth in Section 4.8(r) of
the FMB Disclosure Memorandum, no significant item of income or gain reported
by FMB for financial accounting purposes in any pre-closing period is
required to be included in taxable income for a post-closing period.
4.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES.
---------------------------------- The allowances for possible
loan and lease credit losses (collectively, the "Allowance") shown on the
balance sheet of FMB immediately prior to the Effective Time will be, as of
the date thereof, a minimum of 1.75% of total loans of FMB and shall be
adequate (within the meaning of GAAP and applicable regulatory requirements
or guidelines) to provide for all known or reasonably anticipated losses
relating to or inherent in the loan and lease portfolio (including accrued
interest receivables) of FMB and other extensions of credit (including
letters of credit) by FMB as of the dates thereof.
4.10 ASSETS.
------
(a) Except as disclosed in Section 4.10 of the FMB Disclosure
Memorandum or as disclosed or reserved against in the FMB Financial
Statements delivered prior to the date of this Agreement, FMB has good,
marketable, and insurable title, free and clear of all Liens, to all of its
Assets. All tangible properties used in the businesses of FMB are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with FMB's past practices.
(b) All Assets which are material to FMB's business, held under
leases or subleases by FMB, are held under valid Contracts enforceable by FMB
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), there are no defaults underneath such
Contract and no event(s) has occurred, which with the giving of notice or
passage of time would cause such a default to occur, and each such Contract
is in full force and effect.
(c) FMB currently maintains insurance similar in amounts, scope,
and coverage to that maintained by other peer banking organizations. FMB has
not received notice from any insurance carrier that (i) any policy of
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no claims for amounts
exceeding in any individual case $10,000, or in the aggregate $100,000,
pending under such policies of insurance and no notices of claims in excess
of such amounts have been given by FMB under such policies.
12
(d) The Assets of FMB include all material Assets required to
operate the business of FMB as presently conducted.
(e) Except as disclosed and described in detail in Section
4.10(e) of the FMB Disclosure Memorandum, FMB does not hold any deposits or
has not made any loans to any individuals or related group of individuals
which (i) in the case of deposits, individually or in the aggregate exceed
$15 million or (ii) in the case of loans, individually or in the aggregate
exceed $7.5 million.
(f) There are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties the right
of use or occupancy of any real property owned or leased by FMB, including
FMB's banking facilities and all other real estate or foreclosed properties
and any improvements thereon (collectively, the "Real Property") except as
set forth in Section 4.10(f) of the FMB Disclosure Memorandum.
(g) Except as set forth in Section 4.10(g) of the FMB Disclosure
Memorandum, there are no outstanding contracts for sale, options or rights of
first refusal to purchase any Real Property or any portion thereof or
interest therein.
(h) There are no parties (other than FMB) in possession of any
Real Property, other than tenants under any leases disclosed in Section
4.10(h) of the FMB Disclosure Memorandum who are in possession of space to
which they are entitled.
(i) Each real property owned or leased by FMB and which is used
in the ordinary course of FMB's banking business is supplied with utilities
and other services necessary for the operation of such facilities, including
gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of
which services are adequate in accordance with all applicable Law and are
provided via public roads or via permanent, irrevocable, appurtenant
easements benefiting such property.
(j) Except as set forth in the FMB Disclosure Memorandum, each
real property owned or leased by FMB and which is used in the ordinary course
of FMB's banking business has direct vehicular access to a public road, or
has access to a public road via permanent, irrevocable, appurtenant easements
benefiting the parcel of real property.
4.11 INTELLECTUAL PROPERTY.
--------------------- FMB owns or has a license to use all of
the Intellectual Property used by FMB in the course of its business. FMB is
the owner of or has a license to any Intellectual Property sold or licensed
to a third party by FMB in connection with FMB's business operations, and FMB
has the right to convey by sale or license any Intellectual Property so
conveyed. FMB is not in Default under any of its Intellectual Property
licenses. No proceedings have been instituted, or are pending or to the
Knowledge of FMB threatened, which challenge the rights of FMB with respect
to Intellectual Property used, sold or licensed by FMB in the course of its
business, nor has any person claimed or alleged any rights to such
Intellectual Property. The conduct of the business of FMB does not infringe
any Intellectual Property of any other person.
13
Except as disclosed in Section 4.11 of the FMB Disclosure Memorandum, FMB is
not obligated to pay any recurring royalties to any Person with respect to
any such Intellectual Property. Except as disclosed in Section 4.11 of the
FMB Disclosure Memorandum, to the Knowledge of FMB, no such officer, director
or employee is party to any Contract with any Person other than FMB which
requires such officer, director or employee to assign any interest in any
Intellectual Property to any Person other than FMB or to keep confidential
any trade secrets, proprietary data, customer information, or other business
information of any Person other than FMB. Except as disclosed in Section
4.11 of the FMB Disclosure Memorandum, no officer, director or, to the
Knowledge of FMB, any employee of FMB is party to any Contract which
restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including FMB.
4.12 ENVIRONMENTAL MATTERS.
---------------------
(a) (i) Except as disclosed in Section 4.12 of the FMB
Disclosure Memorandum, there are no actions, suits, demands, written notices,
or other communications, claims, investigations, orders, or proceedings
pending or to the Knowledge of FMB, threatened against FMB concerning any
Real Property or any other property owned, leased, or operated by FMB now or
in the past (1) relating to any Environmental Laws or (2) relating to the
release, emission, discharge, spillage, or disposal, or to the threatened
release, emission, discharge, spillage, or disposal, into the environment of
any Hazardous Substance (collectively "Releases"), whether or not occurring
at, on, under, or affecting (or potentially affecting) any Real Property or
at any other property owned, leased, or operated by FMB now or in the past,
including without limitation, arising from, relating to, or as a result of
any written notices, demand letters, or requests for information from any
governmental authority relating to any such Releases or liabilities under or
violations of Environmental Laws which would be reasonably likely to have,
individually or in the aggregate, an FMB Material Adverse Effect, as defined
by Section 4.12(g). (ii) Except as described in Section 4.12 of the FMB
Disclosure Statement, there is no reasonable basis for, or that could lead
to, any such actions, suits, demands, orders, notices, claims,
investigations, proceedings, or liabilities that are described in (a)(i)
above, including but not limited to, arising from, relating to, or as a
result of any present or past actions, activities, circumstances, conditions,
events, or incidents which would be reasonably likely to have, individually
or in the aggregate, an FMB Material Adverse Effect, as defined by Section
4.12(g).
(b) Except as disclosed in Section 4.12 of the FMB Disclosure
Statement, FMB, its Real Property, and any other property owned, leased, or
operated by FMB now or in the past are, and have been, in compliance with all
Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, an FMB Material Adverse Effect, as
defined by Section 4.12(g).
(c) FMB has not used, stored, transported, disposed of, or
arranged for the transportation or disposal of, Hazardous Substances on,
from, or in connection with the Real Property or any property owned, leased,
or operated by FMB now or in the past, and FMB has not transported or
disposed of, or arranged for the transportation or
14
disposal of, Hazardous Substances off site. There are no aboveground or
underground storage tanks located either on the Real Property or, to the
Knowledge of FMB, at any other property owned, leased, or operated by FMB now
or in the past.
(d) FMB, through its acts or omissions, has not caused,
contributed to, or exacerbated Releases at the Real Property or at any other
property owned, leased, or operated by FMB now or in the past where such
Releases would be reasonably likely to have, individually or in the
aggregate, an FMB Material Adverse Effect, as defined by Section 4.12(g).
(e) Except as disclosed in Section 4.12 of the FMB Disclosure
Memorandum, during the period of (1) FMB's ownership, lease, or operation of
any property, including but not limited to the Real Property, now or in the
past, or (2) FMB's holding of a security interest in any property, there have
been no Releases of Hazardous Substances in, on, under, or affecting (or
potentially affecting) such properties, where such Releases would be
reasonably likely to have, individually or in the aggregate, an FMB Material
Adverse Effect, as defined by Section 4.12(g), provided that as to clause
(2), such representation and warranty shall be subject to, and thereby
limited by, the Knowledge of FMB. Except as otherwise provided in this
Section 4.12 or as disclosed in Section 4.12 of the FMB Disclosure
Memorandum, to the Knowledge of FMB, prior to the period of (1) FMB's
ownership, lease, or operation of any property, including but not limited to
the Real Property, now or in the past, or (2) FMB's holding of a security
interest in any property, there were no Releases of Hazardous Substances in,
on, under, or affecting any such property where such Releases would be
reasonably likely to have, individually or in the aggregate, an FMB Material
Adverse Effect, as defined by Section 4.12(g).
(f) Except as disclosed in Section 4.12 of the FMB Disclosure
Memorandum, there are no conditions or circumstances at the Real Property or
at any other property owned, leased, or operated by FMB now or in the past
which pose an unreasonable risk or threat to the environment, the health or
safety of persons, or the market value of the Real Property.
(g) For purposes of Section 4.12 of this Agreement, the term "FMB
Material Adverse Effect" shall mean an event, change or occurrence which,
individually or together with any other event, change or occurrence, has a
material adverse impact on the condition or fair market value of the Real
Property; provided further, however, that for the purposes of Section 4.12 of
this Agreement, the term "FMB Material Adverse Effect" shall also have the
meaning given in Section 10.1 of this Agreement.
4.13 COMPLIANCE WITH LAWS.
-------------------- Except as disclosed in Section 4.13 of the
FMB Disclosure Memorandum, FMB:
(a) is not in Default under any of the provisions of its Articles
of Incorporation or Bylaws (or other governing instruments);
15
(b) is not in Default under any Laws, Orders, or Permits
applicable to its business or employees conducting its business; or
(c) since January 1, 2001, has not 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 FMB is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, (ii) threatening to
revoke any Permits, or (iii) requiring FMB to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any Board resolution
or similar undertaking, which restricts materially the conduct of its
business or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
Copies of all material reports, correspondence, notices and
other documents relating to any inspection, audit, monitoring or other form
of review or enforcement action by a Regulatory Authority have been made
available to CCBG.
4.14 LABOR RELATIONS.
--------------- FMB is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning
of the National Labor Relations Act or comparable state law) or seeking to
compel it to bargain with any labor organization as to wages or conditions of
employment, nor is FMB party to any collective bargaining agreement, nor is
there any strike or other labor dispute involving FMB, pending or threatened,
or to the Knowledge of FMB is there any activity involving FMB's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
4.15 EMPLOYEE BENEFIT PLANS.
----------------------
(a) FMB has listed in Section 4.15 of the FMB Disclosure
Memorandum, and, in addition thereto, has delivered or made available to CCBG
prior to the execution of this Agreement copies (and will continue to make
same available to CCBG after execution and after Closing, where necessary) of
any and all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus, or other
incentive plan, all other written employee programs, arrangements, or
agreements, including any employment agreement which may itself contain such
provisions, all medical, vision, dental, or other health plans, all life
insurance plans, and all other employee benefit plans or fringe benefit
plans, including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, currently adopted, maintained by, participated in, sponsored
in whole or in part by, or contributed to by FMB or ERISA Affiliate (as
defined below) thereof for the benefit of FMB's or any ERISA Affiliate's
employees, retirees, dependents, spouses, directors, independent contractors,
or any other beneficiaries (collectively "Participants") under which such
Participants are eligible to participate or receive benefits (collectively,
the "FMB Benefit Plans"). The FMB Benefit Plans documents delivered or made
available to CCBG by FMB include true and complete copies of each plan,
together with any amendments thereto, any trust agreements associated with an
FMB Benefit Plan,
16
together with any amendments thereto, any insurance or annuity contracts with
respect to any FMB Benefit Plan, all summary plan descriptions with respect
to any FMB Benefit Plan together with an amendments thereto, all Internal
Revenue Service Forms 5500 (or variations thereof) together with any Schedule
B and any other attachment thereto filed with respect to any FMB Benefit Plan
(for each of the three most recent plan years for which filings have been
made), all certified actuarial statements (for each of the three most recent
plan years for which such statements have been prepared) with respect to any
FMB Benefit Plan, any auditor's reports (for each of the three most recent
plan years for which reports have been issued) with respect to any FMB
Benefit Plan, all agreements or contracts entered into with any third party
administrator or trustee with respect to any FMB Benefit Plan, and all
agreements or contracts with any investment manager or investment advisor
with respect to any FMB Benefit Plan. Any of the FMB 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 "FMB ERISA Plan." Each FMB ERISA Plan
that is also a "defined benefit plan" (as defined in Section 414(j) of the
Code) is referred to herein as a "FMB Pension Plan." No FMB Pension Plan is
or has been a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(b) Except as otherwise provided for or disclosed elsewhere in
this Agreement, FMB, its agents, the trustees and other fiduciaries of the
FMB Benefit Plans have, at all times, complied in all material respects with
the applicable provisions of the FMB Benefit Plans, the Code and ERISA and
with all agreements relating to the administration of such FMB Benefit Plans.
Except as otherwise provided for or disclosed elsewhere in this Agreement,
each FMB Benefit Plan has been administered and communicated to the
Participants and beneficiaries in all material respects in accordance with
its provisions, and all required annual reports, filings, disclosures, or
other communications, which have been required to be made to the Participants
and beneficiaries, other employees, the IRS, the U.S. Department of Labor, or
any other applicable governmental agency, in connection with each Plan,
pursuant to the Code, ERISA, or other applicable statute or regulation, have
been made in a timely manner and no liability has been incurred on account of
delinquent or incomplete compliance or failure to comply with such
requirements. All amendments and actions required to bring the FMB ERISA
Plans into conformity with all of the applicable provisions of ERISA and
other applicable Laws have been made or taken with respect to those
provisions of ERISA and other applicable Laws for which the time period for
amendment or actions expired on or before the Closing Date. Any bonding
required with respect to any FMB Benefit Plan in accordance with applicable
provisions of ERISA has been obtained and is in full force and effect. Each
FMB ERISA Plan, which is intended to be qualified under Section 401(a) of the
Code has heretofore received a favorable determination letter from the
Internal Revenue Service, and neither FMB nor any ERISA Affiliate is aware of
any circumstances likely to result in revocation of any such favorable
determination letter(s).
(c) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum:
17
(1) There are no actions, suits, investigations,
arbitrations, or proceedings pending against any FMB Benefit Plan, against
the assets of any of the trusts under such plans or the plan sponsor or the
plan administrator, or, to the Knowledge of FMB and its officers, against any
agent or fiduciary of any FMB Benefit Plan with respect to the operation of
such plans (other than routine benefit claims);
(2) To the Knowledge of FMB and its officers, neither FMB
nor any ERISA Affiliate or any disqualified person (as defined in Section
4975 of the Code) have engaged in a transaction with respect to any FMB
Benefit Plan that, assuming the taxable period of such transaction expired as
of the date hereof, would subject FMB, its agents, the trustees or the other
fiduciaries of the FMB Benefit Plans to a Tax imposed by either Section 4975
of the Code or any penalty under Section 502(i) of ERISA;
(3) There have been no governmental audits of any FMB
Benefit Plan within the last six (6) years that has resulted in any material
penalties, fines, excise taxes, additional benefit accruals, and to the
Knowledge of FMB and its officers, there are no threatened or pending
governmental audits as of the date hereof and as of the date of Closing;
(4) As contemplated by Section 7.14(b) below, the Farmers &
Merchants Bank Profit Sharing Plan (the "FMB Profit Sharing Plan") shall be
terminated on or before Closing without any additional cost, liability or
expense to CCBG or to its Participants at or after termination of such plan
(except for administrative service costs and professional fees to terminate
same); and
(5) FMB will not issue any stock, stock options or amend or
terminate any FMB Benefit Plan subsequent to the date of this Agreement
without the written consent of CCBG except as may be necessary to honor any
pre-existing contract or to maintain the qualification of such FMB Benefit
Plan in which case FMB shall promptly notify CCBG of such issuance, amendment
or termination in writing prior to its implementation.
(d) Except as otherwise provided for or disclosed elsewhere in
this Agreement, no FMB Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial
assumptions used for ongoing funding purposes, as set forth for such plan's
most recent actuarial valuation. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any FMB Pension Plan, (ii) no change in the actuarial assumptions with
respect to any FMB Pension Plan, and (iii) no increase in benefits under any
FMB ERISA Plan as a result of plan amendments. Neither any FMB Pension Plan
nor any "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by FMB, or the single-employer plan
of any entity which is considered one employer with FMB under Section 4001 of
ERISA or Section 414 of the 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 Code or Section 302 of ERISA. Neither FMB
nor any ERISA Affiliate has any outstanding liability under Section 4971 of
the Code. FMB has not provided, nor is it
18
required to provide, security to an FMB Pension Plan or to any single-
employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(e) Within the six-year period preceding the Effective Time, no
Liability to the Pension Benefit Guaranty Corporation ("PBGC") under Subtitle
C or D of Title IV of ERISA has been or is expected to be incurred by FMB
with respect to any ongoing, frozen, or terminated single-employer plan or
the single-employer plan of FMB or an ERISA Affiliate. Neither FMB nor any
ERISA Affiliate has incurred any withdrawal Liability with respect to a
multiemployer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). 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 FMB Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof. All premiums due the PBGC with respect to
any FMB Pension Plan have been paid.
(f) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum, neither FMB nor any ERISA Affiliate has any Liability for retiree
health and life benefits under any of the FMB Benefit Plans and if there are
any such plans, there are no restrictions on the rights of FMB or on any
ERISA Affiliate to amend or terminate any such retiree health or benefit Plan
without incurring any post-termination Liability thereunder, except for
administrative costs and professional fees to terminate same).
(g) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
change of control, or otherwise) becoming due to any director or any employee
of FMB under any FMB Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any FMB Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(h) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum, the actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any FMB and respective beneficiaries, other than entitlements
accrued pursuant to funded retirement plans subject to the provisions of
Sections 401(a) and/or 412 of the Code or Section 302 of ERISA, have been
fully reflected on the FMB Financial Statements to the extent required by and
in accordance with GAAP.
(i) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum, no liability under any FMB Pension Plan has been funded or
satisfied with the purchase of a contract from an insurance company that is
not rated "A(Excellent)" or better by A.M. Best Company, Inc.
19
(j) Except as disclosed in Section 4.15 of the FMB Disclosure
Memorandum, no stock or other security issued by FMB forms or has formed a
part of the assets of any FMB Benefit Plan.
4.16 MATERIAL CONTRACTS.
------------------ Except as disclosed in Section 4.16 of the
FMB Disclosure Memorandum or otherwise reflected in the FMB Financial
Statements, neither FMB, nor any of its Assets, businesses, or operations, is
a party to, or is bound or affected by, or receives benefits under, (i) any
employment, severance, termination, consulting, or retirement Contract
providing for aggregate payments to any Person in any calendar year in excess
of $50,000, (ii) any Contract relating to the borrowing of money by FMB or
the guarantee by FMB of any such obligation (other than Contracts evidencing
deposit liabilities, purchases of federal funds, fully-secured repurchase
agreements, and Federal Home Loan Bank advances of depository institution
Subsidiaries, trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contract which
prohibits or restricts FMB from engaging in any business activities in any
geographic area, line of business or otherwise in competition with any other
Person, (iv) any Contract involving Intellectual Property (other than
Contracts entered into in the ordinary course with customers and commercial
"shrink-wrap" software licenses), (v) any Contract relating to the provision
of data processing, network communication, or other technical services to or
by FMB, (vi) any Contract relating to the purchase or sale of any goods or
services (other than Contracts entered into in the ordinary course of
business and involving payments under any individual Contract of less than
$50,000), (vii) any exchange-traded or over-the-counter swap, forward,
future, option, cap, floor, or collar financial Contract, or any other
interest rate or foreign currency protection Contract not included on its
balance sheet which is a financial derivative Contract, and (viii) any other
Contract or amendment thereto that would be required to be filed with any
relevant Regulatory Authority as of the date of this Agreement (together with
all Contracts referred to in Sections 4.10 and 4.15(a), the "FMB Contracts").
With respect to each FMB Contract and except as disclosed in Section 4.16 of
the FMB Disclosure Memorandum: (i) the Contract is in full force and effect;
(ii) FMB is neither in Default thereunder nor would be in Default thereunder
as a result of this Agreement or the transaction contemplated herein; (iii)
FMB has neither repudiated nor waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge
of FMB, in Default in any respect or has repudiated or waived any material
provision thereunder. All of the indebtedness of FMB for money borrowed is
prepayable at any time by FMB without penalty or premium. Except as
disclosed in Section 4.16 of the FMB Disclosure Memorandum, FMB has no
obligation or liability to any wholesale mortgage business ("Wholesale
Mortgage Business") or to any Affiliate of such Persons to purchase, fund or
extend credit with respect to any loans, extensions of credit, mortgages, or
any participation or other interest therein originated, brokered or referred
by or through such Persons. Except as described in Section 4.16 of the FMB
Disclosure Memorandum, all Contracts to which FMB is a party may be
terminated by FMB and its successors and assigns without penalty, charge,
liability or further obligation.
4.17 LEGAL PROCEEDINGS.
----------------- Except as described in Section 4.17 of the FMB
Disclosure Memorandum, there is no Litigation instituted or pending, or, to
the
20
Knowledge of FMB, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability
of an unfavorable outcome) against FMB or any FMB Benefit Plan, or against
any director or employee of FMB, in their capacity as such, or against any
Asset, interest, or right of any of them, nor are there any Orders of any
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against FMB. Section 4.17 of the FMB Disclosure Memorandum
contains a summary of all Litigation as of the date of this Agreement to
which FMB is a party and which names FMB as a defendant or cross-defendant or
for which FMB has any potential Liability.
4.18 REPORTS.
------- Except as set forth in Section 4.18 of the FMB
Disclosure Memorandum, since January 1, 2001, or the date of organization if
later, FMB has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities. 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
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
4.19 STATEMENTS TRUE AND CORRECT.
--------------------------- No statement, certificate,
instrument, or other writing furnished or to be furnished by FMB or any
Affiliate thereof to CCBG pursuant to this Agreement or any other document,
agreement, or instrument referred to herein contains or will contain any
untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to
be supplied by FMB or any Affiliate thereof for inclusion in the Registration
Statement to be filed by CCBG with the SEC will, when the Registration
Statement becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by FMB or any Affiliate thereof for inclusion in the Proxy Statement
to be mailed to FMB shareholders in connection with the Shareholders'
Meeting, and any other documents to be filed by FMB or any Affiliate thereof
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of FMB, 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 Shareholders' 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 Shareholders' Meeting. All
documents that FMB or any Affiliate thereof is responsible for filing with
any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable Law.
21
4.20 OPINION OF FINANCIAL ADVISOR.
---------------------------- FMB has received the opinion of
Trident Securities, Inc., dated the date of this Agreement, to the effect
that the consideration to be received in the Mergers by the holders of FMB
Common Stock is fair, from a financial point of view, to such holders, a
signed copy of which has been delivered to CCBG.
4.21 BOARD RECOMMENDATION.
-------------------- The Board of Directors of FMB, at a meeting
duly called and held, has by unanimous vote of the directors present (who
constituted all of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Mergers,
taken together, are fair to and in the best interests of the shareholders and
(ii) resolved to recommend that the holders of the shares of FMB Common Stock
approve this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CCBG
CCBG hereby represents and warrants to FMB as follows:
5.1 ORGANIZATION, STANDING, AND POWER.
--------------------------------- CCBG and CCB each is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Florida, and has the corporate power and authority to
carry on its business as now conducted and to own, lease and operate its
material Assets. CCBG and CCB each is duly qualified or licensed to transact
business in good standing in the 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 CCBG Material Adverse Effect. Interim shall be, upon
formation, a corporation duly organized, validly existing, and in good
standing under the Laws of the State of Georgia, and will have the corporate
power and authority to fulfill its obligations under the Bank Plan of Merger.
5.2 AUTHORITY OF CCBG; NO BREACH BY AGREEMENT.
-----------------------------------------
(a) CCBG has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Mergers, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part
of CCBG, subject to receipt of the requisite Consents referred to in Section
8.1(b). This Agreement represents a legal, valid, and binding obligation of
CCBG, enforceable against CCBG in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable
22
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 CCBG,
nor the consummation by CCBG of the transactions contemplated hereby, nor
compliance by CCBG with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of CCBG's Articles of Incorporation or
Bylaws, or (ii) subject to receipt of the requisite Consents referred to
Section 8.1(b), 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 CCBG Entity under, any Contract or Permit of any CCBG Entity, where such
Default or Lien, or any failure to obtain such Consent, is reasonably likely
to have, individually or in the aggregate, a CCBG Material Adverse Effect,
or, (iii) subject to receipt of the requisite Consents referred to in Section
8.1(b), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to any CCBG Entity or any of their
respective material Assets (including any CCBG Entity or FMB becoming subject
to or liable for the payment of any Tax or any of the Assets owned by any
CCBG Entity or FMB being reassessed or revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents,
filings, or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a CCBG Material Adverse
Effect, no notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by CCBG of the Mergers and the
other transactions contemplated in this Agreement.
5.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of CCBG consists of (i)
90,000,000 shares of CCBG Common Stock, of which 13,274,582 shares are issued
and outstanding as of the date of this Agreement, and (ii) 3,000,000 shares
of CCBG Preferred Stock, none of which are issued and outstanding. All of
the issued and outstanding shares of CCBG Capital Stock are, and all of the
shares of CCBG Common Stock to be issued in exchange for shares of FMB Common
Stock upon consummation of the Mergers, 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 FBCA. None of the outstanding shares
of CCBG Capital Stock has been, and none of the shares of CCBG Common Stock
to be issued in exchange for shares of FMB Common Stock upon consummation of
the Mergers will be, issued in violation of any preemptive rights of the
current or past shareholders of CCBG.
(b) Except as set forth in Section 5.3(a), or as provided
pursuant to the CCBG Stock Plans, or as disclosed in Section 5.3 of the CCBG
Disclosure
23
Memorandum, there are no shares of capital stock or other equity securities
outstanding and no outstanding Equity Rights relating to the capital stock of
CCBG.
5.4 CCBG SUBSIDIARIES.
----------------- CCBG has disclosed in Section 5.4 of the CCBG
Disclosure Memorandum all of its Significant Subsidiaries as of the date of
this Agreement that are corporations and all of the CCBG Subsidiaries that
are general or limited partnerships or other non-corporate entities. Each
CCBG Subsidiary that is a depository institution is an "insured institution"
as defined in the Federal Deposit Insurance Act and applicable regulations
thereunder.
5.5 SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) CCBG has timely filed and made available to FMB all SEC
Documents required to be filed by CCBG since December 31, 2001 (the "CCBG SEC
Reports"). The CCBG SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Laws and
other applicable Laws and (ii) did not, at the time they were filed (or, if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such CCBG SEC
Reports or necessary in order to make the statements in such CCBG SEC
Reports, in light of the circumstances under which they were made, not
misleading.
(b) Each of the CCBG Financial Statements (including, in each
case, any related notes) contained in the CCBG SEC Reports, including any
CCBG SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited interim statements, as permitted by
Form 10-Q of the SEC), and fairly presented in all material respects the
consolidated financial position of CCBG and its Subsidiaries as at the
respective dates and the consolidated results of operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount or effect.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES.
---------------------------------- Except as disclosed in the
CCBG Disclosure Memorandum, no CCBG Entity has any Liabilities that are
reasonably likely to have, individually or in the aggregate, a CCBG Material
Adverse Effect, except Liabilities which are accrued or reserved against in
the consolidated balance sheets of CCBG as of December 31, 2003, included in
the CCBG Financial Statements delivered prior to the date of this Agreement
or reflected in the notes thereto. No CCBG Entity has incurred or paid any
Liability since December 31, 2003, except for such Liabilities incurred or
paid (i) in the ordinary course of business consistent with past business
practice or which are not reasonably likely to have, individually or in the
aggregate, a
24
CCBG Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.
------------------------------------ Since December 31, 2003,
except as disclosed in the CCBG Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 5.7 of the CCBG Disclosure
Memorandum, (i) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
CCBG Material Adverse Effect, and (ii) the CCBG Entities have not taken any
action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of CCBG provided in Article 6.
5.8 ALLOWANCE FOR POSSIBLE LOAN LOSSES.
---------------------------------- In the opinion of management
of CCBG, the Allowance shown on the consolidated balance sheets of CCBG
included in the most recent CCBG Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the consolidated balance
sheets of CCBG included in the CCBG Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates
thereof, adequate (within the meaning of GAAP and applicable regulatory
requirements or guidelines) to provide for all known or reasonably
anticipated losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the CCBG Entities and other
extensions of credit (including letters of credit) by the CCBG Entities as of
the dates thereof.
5.9 INTELLECTUAL PROPERTY.
--------------------- Each CCBG Entity owns or has a license to
use all of the Intellectual Property used by such CCBG Entity in the course
of its business. Each CCBG Entity is the owner of or has a license to any
Intellectual Property sold or licensed to a third party by such CCBG Entity
in connection with such CCBG Entity's business operations, and such CCBG
Entity has the right to convey by sale or license any Intellectual Property
so conveyed. No CCBG Entity is in Default under any of its Intellectual
Property licenses. No proceedings have been instituted, or are pending or to
the Knowledge of CCBG threatened, which challenge the rights of any CCBG
Entity with respect to Intellectual Property used, sold or licensed by such
CCBG Entity in the course of its business, nor has any person claimed or
alleged any rights to such Intellectual Property. The conduct of the
business of the CCBG Entities does not infringe any Intellectual Property of
any other person. Except as disclosed in Section 5.9 of the CCBG Disclosure
Memorandum, no CCBG Entity is obligated to pay any recurring royalties to any
Person with respect to any such Intellectual Property. To the Knowledge of
CCBG, no such officer, director or employee is party to any Contract with any
Person other than a CCBG Entity which requires such officer, director or
employee to assign any interest in any Intellectual Property to any Person
other than a CCBG Entity or to keep confidential any trade secrets,
proprietary data, customer information, or other business information of any
Person other than a CCBG Entity. Except as disclosed in Section 5.9 of the
CCBG Disclosure Memorandum, no officer, director or, to the Knowledge of
CCBG, any employee of any CCBG Entity is party to any Contract
25
which restricts or prohibits such officer, director or employee from engaging
in activities competitive with any Person, including any CCBG Entity.
5.10 COMPLIANCE WITH LAWS.
-------------------- Each CCBG Entity has in effect all Permits
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which
are not reasonably likely to have, individually or in the aggregate, a CCBG
Material Adverse Effect, and there has occurred no Default under any such
Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a CCBG Material Adverse Effect. Except as
disclosed in Section 5.10 of the CCBG Disclosure Memorandum, none of the CCBG
Entities:
(a) is in Default under its Articles of Incorporation or Bylaws
(or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for Defaults which
are not reasonably likely to have, individually or in the aggregate, a CCBG
Material Adverse Effect; or
(c) since January 1, 2001, 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 CCBG Entity is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces, where
such noncompliance is reasonably likely to have, individually or in the
aggregate, a CCBG Material Adverse Effect, (ii) threatening to revoke any
Permits, the revocation of which is reasonably likely to have, individually
or in the aggregate, a CCBG Material Adverse Effect, or (iii) requiring any
CCBG Entity to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking,
which restricts materially the conduct of its business, or in any manner
relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends.
5.11 LEGAL PROCEEDINGS.
----------------- Except as disclosed in Section 5.11 of the
CCBG Disclosure Memorandum, there is no Litigation instituted or pending, or,
to the Knowledge of CCBG, 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 CCBG Entity or employee
benefit plan of any CCBG Entity, or against any director or employee of any
CCBG Entity, in their capacity as such, or against any Asset, interest, or
right of any of them, that is reasonably likely to have, individually or in
the aggregate, a CCBG Material Adverse Effect, nor are there any Orders of
any Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any CCBG Entity, that are reasonably likely to have,
individually or in the aggregate, a CCBG Material Adverse Effect.
26
5.12 REPORTS.
------- Since January 1, 2001, or the date of organization if
later, each CCBG Entity has filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required
to file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a CCBG Material Adverse Effect). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all
material respects with all applicable Laws. As of its respective date, each
such report and document did not, in all material respects, contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
5.13 STATEMENTS TRUE AND CORRECT.
--------------------------- No statement, certificate,
instrument or other writing furnished or to be furnished by any CCBG Entity
or any Affiliate thereof to FMB pursuant to this Agreement or any other
document, agreement or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to
be supplied by any CCBG Entity or any Affiliate thereof for inclusion in the
Registration Statement to be filed by CCBG with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make
the statements therein not misleading. None of the information supplied or
to be supplied by any CCBG Entity or any Affiliate thereof for inclusion in
the Proxy Statement to be mailed to FMB shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by any CCBG Entity
or any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the shareholders of FMB, 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 Shareholders' 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 Shareholders' Meeting.
All documents that any CCBG Entity or any Affiliate thereof is responsible
for filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
5.14 ACCOUNTING, TAX AND REGULATORY MATTERS.
-------------------------------------- No CCBG Entity or any
Affiliate thereof has taken or agreed to take any action or has any Knowledge
of any fact or circumstance that is reasonably likely to (i) prevent the
Mergers from qualifying as a reorganization within the meaning of Section
368(a) of the Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 8.1(b) or result in
the imposition of a condition or restriction of the type
27
referred to in the last sentence of such Section. All Tax Returns required
to be filed by or on behalf of any of the CCBG Entities have been timely
filed or requests for extensions have been timely filed, granted and have not
expired for periods ended on or before December 31, 2003, and on or before
the day of the most recent fiscal year end immediately preceding the
Effective Time, except to the extent that all such failures to file, taken
together, are not reasonably likely to have a CCBG Material Adverse Effect
and all such Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on Tax Returns have been paid. As of the date of
this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes, except as reserved against any CCBG
Financial Statements delivered prior to the date of this Agreement or as
disclosed in Section 5.14 of the CCBG Disclosure Memorandum. The provision
for Taxes due or to become due for any of the CCBG Entities for the period or
periods through and including the date of the respective CCBG Financial
Statements has been made and is reflected on such CCBG Financial Statements
and, to the Knowledge of CCBG, is sufficient to cover all such Taxes.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
6.1 AFFIRMATIVE COVENANTS OF FMB.
---------------------------- From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
unless the prior written consent of CCBG shall have been obtained, and except
as otherwise expressly contemplated herein, FMB shall continue to operate its
business only in the usual, regular, and ordinary course, and in a manner
designed to preserve intact its business organization and Assets and maintain
its rights and franchises, and shall take no action which would (i) adversely
affect the ability of any Party to obtain any Consents required for the
transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 8.1(b)
or 8.1(c), or (ii) adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement.
6.2 NEGATIVE COVENANTS OF FMB.
------------------------- From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement,
unless the prior written consent of CCBG shall have been obtained, and except
as otherwise expressly contemplated herein, FMB covenants and agrees that it
will not do or agree or commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of FMB or, except as expressly contemplated by this
Agreement; or
(b) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $50,000 except in the ordinary
course of the business of FMB consistent with past practices (which shall
include, creation of deposit liabilities, purchases of federal funds and
entry into repurchase agreements fully
28
secured by U.S. government or agency securities), or impose, or suffer the
imposition, on any Asset of FMB of any Lien or permit any such Lien to exist
(other than in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in the ordinary
course of business, the satisfaction of legal requirements in the exercise of
trust powers, and Liens in effect as of the date hereof that are disclosed in
the FMB Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under FMB Benefit Plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of FMB, or except as consistent with past practice, declare or
pay any dividend or make any other distribution in respect of FMB's capital
stock that would cause FMB's net worth (as calculated in accordance with
Section 8.2(f)) to fall below $30,000,000; or
(d) except for this Agreement or as disclosed in Section 6.2(d)
of the FMB Disclosure Memorandum, issue, sell, pledge, encumber, authorize
the issuance of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of FMB Common Stock, or any stock appreciation rights, or
any option, warrant, or other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of FMB
or issue or authorize the issuance of any other securities in respect of or
in substitution for shares of FMB Common Stock, or sell, lease, mortgage or
otherwise dispose of or otherwise encumber any Asset having a book value in
excess of $50,000 other than in the ordinary course of business for
reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of one
year or less, purchase any securities or make any material investment, either
by purchase of stock or securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person, or otherwise acquire
direct or indirect control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business, or (ii) acquisitions of
control by a depository Subsidiary solely in its fiduciary capacity; or
(g) (1) make any new loans or extensions of credit or renew,
extend or renegotiate any existing loans or extensions of credit (i) with
respect to properties or businesses outside of the current market area for
FMB or to borrowers whose principal residence is outside of the current
market area for FMB, (ii) that are unsecured in excess of $100,000, or (iii)
that are secured in excess of $500,000; (2) purchase or sell (except for
sales of single family residential first mortgage loans in the ordinary
course of FMB's business for fair market value) any whole loans, leases,
mortgages or any loan participations or agented credits or other interest
therein, or (3) renew or renegotiate any loans or credits that are on any
watch list and/or are classified or special mentioned or take any similar
actions with respect to collateral held with respect to debts previously
contracted or other real estate owned, except pursuant to safe and sound
banking practices and with prior disclosure to CCB; provided, however, that
FMB may, without the prior notice to or written consent of CCB, renew or
extend existing
29
credits on substantially similar terms and conditions as present at the time
such credit was made or last extended, renewed or modified, for a period not
to exceed one year and at rates not less than market rates for comparable
credits and transactions and without any release of any collateral except as
FMB is presently obligated under existing written agreements kept as part of
FMB's official records; or
(h) unless required by law, in accordance with past practice, or
as disclosed Section 6.2(h) of the FMB Disclosure Memorandum, grant any
increase in compensation or benefits to the employees or officers of FMB, pay
any severance or termination pay or any bonus other than pursuant to written
policies or written Contracts in effect on the date of this Agreement as
disclosed in Section 6.2(h) of the FMB Disclosure Memorandum, enter into or
amend any severance agreements with officers of FMB, grant any increase in
fees or other increases in compensation or other benefits to directors of
FMB, or voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits or other Equity Rights; or
(i) enter into or amend any employment Contract between FMB and
any Person (unless such amendment is required by Law) that FMB 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
(j) adopt any new FMB Benefit Plan or terminate or withdraw from,
or make any material change in or to, any existing FMB Benefit Plan other
than any such change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified status of
any such plan, or make any distributions from such FMB Benefit Plans, except
as required by Law, the terms of such plans or consistent with past practice;
or
(k) make any significant change in any Tax or accounting methods
or systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(l) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of FMB for material
money damages or restrictions upon the operations of FMB; or
(m) except in the ordinary course of business and as expressly
permitted in Section 6.2(g), enter into, modify, amend or terminate any
material Contract calling for payments exceeding $50,000 or waive, release,
compromise or assign any material rights or claims.
6.3 COVENANTS OF CCBG.
----------------- From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of FMB shall have been obtained, and except as
otherwise expressly contemplated herein, CCBG covenants and agrees that it
shall (a) continue to conduct its business and the business of its
Subsidiaries in a manner designed in its reasonable judgment, to enhance the
long-term value of the CCBG Capital Stock and the business
30
prospects of the CCBG Entities and to the extent consistent therewith use all
reasonable efforts to preserve intact the CCBG Entities' core businesses and
goodwill with their respective employees and the communities they serve, and
(b) take no action which would (i) materially adversely affect the ability of
any Party to obtain any Consents required for the transactions contemplated
hereby without imposition of a condition or restriction of the type referred
to in the last sentences of Section 8.1(b) or 8.1(c), or (ii) materially
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement; provided, that the foregoing shall not
prevent any CCBG Entity from acquiring any Assets or other businesses or from
discontinuing or disposing of any of its Assets or business if such action
is, in the judgment of CCBG, desirable in the conduct of the business of CCBG
and its Subsidiaries. CCBG further covenants and agrees that it will not
amend or agree or commit to amend or permit any of its Subsidiaries to amend
or agree or commit to amend, without the prior written consent of FMB, which
consent shall not be unreasonably withheld, the Articles of Incorporation or
Bylaws of CCBG, in each case, in any manner adverse to the holders of FMB
Common Stock as compared to the rights of holders of CCBG Common Stock
generally as of the date of this Agreement.
6.4 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 which (i) is reasonably likely to have, individually or in
the aggregate, an FMB Material Adverse Effect or a CCBG Material Adverse
Effect, as applicable, or (ii) would cause or constitute a breach of any of
its representations, warranties, or covenants contained herein, and to use
its reasonable efforts to prevent or promptly to remedy the same.
6.5 REPORTS.
------- Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of
this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such
financial statements will fairly present in all material respects the
consolidated financial position of the entity filing such statements as of
the dates indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows for the periods then ended in accordance
with GAAP (subject in the case of interim financial statements to normal
recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority
shall be prepared in accordance with Laws applicable to such reports.
31
6.6 TAXES.
-----
(a) Actions Prior to Closing.
------------------------
(1) Termination of Existing Tax-Sharing Agreements.
---------------------------------------------- All
tax-sharing agreements or similar arrangements involving FMB or to which FMB
is a party shall be terminated with respect to FMB before the Closing Date,
and, after the Closing Date, FMB shall not be bound thereby or have any
liability thereunder.
(2) Tax Elections.
------------- No new elections, and no changes in
current elections, with respect to Taxes affecting FMB shall be made after
the date of this Agreement without the prior written consent of CCBG, which
consent shall not be unreasonably withheld.
(3) Tax Certificates.
---------------- On or before the Closing, FMB shall
file all necessary applications to obtain (i) all forms, certificates and/or
other instruments required in connection with the transfer and recording
taxes and charges arising from the transactions contemplated by this
Agreement, together with evidence satisfactory to CCBG that such transfer
taxes and charges have been paid in full by FMB, and (ii) a clearance
certificate or similar documents which may be required by any state taxing
authority to relieve CCBG of any obligation to withhold any portion of
payments to FMB pursuant to this Agreement, and shall diligently prosecute
such applications after the Closing and shall furnish the clearance
certificates and similar documents thus obtained to CCBG as promptly as
practicable following the Closing.
(4) Access to Books and Records.
--------------------------- Between the date of the
Agreement and the Closing Date, FMB shall give CCBG and its authorized
representatives reasonable access to all books, records and returns of FMB
and have its personnel and accountants available to respond to reasonable
requests of CCBG and its authorized representatives.
(b) Survival of Representations and Warranties.
------------------------------------------ The
representations and warranties of FMB contained in Section 4.8 of this
Agreement shall survive the Closing until the expiration of the applicable
statute of limitations (giving effect to any waiver or extension thereof),
provided, however, CCBG shall not agree to any extension or waiver of any
applicable statute of limitations without the prior written consent of the
FMB shareholders, which consent shall not be unreasonably withheld.
(c) Filing of Tax Returns.
---------------------
(1) FMB shall prepare and timely file all income tax returns
(including the Internal Revenue Service Form 1120S) for all periods ending on
or before the Closing Date. All such returns shall be prepared in accordance
with past practice (unless a contrary position is required by law) as to
elections and accounting practices to the extent any position taken in such
returns may affect the tax liability of FMB after the Closing. FMB shall
discharge all tax liabilities shown on such returns. In connection with
preparation of such returns, FMB shall prepare books and working papers
(including a closing of the books as of the Closing Date) which shall clearly
demonstrate
32
the income and activities of FMB for the period ending on the Closing Date.
FMB shall provide a copy of such returns to CCBG for its review at least 20
days before the filing of such returns. Neither FMB nor its shareholders
shall file any amended return for a period ending on or before the Closing
without CCBG's consent (which consent shall not be unreasonably withheld) if
the filing of any such amended return may affect the tax liability of FMB or
for which CCBG is or may become liable.
(2) CCBG shall prepare and timely file all tax returns with
respect to FMB other than the income tax returns referred to in Section
6.6(c)(1) above, that are required to be filed after the Closing. To the
extent such tax returns relate to any period beginning before the Closing
Date and ending after the Closing Date (a "Straddle Period"), CCBG's
preparation of such tax returns shall be subject to review by FMB and
approval, which approval shall not be unreasonably withheld. CCBG shall make
such tax returns for a Straddle Period available for the review and approval
by FMB shareholders no later than 20 business days before the due date for
filing such tax returns. Within 10 days before the due date for the filing
of such tax return, whether or not FMB agree with the contents of such tax
return, FMB shall pay CCBG an amount equal to the amount of Taxes shown as
due on such tax returns allocable to FMB for the portion of the Straddle
Period up to and including the Closing Date (such portion being referred to
as a "Pre-Closing Partial Period") less any estimated Taxes paid or accrued
in accordance with GAAP for such Taxes prior to the Closing Date.
(d) Carryovers and Carrybacks.
------------------------- For purposes of this Section, Tax
or Taxes shall include the amount of Taxes which would have been paid but for
the application of any credit or net operating or capital loss deduction
attributable to periods beginning after the Closing Date or to any Post-
Closing Partial Period. If FMB earns any credit or loss that is carried back
to offset income for a period ending on or before the Closing Date and if FMB
or its shareholders realize a reduction in Tax for such a period as a result
of such carryback (either in the form of a refund or an offset), FMB shall
pay to CCBG the amount of such reduction within 30 days after the receipt of
the refund or an offset. FMB shall, at the request of CCBG, cooperate in
connection with the filing of necessary returns and other documents and the
related procedure, and provide a basis for the computation of the amount paid
to CCBG pursuant to this Section in reasonable detail.
(e) Allocation Between Partial Periods.
---------------------------------- Any Taxes for a Straddle
Period shall be apportioned between the Pre-Closing Partial Period and the
Post-Closing Partial Period, based, in the case of real and personal property
Taxes, on a per diem basis and, in the case of other Taxes (including,
without limitation, income taxes and taxes in lieu of income taxes), on the
actual activities, taxable income or taxable loss of FMB during such Pre-
Closing Partial Period and such Post-Closing Partial Period, based on a
closing of the books (including taking of inventories) as of the close of
business on the Closing Date. FMB shall not be permitted to carry out any
transaction outside the ordinary course of its trade or business on the
Closing Date after the Closing (other than the transactions contemplated by
this Agreement).
33
(f) Control of Post-Closing Audits and Other Proceedings.
----------------------------------------------------
(1) FMB shareholders, on the one hand, and CCBG, on the
other hand, agree to give prompt notice to each other of any proposed
adjustment to Taxes for periods ending on or prior to the Closing Date or any
Pre-Closing Partial Period, within 10 days after receipt of such proposed
adjustment. If the indemnified party fails to provide prompt notice, the
indemnifying party's indemnity obligation shall be reduced, but only to the
extent of any damages (or an increase thereof) incurred as a result of the
delay.
(2) FMB shareholders and CCBG shall cooperate with each
other in the conduct of any audit or other proceedings involving FMB for
periods ending on or before the Closing Date and Pre-Closing Partial Periods
and each may participate at its own expense, provided that FMB shareholders
shall have the right to control the conduct of any such audit or proceeding
for which they agree that any resulting Tax is covered by their indemnity.
CCBG shall execute or cause to be executed powers of attorney or other
necessary documents in order for FMB shareholders to exercise control over
such audit or proceeding. If a proposed settlement will effect the Tax
liability of any return that includes, in whole or in part, a period that is
after the Closing Date, then FMB shareholders may not settle or otherwise
resolve any such claim, suit or proceeding without the consent of CCBG, which
consent shall not be unreasonably withheld. FMB shareholders and CCBG shall
jointly control all proposed adjustments to Taxes relating to a Straddle
Period.
(g) Cooperation.
----------- FMB shareholders and CCBG agree to furnish or
cause to be furnished to each other, upon reasonable request, as promptly as
practicable, such information and assistance (including, without limitation,
access to books and records) relating to FMB as is reasonably necessary for
the preparation of any return for Taxes, claim for refund or audit, and the
prosecution or defense of any claim, suit or proceeding relating to any
proposed adjustment. Any information obtained shall be kept confidential by
the parties hereto (unless disclosure is required by law or legal process or
by a regulatory authority). FMB shareholders and CCBG shall each use
reasonable efforts not to have materials, books, records or files relating to
FMB destroyed.
(h) Arbitration.
----------- If FMB shareholders and CCBG disagree on any
issue or amount relating to Taxes that needs to be agreed on in connection
with the transaction contemplated by this Agreement, the disagreeing party
shall notify the other party of such disagreement in writing. FMB
shareholders and CCBG shall use their respective best efforts to resolve any
such disagreement and if no resolution is achieved within 30 days, FMB
shareholders and CCBG shall mutually select an independent accounting firm,
whose determination of the issue for which there is disagreement shall be
final and binding on FMB shareholders and CCBG and shall be enforceable in
any court of competent jurisdiction. Upon resolution or determination of
such issue, there shall be promptly made a payment, if necessary, between FMB
shareholders and CCBG in order to take into account the results of such
resolution or determination.
34
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER APPROVAL.
------------------------------------------------------------- As
soon as reasonably practicable after execution of this Agreement, at a date
determined by CCBG in its sole discretion, CCBG shall prepare and file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of CCBG Common
Stock upon consummation of the Mergers. FMB shall cooperate in the
preparation and filing of the Registration Statement and shall furnish all
information concerning it and the holders of its capital stock as CCBG may
reasonably request in connection with such action. FMB shall call a
Shareholders' Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of this Agreement and such other related matters as it
deems appropriate. In connection with the Shareholders' Meeting, (i) CCBG
shall, at its own expense, prepare and file with the SEC the Registration
Statement which shall contain the Proxy Statement and FMB shall, at CCBG's
expense, mail such Proxy Statement to the FMB shareholders, (ii) FMB shall
furnish to CCBG all information concerning FMB that CCBG may reasonably
request in connection with such Proxy Statement, (iii) the Board of Directors
of FMB shall recommend to FMB shareholders the approval of the matters
submitted for approval, and (iv) the Board of Directors and officers of FMB
shall use their reasonable efforts to obtain such shareholders' approval.
CCBG and FMB shall make all necessary filings with respect to the Mergers
under the Securities Laws.
7.2 NASDAQ LISTING.
-------------- CCBG shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq National Market the shares of CCBG
Common Stock to be issued to the holders of FMB Common Stock pursuant to this
Agreement, and CCBG shall, at its own expense, give all notices and make all
filings with the NASD required in connection with the transactions
contemplated herein.
7.3 APPLICATIONS.
------------ CCBG shall promptly prepare and file, and FMB shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement. The Parties
shall deliver to each other copies of all filings, correspondence and orders
to and from all Regulatory Authorities in connection with the transactions
contemplated hereby.
7.4 FILINGS WITH STATE OFFICES.
-------------------------- Upon the terms and subject to the
conditions of this Agreement, CCBG shall execute and file, in connection with
the Closing, Articles of Merger, or such other required filings to effectuate
the Mergers, with the Secretary of State of the States of Florida and
Georgia, as appropriate.
35
7.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE.
------------------------------------- Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 8; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use,
and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
7.6 INVESTIGATION AND CONFIDENTIALITY.
---------------------------------
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and to
consummation of the Mergers.
(b) Prior to the Effective Time, FMB shall permit and allow CCBG
and CCB to make or cause to be made, at their own expense, such
investigation(s) of the business and properties of FMB and its financial and
other legal conditions, as CCBG and CCB reasonably request, provided that
such investigation(s) shall be reasonably related to the transactions
contemplated hereby. In order to perform or to conduct any such
investigation(s) described in this Section 7.6(b), or as permitted in Section
7.19, FMB shall grant CCBG and CCB the right to gain reasonable access to
FMB's businesses and properties. No investigations by a Party shall affect
the representations and warranties of the other Party.
(c) If any investigation(s) of CCBG or CCB conducted pursuant to
Section 7.6(b) results in a finding of an event or circumstance that has had
or is reasonably likely to have an FMB Material Adverse Effect, CCBG shall
have the right, but not the obligation (unless required by Section 7.6(f)),
to elect to identify and describe in writing to FMB such FMB Material Adverse
Effect and to request its correction, cure, or other resolution, to CCBG's
complete satisfaction (which CCBG shall in good faith determine in its sole
discretion), within a specific period of time. Any such action taken by CCBG
pursuant to the foregoing sentence (1) shall not waive CCBG's right to
terminate this Agreement and abandon the Mergers without penalty and at any
time before the Closing Date pursuant to Section 9.1(i), provided FMB fails
to cure the FMB Material Adverse Effect to CCBG's satisfaction in the time
granted to FMB, and (2) shall not, in any way, act as a waiver as to any
other right(s) granted to CCBG or CCB pursuant to this Agreement.
(d) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which are hereby reaffirmed and adopted, and
incorporated by reference herein each Party shall, and shall cause its
advisers and agents to,
36
maintain the confidentiality of all confidential information furnished to it
by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. In the event that a Party is required by applicable law or valid
court process to disclose any such confidential information, then such Party
shall provide the other Party with prompt written notice of any such
requirement so that the other Party may seek a protective order or other
appropriate remedy and/or waive compliance with this Section 7.6. If in the
absence of a protective order or other remedy or the receipt of a waiver by
the other Party, a Party is nonetheless, in the written opinion of counsel,
legally compelled to disclose any such confidential information to any
tribunal or else stand liable for contempt or suffer other censure or
penalty, a Party may, without liability hereunder, disclose to such tribunal
only that portion of the confidential information which such counsel advises
such Party is legally required to be disclosed, provided that such disclosing
Party use its best efforts to preserve the confidentiality of such
confidential information, including without limitation, by cooperating with
the other Party to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded such confidential
information by such tribunal. If this Agreement is terminated prior to the
Effective Time, upon written request of the other Party, each Party shall
promptly return or certify the destruction of all documents and copies
thereof, and all work papers containing confidential information received
from the other Party.
(e) FMB shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons, if any, which
were considering an Acquisition Proposal with respect to FMB to preserve the
confidentiality of the information relating to FMB provided to such Persons
and their Affiliates and Representatives.
(f) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating
to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent,
either a material breach of any representation, warranty, covenant or
agreement of the other Party or which has had or is reasonably likely to have
an FMB Material Adverse Effect or a CCBG Material Adverse Effect, as
applicable; provided, that, as applied to any obligations of CCBG and CCB,
CCBG and CCB shall be governed by the provisions of Section 7.6(d).
(g) Upon request of CCBG, FMB shall request within 10 days of the
date thereof, that all third parties that received confidential information
regarding FMB within the last 12 months in connection with a possible sale or
merger transaction involving FMB promptly return such confidential
information to FMB.
7.7 PRESS RELEASES.
-------------- Prior to the Effective Time, FMB and CCBG shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 7.7
shall be deemed to
37
prohibit any Party from making any disclosure which its counsel deems
necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
7.8 CERTAIN ACTIONS.
--------------- Except with respect to this Agreement and the
transactions contemplated hereby, FMB nor any Affiliate thereof nor any
Representatives thereof retained by FMB shall directly or indirectly solicit
any Acquisition Proposal by any Person. Except to the extent the Board of
Directors of FMB reasonably determines in good faith, based and relying upon
a written opinion from its outside counsel, that the failure to take such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to FMB's shareholders under applicable law, neither FMB
nor any Affiliate nor Representative thereof shall furnish any non-public
information that it is not legally obligated to furnish, negotiate with
respect to, or enter into any discussions or Contract with respect to, any
Acquisition Proposal, but FMB may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations. FMB shall
promptly advise CCBG following the receipt of any Acquisition Proposal and
the details thereof, and advise CCBG of any developments with respect to such
Acquisition Proposal promptly upon the occurrence thereof. FMB shall (i)
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with
respect to any of the foregoing, (ii) direct and use its reasonable best
efforts to cause all of its Affiliates and Representatives not to engage in
any of the foregoing, and (iii) use its reasonable best efforts to enforce
any confidentiality or similar agreement relating to any such activities,
discussions, negotiations or Acquisition Proposal. FMB will take all actions
necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence of this Section 7.8 of the obligations
undertaken in this Section 7.8.
7.9 ACCOUNTING AND TAX TREATMENT.
---------------------------- Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Mergers, and to use its
reasonable efforts to take no action which would cause the Mergers not, to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code for federal income tax purposes.
7.10 STATE TAKEOVER LAWS.
------------------- FMB shall take the necessary steps to exempt
the transactions contemplated by this Agreement from, or if necessary to
challenge the validity or applicability of, any applicable "moratorium,"
"fair price," "business combination," "control share," or other anti-takeover
Laws, including Sections 14-2-1111 and 14-2-1132 of the OCGA.
7.11 CHARTER PROVISIONS.
------------------ FMB shall take all necessary action to ensure
that the entering into of this Agreement and the consummation of the Mergers
and the other transactions contemplated hereby do not and will not result in
the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of FMB or restrict or impair the
ability of CCBG or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of FMB that may be
directly or indirectly acquired or controlled by them.
38
7.12 FMB MEETINGS.
------------ FMB shall give prior notice of each meeting or
proposed action by the FMB Board of Directors and/or committees, including a
description of any matters to be discussed and/or acted upon, and shall
permit a representative of CCBG to attend each such meeting, except during
discussions relating to the transactions contemplated herein that present
conflict of interest and/or confidentiality issues.
7.13 AGREEMENT OF AFFILIATES.
----------------------- FMB has disclosed in Section 7.13 of the
FMB Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of FMB for purposes of Rule 145 under the 1933 Act. FMB shall
cause each such Person to deliver to CCBG upon the execution of this
Agreement a written agreement, substantially in the form of Exhibit 2,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of FMB 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 CCBG Common Stock to
be received by such Person upon consummation of the Mergers except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder. CCBG shall be entitled to place restrictive legends
upon certificates for shares of CCBG Common Stock issued to affiliates of FMB
pursuant to this Agreement to enforce the provisions of this Section 7.13;
provided that CCBG removes such legends at the appropriate time. CCBG shall
not be required to maintain the effectiveness of the Registration Statement
under the 1933 Act for the purposes of resale of CCBG Common Stock by such
affiliates.
7.14 EMPLOYEE BENEFITS AND CONTRACTS.
-------------------------------
(a) Following the Effective Time, CCBG shall provide generally to
officers and employees of FMB employee benefits under employee benefit and
welfare plans (other than stock option or other plans involving the potential
issuance of CCBG Common Stock), on terms and conditions which when taken as a
whole are substantially similar to those currently provided by the CCBG
Entities to their similarly situated officers and employees. CCBG shall
waive any pre-existing condition exclusion under any employee health plan for
which any employees and/or officers and dependents covered by FMB Benefit
Plans as of Closing shall become eligible by virtue of the preceding
sentence, to the extent (i) such pre-existing condition was covered under the
corresponding plan maintained by FMB and (ii) the individual affected by the
pre-existing condition was covered by FMB's corresponding plan on the date
which immediately precedes the Effective Time, provided further, however,
that any portion of a pre-existing condition exclusion period imposed by a
CCBG employee health plan shall not be enforced to the extent it exceeds in
duration any corresponding provision in effect under an FMB Benefit Plan
immediately prior to Closing. In addition, CCBG shall credit FMB employees
for amounts paid under FMB Benefit Plans for the applicable plan year that
contains the Closing Date for purposes of applying deductibles, co-payments
and out-of-pocket limitations under CCBG health plans. For purposes of
participation and vesting (but not benefit accrual) under CCBG's employee
benefit plans, the service of the employees of the FMB Entities prior to the
Effective Time shall be treated as service with a CCBG Entity participating
in such employee benefit plans.
39
(b) CCBG, CCB and FMB expressly agree that CCBG and CCB shall not
adopt or maintain the FMB Profit Sharing Plan for the benefit of any employee
previously or currently employed by FMB. As of the Closing Date, each FMB
Profit Sharing Plan participant shall cease to accrue any benefits under the
FMB Profit Sharing Plan. Not less than three (3) days prior to the Closing
Date, FMB shall have taken all steps necessary to terminate the FMB Profit
Sharing Plan (or shall have taken all steps necessary to terminate the
participation of any other entity in the FMB Profit Sharing Plan). In
connection with the foregoing, FMB shall cause each adopting employer of the
FMB Profit Sharing Plan to adopt appropriate resolutions authorizing and
directing the termination of (or the termination of participation in) the FMB
Profit Sharing Plan, fully vesting each participant's account balances within
the FMB Profit Sharing Plan, prohibiting contributions with respect to all
periods after the FMB Profit Sharing Plan's termination date, and requiring
the officers of each adopting employer to provide each participant with a
notice of termination with respect to the FMB Profit Sharing Plan prior to
the Closing Date. In addition, FMB shall cause the employers that have
adopted the FMB Profit Sharing Plan to prepare and adopt, not less than three
(3) days prior to the Closing Date, an amendment to the FMB Profit Sharing
Plan that shall provide for all necessary and appropriate modifications to
the terms of the FMB Profit Sharing Plan in order to provide for the
termination of contributions, fully-vested account balances, and the
distribution of account balances after a favorable determination letter has
been obtained from the Internal Revenue Service with respect to the
termination of the FMB Profit Sharing Plan. FMB, CCBG, and CCB agree to
request a favorable determination letter from the Internal Revenue Service
with respect to such termination, and to facilitate distributions to
participants in accordance with the requirements of applicable Treasury
Regulations after they have received a favorable determination letter. Not
less than three (3) days prior to the Closing, FMB shall provide CCBG and CCB
with copies of all documentation associated with the termination of the FMB
Profit Sharing Plan.
(c) FMB shall freeze the Farmers and Merchants Bank Dublin
Defined Benefit Pension Plan (the "FMB Defined Benefit Plan") effective as of
the Closing Date so that no new participant may thereafter enter the FMB
Defined Benefit Plan and so that benefit accruals cease as to existing
participants from and after the Closing Date. In connection with the
foregoing, FMB shall cause each adopting employer of the FMB Defined Benefit
Plan to adopt appropriate resolutions authorizing and directing the freezing
of the FMB Defined Benefit Plan and requiring the officers of each adopting
employer to provide each participant with a notice of termination with
respect to the freezing of the FMB Defined Benefit Plan at least fifteen (15)
days prior to the Closing Date. In addition, FMB shall cause the employers
that have adopted the FMB Defined Benefit Plan to prepare and adopt, not
later than the Closing Date, an amendment to the FMB Defined Benefit Plan
that shall provide for all necessary and appropriate modifications to the
terms of the FMB Defined Benefit Plan in order to provide for the freezing,
as contemplated hereinabove. Not later than three (3) days prior to the
Closing Date, FMB shall provide CCBG and CCB with copies of all documentation
associated with the freezing of the FMB Defined Benefit Plan.
(d) FMB will take all actions reasonably necessary prior to the
Closing
40
Date to satisfy the requirements of Treasury Regulations Section 1.401(a)(4)-
5(b)(3) as those requirements apply to the lump sum distribution paid from
the FMB Defined Benefit Plan on or about December 31, 2003. Such actions
shall include any and all actions by FMB that may be necessary, including,
but not limited to, those contemplated by IRS Revenue Procedure 2003-44 and,
if and to the extent applicable, the filing of any report to the Pension
Benefit Guaranty Corporation under PBGC Regulations Section 4043.27, unless
an appropriate exemption from filing is available. FMB shall consult with
CCBG prior to taking any such actions and shall provide for CCBG's input in
connection with any IRS or PBGC submissions, filings, or applications, and
shall provide CCBG at Closing with documentation of the actions ultimately
implemented.
(e) Although the actuarial valuation for the FMB Defined Benefit
Plan as of January 1, 2004 has not been completed as of the date of this
Agreement, FMB expects that as of January 1, 2004, the current liability
under the FMB Defined Benefit Plan as of that date will be in excess of its
assets. Subject to any limitations under the Internal Revenue Code governing
the amount of deductible contributions to a tax-qualified pension plan like
the FMB Defined Benefit Plan, FMB will make one or more contributions to the
FMB Defined Benefit Plan prior to the Closing Date that, in the aggregate,
equal or exceed the amount by which the current liability, determined as of a
date prior to the Closing Date that is mutually agreed to by the parties,
exceeds the value of the assets of the FMB Defined Benefit Plan as of such
date. In making such determination, the actuary for the FMB Defined Benefit
Plan shall assume that the plan has been frozen, as contemplated by Section
7.14(c) above. FMB shall provide CCBG with a copy of the January 1, 2004
actuarial valuation as soon as practicable following its issuance and shall
provide CCBG at Closing with documentation of the contributions it makes to
the FMB Defined Benefit Plan from January 1, 2004 through the Closing Date.
(f) With respect to the FMB Defined Benefit Plan, any material
deficiencies, violations, reportable conditions, or unfunded current
liabilities that are identified in writing by CCBG to FMB shall be resolved
and paid for by FMB to the reasonable satisfaction of CCBG prior to the
Effective Time. FMB shall provide CCBG with evidence reasonably satisfactory
to CCBG that the items so identified have been cured or that, under the
circumstances, FMB has taken all reasonable steps to cure such identified
items prior to the Effective Time. If practicable under the circumstances,
FMB shall provide such evidence at least 10 days prior to the Effective Time.
7.15 INDEMNIFICATION.
---------------
(a) With respect to all claims brought during the period of three
years after the Effective Time, CCBG shall indemnify, defend and hold
harmless the present and former directors, officers and employees of FMB
(each, an "Indemnified Party") against all Liabilities arising out of actions
or omissions arising out of the Indemnified Party's service or services as
directors, officers or employees of FMB or, at FMB's request, of another
corporation, partnership, joint venture, trust or other enterprise occurring
at or prior to the Effective Time (including the transactions contemplated by
this Agreement) to the fullest extent permitted under Florida Law. Without
limiting the
41
foregoing, in any case in which approval by the Surviving Corporation is
required to effectuate any indemnification, the Surviving Corporation shall
direct, at the election of the Indemnified Party, that the determination of
any such approval shall be made by independent counsel mutually agreed upon
between CCBG and the Indemnified Party.
(b) CCBG shall, to the extent available, (and FMB shall cooperate
prior to the Effective Time in these efforts) maintain in effect for a period
of three years after the Effective Time FMB's existing directors' and
officers' liability insurance policy (provided that CCBG may substitute
therefor (i) policies of at least the same coverage and amounts containing
terms and conditions which are substantially no less advantageous or (ii)
with the consent of FMB given prior to the Effective Time, any other policy)
with respect to claims arising from facts or events which occurred prior to
the Effective Time and covering persons who are currently covered by such
insurance; provided, that CCBG shall not be obligated to make aggregate
premium payments for such three-year period in respect of such policy (or
coverage replacing such policy) which exceed, for the portion related to
FMB's directors and officers, 125% of the annual premium payments on FMB's
current policy in effect as of the date of this Agreement (the "Maximum
Amount").
(c) Promptly after receipt by an Indemnified Party of notice of
any complaint or the commencement of any action or proceeding with respect to
which indemnification is being sought hereunder, such party will notify the
indemnifying party in writing of such complaint or of the commencement of
such action or proceeding. A failure to notify the indemnifying party will
not relieve the indemnifying party from any liability it may have hereunder
or otherwise, except to the extent that such failure materially prejudices
the indemnifying party's rights or its ability to defend against such
complaint, action or proceeding. If the indemnifying party so elects or is
requested by such Indemnified Party, it will assume the defense of such
action or proceeding, including the employment of counsel (which may be
counsel to the indemnifying party) reasonably satisfactory to the Indemnified
Party and the payment of the fees and disbursements of such counsel. In the
event, however, that such Indemnified Party reasonably determines in its
judgment that having common counsel would present such counsel with a
conflict of interest or if the indemnifying party fails to assume the defense
of the action or proceeding in a timely manner, then such Indemnified Party
may employ separate counsel to represent or defend it in any such action or
proceeding and the indemnifying party will pay the fees and disbursements of
such counsel; provided, however, that the indemnifying party will not be
required to pay the fees and disbursements of more than one separate counsel
for all indemnified parties in any jurisdiction in any single action or
proceeding. The Indemnified Party will cooperate with the indemnifying party
in the defense of any such action or proceeding. In any action or proceeding
the defense of which is assumed by the indemnifying party, the Indemnified
Party will have the right to participate in such action or proceeding and to
retain its own counsel at such Indemnified Party's own expense. The
indemnifying party shall not be liable for any settlement effected without
its prior written consent. The indemnifying party shall not have any
obligation hereunder to the Indemnified Party when and if a court of
competent jurisdiction shall determine, and such determination shall have
42
become final, that the indemnification of the Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
7.16 CERTAIN POLICIES OF FMB.
----------------------- CCBG and FMB shall consult with respect
to their respective major policies and practices and FMB shall make such
modification or changes to its policies and practices, if any, prior to the
Effective Time as may be mutually agreed upon. CCBG and FMB also shall
consult with respect to the character, amount and timing of restructuring and
Merger-related expense charges to be taken by each of the Parties in
connection with the transactions contemplated by this Agreement and shall
take such charges in accordance with GAAP, prior to the Effective Time, as
may be mutually agreed upon by the Parties. Neither Party's representations,
warranties, covenants or agreements contained in this Agreement shall be
deemed to be inaccurate or breached in any respect as a consequence of any
modifications or charges undertaken solely on account of this Section.
7.17 DIRECTOR'S AGREEMENTS.
--------------------- Concurrently with the execution and
delivery of this Agreement, FMB agrees to cause each of its directors to
execute and deliver a Director's Agreement in the form attached hereto as
Exhibit 3.
7.18 PAYMENT OF BONUSES.
------------------ CCBG and CCB agree that CCB shall pay to
Wallace Miller a bonus of $1 million and pay to Roger Miller a bonus of
$500,000.
7.19 REAL PROPERTY MATTERS.
--------------------- At its option and expense, CCBG may cause
to be conducted: (1) a title examination, physical survey, zoning compliance
review, and structural inspection of the Real Property and improvements
thereon that is used by FMB as a banking office (collectively, the "Property
Examination"); and (2) site inspections, historic reviews, regulatory
analyses, and environmental investigations and assessments of the Real
Property as CCBG shall deem necessary or desirable (collectively, the
"Environmental Survey"); provided, however, should CCBG elect to complete an
Environmental Survey of any Real Property, it shall notify FMB in writing
before commencing the Environmental Survey and shall make reasonable efforts
to coordinate the Environmental Survey with FMB.
If, in the course of the Property Examination or Environmental
Survey, CCBG discovers a "Material Defect" (as defined below) with respect to
the Real Property, CCBG shall have the option, at its sole discretion,
exercisable upon written notice to FMB ("Material Defect Notice") to: (1)
waive the Material Defect; (2) direct FMB to cure the Material Defect to
CCBG's satisfaction; or (3) terminate this Agreement (with such termination
being deemed to be a termination under Section 9.1(a)).
If CCBG elects to direct FMB to cure, then FMB shall have thirty
(30) days from the date of the receipt of the Material Defect Notice, or such
later time, which shall not be later than the Closing Date, as shall be
mutually agreeable to the parties in which to cure such Material Defect to
CCBG's satisfaction. If FMB fails to cure a Material Defect to CCBG's
satisfaction within the period specified above, then CCBG may terminate this
Agreement (with such termination being deemed to be a termination under
Section 9.1)).
43
For purposes of this Agreement, a "Material Defect" shall include:
(a) the existence of any lien (other than the lien of Real
Property taxes not yet due and payable), encumbrance, zoning restriction,
easement, covenant or other restriction, title imperfection or title
irregularity, or the existence of any facts or conditions that constitute a
material breach of Seller's representations and warranties contained in
Section 4.10 or 4.12, in either such case that CCBG reasonably believes will
materially adversely affect its use of any parcel of the Real Property for
the purpose for which it currently is used or the value or marketability of
any parcel of the Real Property, or as to which CCBG otherwise objects;
(b) the existence of any structural defects or conditions of
disrepair in the improvements on the Real Property (including any equipment,
fixtures or other components related thereto) that CCBG reasonably believes
would cost more than $25,000 in the aggregate to repair, remove or correct as
to all such Real Property; or
(c) the existence of facts or circumstances relating to any of
the Real Property which CCBG reasonably believes to establish, based on
advice of legal counsel or other consultants, that Seller or FMB could become
responsible or liable, or that CCBG could become responsible or liable
following the Closing date, and thereby be subject to criminal penalties and
prosecution, or thereby incur civil penalties, damages, or assessment or
remediation expenses, in an amount equal to or exceeding $25,000 in the
aggregate as to all such Real Property, provided further, however, that such
facts and circumstances: (1) reflect that there likely has been a release,
emission, discharge, spillage, or disposal, or threatened a release,
emission, discharge, spillage, or disposal, of any Hazardous Substance on,
from, under, at, or relating to the Real Property; or (2) reflect that any
action has been taken or not taken, or a condition or event likely has
occurred or exists, with respect to the Real Property, which constitutes or
could reasonably constitute a violation of any Environmental Laws.
7.20 FAIRNESS OPINION.
---------------- FMB shall obtain from Trident Securities, Inc.,
a letter, dated not more than five business days prior to the date of the
Proxy Statement, to the effect that, in the opinion of such firm, the
consideration to be received by FMB shareholders in connection with the
Mergers is fair, from a financial point of view, to such shareholders, a
signed copy of which shall be immediately delivered to CCBG.
7.21 FORMATION OF INTERIM GEORGIA BANK SUBSIDIARY.
-------------------------------------------- Prior to the
Effective Time and as soon as practicable, CCBG shall organize and establish
Interim under the laws of the State of Georgia as a banking subsidiary,
wholly-owned by CCBG for the purpose of merging with FMB.
44
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
--------------------------------------- The respective
obligations of each Party to perform this Agreement and consummate the
Mergers and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 10.6:
(a) SHAREHOLDER APPROVAL.
-------------------- The shareholders of FMB shall have
approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Mergers, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NASD. The shareholders of CCBG shall have approved the issuance of shares of
CCBG Common Stock pursuant to the Mergers, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NASD.
(b) REGULATORY APPROVALS.
-------------------- All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Mergers shall have been obtained or made and shall be
in full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including requirements relating to the
raising of additional capital or the disposition of Assets) which in the
reasonable judgment of the Board of Directors of CCBG would so materially
adversely affect the economic or business benefits of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, such Party would not, in its reasonable judgment, have entered into
this Agreement.
(c) CONSENTS AND APPROVALS.
---------------------- Each Party shall have obtained any
and all Consents required for consummation of the Mergers (other than those
referred to in Section 8.1(b)) or for the preventing of any Default under any
Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, an FMB Material
Adverse Effect or a CCBG Material Adverse Effect, as applicable. No Consent
so obtained which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of CCBG would so materially adversely
affect the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known, such Party
would not, in its reasonable judgment, have entered into this Agreement.
(d) LEGAL PROCEEDINGS.
----------------- No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes
illegal consummation of the transactions contemplated by this Agreement.
45
(e) REGISTRATION STATEMENT.
---------------------- The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of CCBG Common Stock issuable pursuant to
the Mergers shall have been received.
(f) SHARE LISTING.
------------- The shares of CCBG Common Stock issuable
pursuant to the Mergers shall have been approved for listing on the Nasdaq
National Market.
(g) TAX MATTERS. Each Party shall have received a written
opinion of counsel from Gunster, Yoakley & Stewart, P.A., in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) each
of the Mergers will constitute a reorganization within the meaning of Section
368(a) of the Code, (ii) the exchange in the Mergers of FMB Common Stock for
CCBG Common Stock will not give rise to gain or loss to the shareholders of
FMB with respect to such exchange (except to the extent of any cash
received), and (iii) none of FMB or CCBG will recognize gain or loss as a
consequence of the Mergers (except for amounts resulting from any required
change in accounting methods and any income and deferred gain recognized
pursuant to Treasury regulations issued under Section 1502 of the Code). In
rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of officers of FMB and CCBG reasonably satisfactory in form
and substance to such counsel.
8.2 CONDITIONS TO OBLIGATIONS OF CCBG.
--------------------------------- The obligations of CCBG to
perform this Agreement and consummate the Mergers and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by CCBG pursuant to Section 10.6(a):
(a) REPRESENTATIONS AND WARRANTIES.
------------------------------ For purposes of this Section
8.2(a), the accuracy of the representations and warranties of FMB set forth
in this Agreement shall be assessed as of the date of this Agreement and as
of the Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). There shall not exist inaccuracies in the
representations and warranties of FMB set forth in this Agreement (including,
without limitation, the representations and warranties set forth in Sections
4.3 and 4.20) such that the aggregate effect of such inaccuracies has, or is
reasonably likely to have, an FMB Material Adverse Effect; provided that, for
purposes of this sentence only, those representations and warranties which
are qualified by references to "material" or "Material Adverse Effect" or to
the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS.
--------------------------------------- Each and all of the
agreements and covenants of FMB to be performed and complied with
46
pursuant to this Agreement and the other agreements contemplated hereby prior
to the Effective Time shall have been duly performed and complied with.
(c) CERTIFICATES.
------------ FMB shall have delivered to CCBG (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 8.1 as relates to FMB and in Section
8.2(a) and 8.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by FMB's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as
CCBG and its counsel shall request.
(d) OPINION OF COUNSEL.
------------------ CCBG shall have received an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to FMB, dated as of the
Closing, in form reasonably satisfactory to CCBG, as to the matters set forth
in Exhibit 4.
(e) AFFILIATES' AGREEMENTS.
---------------------- CCBG shall have received from each
Affiliate of FMB the Affiliates Letter referred to in Section 7.13.
(f) NET WORTH AND CAPITAL REQUIREMENTS.
---------------------------------- Immediately prior to the
Effective Time, FMB shall have a minimum net worth of at least $30,000,000.
For purposes of Section 6.2(c) and this Section 8.2(f), "net worth" shall
mean the sum of the amounts set forth on FMB's balance sheet as stockholders'
equity (including the par or stated value of all outstanding capital stock,
additional paid-in surplus, retained earnings, treasury stock and unrealized
gain or loss on securities available for sale) determined in accordance with
GAAP, provided that, "net worth" shall be deemed to not be reduced by fees,
costs and expenses incurred or paid at the request of CCBG, except for
adjustments requested by CCBG for purposes of complying with GAAP or for
adjustments for purposes of complying with Section 4.9.
(g) DIRECTOR'S AGREEMENTS.
--------------------- CCBG shall have received from each
director of FMB the Director's Agreement set forth hereto at Exhibit 3.
(h) CLAIMS LETTER.
------------- CCBG shall have received from each director
and officer of FMB the Claims Letter set forth hereto at Exhibit 5.
(i) CLEARANCE CERTIFICATE.
--------------------- FMB shall provide CCBG with a
clearance certificate or similar document(s) which may be required by any
state taxing authority in order to relieve CCBG of any obligation to withhold
any portion of the consideration under this Agreement.
8.3 CONDITIONS TO OBLIGATIONS OF FMB.
-------------------------------- The obligations of FMB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by FMB pursuant to Section 10.6(b):
47
(a) REPRESENTATIONS AND WARRANTIES.
------------------------------ For purposes of this Section
8.3(a), the accuracy of the representations and warranties of CCBG set forth
in this Agreement shall be assessed as of the date of this Agreement and as
of the Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). There shall not exist inaccuracies in the
representations and warranties of CCBG set forth in this Agreement such that
the aggregate effect of such inaccuracies has, or is reasonably likely to
have, a CCBG Material Adverse Effect; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
references to "material" or "Material Adverse Effect" or to the "Knowledge"
of any Person shall be deemed not to include such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS.
--------------------------------------- Each and all of the
agreements and covenants of CCBG to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(c) CERTIFICATES.
------------ CCBG shall have delivered to FMB (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 8.1 as relates to CCBG and in Section
8.3(a) and 8.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by CCBG's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as FMB
and its counsel shall request.
(d) OPINION OF COUNSEL.
------------------ FMB shall have received an opinion of
Gunster, Yoakley & Stewart, P.A., counsel to CCBG, dated as of the Effective
Time, in form reasonably acceptable to FMB, as to the matters set forth in
Exhibit 6.
ARTICLE 9
TERMINATION
9.1 TERMINATION.
----------- Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of FMB, this Agreement may be terminated and the Mergers
abandoned at any time prior to the Effective Time:
(a) By mutual consent of CCBG and FMB; or
(b) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a breach by the other
Party of any
48
representation or warranty contained in this Agreement which cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching Party of such breach and which breach is reasonably likely, in the
opinion of the non-breaching Party, to have, individually or in the
aggregate, an FMB Material Adverse Effect or a CCBG Material Adverse Effect,
as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a breach by the other
Party of any covenant or agreement contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written notice to
the breaching Party of such breach and which breach is reasonably likely, in
the opinion of the non-breaching Party, to have, individually or in the
aggregate, an FMB Material Adverse Effect or a CCBG Material Adverse Effect,
as applicable, on the breaching Party; or
(d) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Mergers and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
shareholders of FMB fail to vote their approval of the matters relating to
this Agreement and the transactions contemplated hereby at the Shareholders'
Meeting where such matters were presented to such shareholders for approval
and voted upon; or
(e) By either Party in the event that the Mergers shall not have
been consummated by December 31, 2004, which date may be extended by the
mutual consent of the Parties, 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
9.1(e); or
(f) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Mergers cannot be satisfied or fulfilled by the date specified in Section
9.1(e); or
(g) By CCBG, in the event that the Board of Directors of FMB
shall have failed to reaffirm its approval of the Mergers and the
transactions contemplated by this Agreement (to the exclusion of any other
Acquisition Proposal), or shall have resolved not to reaffirm the Mergers, or
shall have affirmed, recommended or authorized entering into any other
Acquisition Proposal or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the Assets of FMB; or
(h) By FMB if, subject to any adjustments required by Section
2.2, the Average Closing Price is less than $32.00; or
49
(i) By CCBG in the event of a Material Adverse Effect and, if
time is granted by CCBG to cure such Material Adverse Effect pursuant to
Section 7.6(c), such Material Adverse Effect is not cured to the satisfaction
of CCBG within the time specified in CCBG's notice of such Material Adverse
Effect.
9.2 EFFECT OF TERMINATION.
--------------------- In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this
Section 9.2 and Article 10 and Sections 7.6(d) and 7.7 shall survive any such
termination and abandonment, and (ii) a termination pursuant to Sections
9.1(b), 9.1(c) or 9.1(f) shall not relieve the breaching Party from Liability
for an uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
9.3 ALTERNATE TRANSACTION.
--------------------- Nothing contained in this Agreement shall
be deemed to prohibit any director or officer of FMB from fulfilling his or
her fiduciary duties to FMB shareholders or from taking any action required
by law. However, in addition to any other payments required by this
Agreement, in the event that this Agreement is terminated as a result of FMB
or the holders of at least a majority of the shares of FMB Common Stock
entering into an agreement with respect to the merger of FMB with a party
other than CCBG or the acquisition of a majority of the outstanding shares
of FMB Common Stock by any party other than CCBG, or is terminated in
anticipation of any such agreement or acquisition, then, in either event, FMB
shall immediately pay CCBG, by wire transfer, $3,200,000 in full satisfaction
of CCBG's losses and damages resulting from such termination. FMB agrees
that $3,200,000 is reasonable under the circumstances, that it would be
impossible to exactly determine CCBG's actual damages as a result of such a
termination and that CCBG's actual damages resulting from the loss of the
transaction are in excess of $3,200,000.
9.4 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS.
--------------------------------------------- Unless otherwise
specified elsewhere in this Agreement, the respective representations,
warranties, obligations, covenants, and agreements of the Parties shall not
survive the Effective Time except this Section 9.4 and Articles 1, 2, 3, 4,
and 10 and Sections 7.6(d), 7.7, 7.10, 7.11, 7.13, 7.14, 7.15, and 9.3 shall
survive the Effective Time; provided further, however, that notwithstanding
any other provision in this Agreement, the representations, warranties,
obligations, covenants, and agreements contained in Section 4.12 shall not
survive the Effective Time.
ARTICLE 10
MISCELLANEOUS
10.1 DEFINITIONS.
-----------
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
50
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of,
such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any executive officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be executed by
CCBG and filed with the Secretary of State of the States of Florida and
Georgia relating to the Holding Company Merger as contemplated by Section
1.3.
"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 CLOSING PRICE" shall mean the average of the daily closing
sales prices of one share of CCBG Common Stock as reported on the Nasdaq
National Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by CCBG) for the twenty (20)
consecutive full trading days in which such shares are traded on the Nasdaq
National Market ending at the close of trading on the fifth full trading day
preceding the Effective Time.
"CCB" shall mean Capital City Bank, a Florida chartered commercial bank
and a CCBG Subsidiary.
"CCBG" shall mean Capital City Bank Group, Inc., a Florida corporation.
"CCBG CAPITAL STOCK" shall mean, collectively, the CCBG Common Stock,
the CCBG Preferred Stock and any other class or series of capital stock of
CCBG.
"CCBG COMMON STOCK" shall mean the common stock of CCBG, $.01 par value
per share.
51
"CCBG DISCLOSURE MEMORANDUM" shall mean the written information entitled
"Capital City Bank Group, Inc. Disclosure Memorandum" delivered prior to the
date of this Agreement to FMB describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto.
"CCBG ENTITIES" shall mean, collectively, CCBG and all CCBG
Subsidiaries.
"CCBG FINANCIAL STATEMENTS" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of CCBG as of
December 31, 2003 and 2002, and the related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three fiscal years ended December 31, 2003, 2002 and
2001, as filed by CCBG in SEC Documents, and (ii) the consolidated statements
of condition and balance sheets of CCBG (including related notes and
schedules, if any) and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any)
included in SEC Documents filed with respect to periods ended subsequent to
December 31, 2003.
"CCBG MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence,
has a material adverse impact on (i) the financial position, business, or
results of operations of CCBG and its Subsidiaries, taken as a whole, or (ii)
the ability of CCBG to perform its obligations under this Agreement or to
consummate the Mergers or the other transactions contemplated by this
Agreement, including without limitation the tax-free reorganization status of
the Mergers provided that "Material Adverse Effect" shall not be deemed to
include the impact of (a) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting principles generally applicable to banks and their
holding companies, (c) actions and omissions of CCBG (or any of its
Subsidiaries) taken with the prior informed written Consent of FMB in
contemplation of the transactions contemplated hereby, and (d) the direct
effects of compliance with this Agreement on the operating performance of
CCBG, including expenses incurred by CCBG in consummating the transactions
contemplated by this Agreement.
"CCBG PREFERRED STOCK" shall mean the preferred stock of CCBG, $.01 par
value per share.
"CCBG STOCK PLANS" shall mean the existing stock-based plans of CCBG
designated as follows: (i) 1996 Associate Incentive Plan, (ii) Associate
Stock Purchase Plan, (iii) Director Stock Purchase Plan and (iv) Dividend
Reinvestment Plan.
"CCBG SUBSIDIARIES" shall mean the Subsidiaries of CCBG, which shall
include the CCBG Subsidiaries described in Section 5.4 and any corporation,
bank,
52
savings association, or other organization acquired as a Subsidiary of CCBG
in the future and held as a Subsidiary by CCBG at the Effective Time.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CODE" shall mean the Internal Revenue Code of 1986. All citations to
the Code, or the Treasury Regulations promulgated thereunder, shall include
all amendments thereto and any substitute and successor provisions. All
section references to the Code (or Treasury Regulations) shall include all
similar provisions under the applicable state, local or foreign tax law.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
Agreement, dated September 24, 2003, between FMB and CCBG.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of any
kind or character, or other document to which any Person is a party or that
is binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit.
"DEPOSIT ACCOUNTS" means the deposit accounts held at FMB, the balances
which are included in the Deposits or would be so included if the Deposit
Account had a positive balance.
"DEPOSITS" means all deposits (as defined in 12 U.S.C. Section 1813(I)
held by FMB as of the Close of Business on the Closing Date.
"ENVIRONMENTAL LAWS" shall mean and all Laws, effective prior to or at
the Effective Time, including any amendments thereto, relating in any way to
protection or regulation of public health, human health, or the environment,
including, but not limited to, ambient air, indoor air, surface water, ground
water, other waters, land surface, subsurface strata, or occupational safety
and health. The term "Environmental Laws" shall include, but not be limited
to, those Laws which are administered, interpreted, or enforced by the United
States Environmental Protection Agency or by state or local
53
governmental agencies or authorities with jurisdiction over, and including
common law in respect of, protection or regulation of public health, human
health, or the environment, also including, but not limited to, the
Comprehensive Environmental Response Compensation and Liability Act, as
amended, 42 U.S.C.Section 9601 et seq. ("CERCLA"), and the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.
("RCRA"), and their state equivalents or analogs. The term "Environmental
Laws" shall further include, but not be limited to, all other Laws relating
to the release, emission, discharge, or disposal, or to the threatened
release, emission, discharge, or disposal, of any Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous
Substances.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants,
or other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EXHIBITS" 1 through 6, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred
to in this Agreement and any other related instrument or document without
being attached hereto.
"FBCA" shall mean the Florida Business Corporation Act, as amended.
"FMB" shall mean Farmers and Merchants Bank, a Georgia chartered
commercial bank.
"FMB COMMON STOCK" shall mean the common stock of FMB, $20 par value per
share.
"FMB DISCLOSURE MEMORANDUM" shall mean the written information entitled
"Farmers and Merchants Bank Disclosure Memorandum" delivered prior to the
date of this Agreement to CCBG describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto.
"FMB FINANCIAL STATEMENTS" shall mean (i) the statements of condition
(including related notes and schedules, if any) of FMB as of December 31,
2003, 2002 and 2001, and the related statements of income, changes in
shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three fiscal years ended December 31, 2003, 2002 and
2001, and (ii) the consolidated statements of condition of FMB (including
related notes and schedules, if any) and related
54
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) that are delivered to CCBG
with respect to periods ended subsequent to December 31, 2003.
"FMB MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence,
has a material adverse impact on (i) the financial position, business, or
results of operations of FMB and its Subsidiaries, taken as a whole, or (ii)
the ability of FMB to perform its obligations under this Agreement or to
consummate the Mergers or the other transactions contemplated by this
Agreement, provided that "Material Adverse Effect" shall not be deemed to
include the impact of (a) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting principles generally applicable to banks and their
holding companies, (c) actions and omissions of FMB (or any of its
Subsidiaries) taken with the prior informed written Consent of CCBG in
contemplation of the transactions contemplated hereby, and (d) the direct
effects of compliance with this Agreement on the operating performance of
FMB, including expenses incurred by FMB in consummating the transactions
contemplated by this Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"HAZARDOUS SUBSTANCE" or "HAZARDOUS SUBSTANCES" shall mean (i) any
hazardous substance, hazardous material, hazardous waste, regulated
substance, or toxic substance, as those terms have been or currently are,
regulated, or defined, by any Environmental Laws, and (ii) any other
chemical, pollutant, constituent, contaminant, substance, material, waste,
petroleum, petroleum product, or oil, that has been or currently is,
regulated or defined, by any Environmental Laws. The term "HAZARDOUS
SUBSTANCE" or "HAZARDOUS SUBSTANCES" shall also include (but is not limited
to) any asbestos-containing materials or any lead-based paint.
Notwithstanding the foregoing, the term "HAZARDOUS SUBSTANCE" or "HAZARDOUS
SUBSTANCES" shall not mean or include (i) standard cleaning, pesticide, or
maintenance fluids, or similar de minimis quantities of substances
customarily used, generated, manufactured, stored, disposed of or otherwise
handled in the ordinary course of business, and in material compliance with
Environmental Laws; or (ii) such of the foregoing that may be naturally
occurring in the soil or groundwater in, at under or about any real property.
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by Title II
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
"INTELLECTUAL PROPERTY" shall mean: (a) all inventions (whether
patentable or un-patentable and whether or not reduced to practice), all
rights to all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all re-issuances, continuations,
continuations-in-part, revisions, extensions, and
55
reexaminations thereof; (b) all trademarks, service marks, trade dress,
logos, trade names, corporate names and domain names together with all
translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith; (c) all copyrightable
works (including, but not limited to, training materials and instruction
manuals), all copyrights, and all applications, registrations, and renewals
in connection therewith; (d) all trade secrets and confidential business
information (including ideas, know-how, formulae, compositions, techniques,
technical data, designs, drawings, specifications, customer and supplier
lists, pricing and cost information, business methods and business and
marketing plans and proposals); (e) all computer software in source or object
code (including data and related documentation); (f) all other proprietary
rights relative to any of the foregoing; (g) all copies and tangible
embodiments of the forgoing (in whatever form or medium); and (h) all
licenses to any of the foregoing.
"INTERIM" shall mean a Georgia chartered commercial bank which is a
wholly-owned Subsidiary of CCBG.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that
are known or should reasonably have been known after due inquiry by the
chairman, president, chief financial officer, chief accounting officer, chief
operating officer, chief credit officer, general counsel, any assistant or
deputy general counsel, or any senior, executive or other vice president of
such Person and the knowledge of any such persons obtained or which would
have been obtained from a reasonable investigation.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency, guaranty
or endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, (iii) Liens which do not materially
impair the use of or title to the
56
Assets subject to such Lien, and which are disclosed in Section 10.1 of the
FMB Disclosure Memorandum or the CCBG Disclosure Memorandum, as applicable.
"LITIGATION" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding, including without
limitation, any actual, pending, or threatened condemnation, relating to or
affecting a Party, its business, its Assets (including Contracts related to
it), or the transactions contemplated by this Agreement, but shall not
include regular, periodic examinations of depository institutions and their
Affiliates by Regulatory Authorities.
"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.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ NATIONAL MARKET" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"OCGA" shall mean the Official Code of Georgia Annotated, as amended.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi- judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTY" shall mean either FMB, CCB or CCBG, and "PARTIES" shall mean
FMB, CCB, and CCBG.
"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" shall mean the proxy statement used by FMB to solicit
the approval of its shareholders of the transactions contemplated by this
Agreement, which shall include the prospectus of CCBG relating to the
issuance of the CCBG Common Stock to holders of FMB Common Stock.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by CCBG under the 1933
Act with respect to
57
the shares of CCBG Common Stock to be issued to the shareholders of FMB in
connection with the transactions contemplated by this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NASD,
the Federal Trade Commission, the United States Department of Justice, the
Board of the Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, the
Georgia Department of Banking and Finance, the Florida Department of
Financial Services and all other federal, state, county, local or other
governmental or regulatory agencies, authorities (including self- regulatory
authorities), instrumentalities, commissions, boards or bodies having
jurisdiction over the Parties and their respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"RETURNS" shall mean all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and any claims for
refunds of Taxes, including any amendments or supplements to any of the
foregoing.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDERS' MEETING" shall mean the meeting of the shareholders of
FMB to be held pursuant to Section 7.1, including any adjournment or
adjournments thereof.
"SIGNIFICANT SUBSIDIARY" shall mean any present or future consolidated
Subsidiary of the Party in question, the assets of which constitute ten
percent (10%) or more of the consolidated assets of such Party as reflected
on such Party's consolidated statement of condition prepared in accordance
with GAAP.
"SUBSIDIARIES" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through
an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities
of which are owned or controlled in a fiduciary capacity), (ii) in the case
of partnerships, serves as a general partner, (iii) in the case of a limited
liability company, serves as a managing member, or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
58
"SURVIVING BANK" shall mean FMB as the surviving bank resulting from the
Bank Merger.
"SURVIVING CORPORATION" shall mean CCBG as the surviving corporation
resulting from the Holding Company Merger.
"TAX" or "TAXES" shall mean all federal, state, local, foreign and other
taxes, assessments or other governmental charges, including, without
limitation, (i) income, estimated income, business, occupation, franchise,
property, sales, use, excise, employment, unemployment, payroll, social
security, ad valorem, transfer, gains, profits, capital stock, license, gross
receipts, stamp, real estate, severance and withholding taxes, and any fee
assessment or other charge in the nature or in lieu of any tax and including
any transferee or secondary liability in respect of any tax (imposed by law,
agreement or otherwise) and (ii) interest, penalties and additions in
connection therewith, in each case, for which FMB is or may be liable
(including as a result of the application of Treas. Reg. Section 1.1502-6).
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
Allowance Section 4.9
Bank Merger Preamble
Bank Plan Section 1.1
Cash Exchange Ratio Section 2.1(b)
CCBG SEC Reports Section 5.5(a)
Certificates Section 3.1
Closing Section 1.4
Deposit Liabilities Section 1.2
Effective Time Section 1.6
Employee Section 7.14(b)
Environmental Survey Section 7.19
ERISA Affiliate Section 4.15(d)
Exchange Agent Section 3.1
Exchange Ratio Section 2.1(b)
FMB Benefit Plans Section 4.15
FMB Contracts Section 4.16
FMB ERISA Plan Section 4.15
FMB Pension Plan Section 4.15
Holding Company Merger Preamble
Indemnified Party Section 7.15
Material Defect Section 7.19
Material Defect Notice Section 7.19
Maximum Amount Section 7.15
Mergers Preamble
Participants Section 4.15
Property Examination Section 7.19
Real Property Section 4.10(f)
59
Share Exchange Ratio Section 2.1(b)
Tax Opinion Section 8.1(g)
Wholesale Mortgage Business Section 4.16
(c) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall
be deemed followed by the words "without limitation."
10.2 EXPENSES.
-------- Except as otherwise provided in this Section 10.2, each
of the Parties shall bear and pay all direct costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including filing, registration and application fees, printing
fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and counsel, except that each of the Parties
shall bear and pay one-half of the filing fees payable in connection with the
Registration Statement and the Proxy Statement and printing costs incurred in
connection with the printing of the Registration Statement and the Proxy
Statement.
10.3 BROKERS AND FINDERS.
------------------- Except for Trident Securities, Inc., as to
FMB, and except for McConnell, Budd & Romano, Inc., as to CCBG, each of the
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim
by any broker or finder based upon his or its representing or being retained
by or allegedly representing or being retained by FMB or by CCBG, each of FMB
and CCBG, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
10.4 ENTIRE AGREEMENT.
---------------- Except as otherwise expressly provided herein,
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
7.6(d), for the Confidentiality Agreement). Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, other than as provided in
Sections 7.14 and 7.15.
10.5 AMENDMENTS.
---------- To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the
approval of each of the Parties, whether before or after shareholder approval
of this Agreement has been obtained; provided, that after any such approval
by the holders of FMB Common Stock, there shall be made no amendment that
reduces or modifies in any material adverse respect the consideration to be
received by holders of FMB Common Stock; and further provided, that the
provisions of this Agreement relating to the manner or
60
basis in which shares of FMB Common Stock will be exchanged for shares of
CCBG Common Stock shall not be amended after the Shareholders' Meeting in a
manner adverse to the holders of CCBG Common Stock without any requisite
approval of the holders of the issued and outstanding shares of CCBG Common
Stock entitled to vote thereon.
10.6 WAIVERS.
-------
(a) Prior to or at the Effective Time, CCBG, acting through its
Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by FMB, to waive or extend the time for the compliance or
fulfillment by FMB of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
CCBG 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 CCBG.
(b) Prior to or at the Effective Time, FMB, acting through its
Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by CCBG, to waive or extend the time for the compliance or
fulfillment by CCBG of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of FMB
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 FMB.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be or construed
as a further or continuing waiver of such condition or breach or a waiver of
any other condition or of the breach of any other term of this Agreement.
10.7 ASSIGNMENT.
---------- Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the Parties and their respective successors and
assigns.
10.8 NOTICES.
------- All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing and shall be
(as elected by the person giving such notice) hand delivered by messenger or
courier service, transmitted by fax, or mailed by registered or certified
mail (postage prepaid), return receipt requested, addressed to:
61
FMB: Farmers and Merchants Bank
600 Bellevue Avenue
Dublin, Georgia 31021
Telecopy Number: (478) 272-3675
Attention: McGrath Keen, Jr.
Copy to Counsel: Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E., Sixteenth Floor
Atlanta, Georgia 30303
Telecopy Number: (404) 572-6999
Attention: Walter G. Moeling IV, Esq.
CCB: Capital City Bank
217 North Monroe Street
Tallahassee, Florida 33301
Telecopy Number: (850) 878-9150
Attention: J. Kimbrough Davis
CCBG: Capital City Bank Group, Inc.
217 North Monroe Street
Tallahassee, Florida 33301
Telecopy Number: (850) 878-9150
Attention: J. Kimbrough Davis
Copy to Counsel: Gunster, Yoakley & Stewart, P.A.
500 East Broward Boulevard, Suite 1400
Fort Lauderdale, Florida 33394
Telecopy Number: (954) 523-1722
Attention: Gregory K. Bader, Esq.
or to such other address as any party may designate by notice complying with
the terms of this Section. Each such notice shall be deemed delivered (a) on
the date delivered, if by messenger or courier service; (b) on the date of
the confirmation of receipt, if by fax; and (c) either upon the date of
receipt or refusal of delivery, if mailed.
10.9 GOVERNING LAW.
------------- This Agreement shall be governed by and construed
in accordance with the Laws of the State of Florida, without regard to any
applicable conflicts of Laws.
10.10 COUNTERPARTS.
------------ This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
10.11 CAPTIONS; ARTICLES AND SECTIONS.
------------------------------- The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this
Agreement.
62
10.12 INTERPRETATIONS.
--------------- Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement
shall be considered the draftsman. The parties acknowledge and agree that
this Agreement has been reviewed, negotiated, and accepted by all parties and
their attorneys and shall be construed and interpreted according to the
ordinary meaning of the words used so as fairly to accomplish the purposes
and intentions of all parties hereto.
10.13 ENFORCEMENT OF AGREEMENT.
------------------------ The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or
were 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.
10.14 ENFORCEMENT COSTS.
----------------- If any civil action, arbitration or other legal
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees, court costs, sales
and use taxes and all expenses even if not taxable as court costs (including,
without limitation, all such fees, taxes, costs and expenses incident to
arbitration, appellate, bankruptcy and post-judgment proceedings), incurred
in that proceeding, in addition to any other relief to which such party or
parties may be entitled. Attorneys' fees shall include, without limitation,
paralegal fees, investigative fees, administrative costs, sales and use taxes
and all other charges billed by the attorney to the prevailing party
(including any fees and costs associated with collecting such amounts).
10.15 SEVERABILITY.
------------ Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
63
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
CAPITAL CITY BANK GROUP, INC.
By: /s/ William G. Smith, Jr.
----------------------------
Name: William G. Smith, Jr.
Title: President and CEO
CAPITAL CITY BANK
By: /s/ William G. Smith, Jr.
----------------------------
Name: William G. Smith
Title: Chairman
FARMERS AND MERCHANTS BANK
By: /s/ McGrath Keen, Jr.
----------------------------
Name: McGrath Keen, Jr.
Title: President
64
Appendix B
BANK PLAN OF MERGER
PLAN OF MERGER
AND MERGER AGREEMENT
Pursuant to the provisions of Title 7, Chapter 1, Article 2 of the
Official Code of Georgia, the undersigned banks do hereby adopt and enter
into this Plan of Merger and Merger Agreement (this "Agreement") for the
purpose of merging (the "Merger") CCBG Interim Bank, a Georgia chartered
commercial bank ("Interim"), with and into Farmers and Merchants Bank, a
Georgia chartered commercial bank ("FMB"):
(a) Terms of Merger.
--------------- At the Effective Time, as hereinafter defined,
Interim shall be merged with and into FMB, and Interim will cease
to exist as a separate banking corporation. FMB and Interim shall
thereupon become a single banking corporation which shall continue
its existence as a Georgia banking corporation under the charter
of FMB.
(b) Corporate Name.
-------------- The name of the surviving banking corporation
shall be:
"Farmers and Merchants Bank"
(c) Articles of Incorporation; Bylaws.
--------------------------------- The Articles of Incorporation
and Bylaws of FMB as in effect immediately prior to the Merger
shall remain in effect thereafter until amended by FMB in
accordance with applicable law.
(d) Board of Directors.
------------------ At the Effective Time the following are the
names of each director who is to serve until the next meeting of
the shareholders at which directors are elected:
* Nelson S. Carswell, Jr., M.D.
* Ben H. Hall, Jr.
* Edwin M. Herrin, Jr.
* McGrath Keen, Jr.
* Roger W. Miller
* Wallace E. Miller
(e) Manner of Converting Shares.
---------------------------
(1) At the Effective Time, each issued and outstanding share of
the common stock of FMB, par value $20 per share ("FMB Common
Stock"), shall, by virtue of the Merger and without any
action by the holder thereof, be converted into CCBG Common
Stock as contemplated by the Agreement and Plan of Merger,
dated May 12, 2004, by and among Capital City Bank Group,
Inc., Capital City Bank, and FMB. At the Effective Time,
each issued and outstanding share of Interim Common Stock
shall remain issued and outstanding and unaffected by the
Merger and shall constitute all the issued and outstanding
common stock of the surviving banking corporation as of the
Effective Time. In the event that prior to the Effective
Time, FMB Common Stock shall be changed to a different number
of shares, or a different class of shares by reason of any
recapitalization or reclassification, stock dividend,
combination, stock split or reverse stock split, an
appropriate and proportionate adjustment shall be made in the
number of shares of CCBG Common Stock into which FMB Common
Stock shall be converted.
(2) The "Effective Time" shall mean 11:59 p.m. on the date
requested by Interim, as soon as practicable after the
delivery of this Agreement and certified resolutions to the
Georgia Department of Banking and Finance (the "Department").
(f) Amendments.
---------- The provisions of this Agreement may not be amended,
supplemented, waived, or changed orally, but only by a writing
signed by all parties to this Agreement and making specific
reference to this Agreement.
(g) Articles of Merger.
------------------ Upon adoption of this Agreement by the Boards
of Directors and the shareholders of the parties hereto, the
parties hereto shall execute and file Articles of Merger pursuant
to Section 7-1-532 of the Financial Institutions Code of Georgia.
(h) Conditions Precedent.
-------------------- Consummation of the Merger is conditioned
upon (i) the receipt of all approvals, consents, waivers, and
other clearances of all federal and state regulatory authorities
having jurisdiction over the transactions contemplated by this
Agreement and (ii) the expiration of any required waiting periods.
(i) Governing Law.
------------- This Agreement and all transactions contemplated by
this Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Georgia without
regard to principles of conflicts of laws.
Appendix C
FARMERS AND MERCHANTS
AUDITED FINANCIAL STATEMENTS
[FARMERS & MERCHANTS BANK LOGO2]
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
[NICHOLS CAULEY LOGO]
NICHOLS, CAULEY & ASSOCIATES, LLC
Certified Public Accountants
Certified Financial Planners (TM)
Certified Internal Auditors
Certified Valuation Analysts
Financial and Business Development Advisors
FARMERS AND MERCHANTS BANK
December 31, 2003 and 2002
Table of Contents
-----------------
Page
Reference
---------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income 3
Statements of Changes in Stockholders' Equity 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-26
[NICHOLS CAULEY LOGO]
NICHOLS, CAULEY & ASSOCIATES, LLC REPLY TO:
A professional Services Firm of: 1300 Bellevue Avenue
Certified Public Accountants Dublin, Georgia 31021-4152
Certified Financial Planners (TM) 478-275-1163
Certified Internal Auditors FAX 478-275-1178
Certified Valuation Analysts Dublin@nicolscauley.com
----------------------------
Atlanta . Clarkesville . Dublin . Warner Robins
www.nicolscauley.com
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Farmers and Merchants Bank
Dublin, Georgia 31021
We have audited the accompanying balance sheets of Farmers and Merchants Bank
as of December 31, 2003 and 2002, and the related statements of income,
changes in stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Farmers and Merchants Bank
as of December 31, 2003 and 2002, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Nichols, Cauley & Associates, LLC
Dublin, Georgia
January 9, 2004
FARMERS AND MERCHANTS BANK
Balance Sheets
December 31, 2003 and 2002
2003 2002
ASSETS ----------------- -----------------
------
Cash and due from banks $ 10,588,220 $ 11,016,790
Federal funds sold 8,850,000 5,350,000
Securities available for sale (at fair value) 105,637,712 113,039,697
Securities held to maturity (approximate fair value
of $2,675,606 and $3,951,589, respectively) 2,549,091 3,753,870
Loans, less allowance for loan losses of $4,136,731
and $3,897,324, respectively 257,661,502 242,074,403
Federal Home Loan Bank stock 1,064,200 1,172,100
Accrued interest receivable 3,576,494 3,600,370
Premises and equipment, net 4,050,583 4,331,937
Other assets 195,879 174,554
----------------- -----------------
Total assets $ 394,173,681 $ 384,513,721
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest-bearing demand $ 32,193,528 $ 27,090,631
Interest-bearing 260,833,176 256,994,247
----------------- -----------------
Total deposits 293,026,704 284,084,878
Distributions payable 3,109,150 2,000,000
Federal Home Loan Bank advances 21,196,944 21,363,611
Securities sold under repurchase agreements 5,058,524 7,498,176
Accrued interest payable 756,863 1,031,867
Other liabilities 1,669,822 1,646,086
----------------- -----------------
Total liabilities 324,818,007 317,624,618
----------------- -----------------
Stockholders' equity:
Common stock, par value $20, 50,000 shares
authorized; 50,000 shares issued and outstanding 1,000,000 1,000,000
Surplus 9,000,000 9,000,000
Undivided profits 56,869,306 53,197,132
Accumulated other comprehensive income 2,486,368 3,691,971
----------------- -----------------
Total stockholders' equity 69,355,674 66,889,103
----------------- -----------------
Total liabilities and stockholders' equity $ 394,173,681 $ 384,513,721
================= =================
See accompanying independent auditors' report and notes to financial statements.
-2-
FARMERS AND MERCHANTS BANK
Statements of Income
Years Ended December 31, 2003 and 2002
2003 2002
---------------- ----------------
Interest income:
Loans, including fees $ 18,409,962 $ 19,449,108
Securities available for sale 4,606,662 5,508,047
Securities held to maturity 154,051 290,474
Interest-bearing deposits in banks 989 54,207
Federal funds sold 50,628 60,532
---------------- ----------------
23,222,292 25,362,368
---------------- ----------------
Interest expense:
Deposits 5,818,754 7,550,720
Federal funds purchased and securities
sold under repurchase agreements 170,430 224,385
Federal Home Loan Bank advances 747,204 688,300
---------------- ----------------
6,736,388 8,463,405
---------------- ----------------
Net interest income 16,485,904 16,898,963
Provision for loan losses 450,000 900,000
---------------- ----------------
Net interest income after provision for loan losses 16,035,904 15,998,963
Noninterest income:
Service charges on deposit accounts 1,476,238 1,398,662
Other service charges, commissions and fees 289,245 263,833
Other 325,725 82,945
---------------- ----------------
18,127,112 17,744,403
Noninterest expense:
Salaries and employee benefits 3,665,920 3,499,269
Occupancy 884,420 790,176
Other operating 2,229,598 2,188,851
---------------- ----------------
Net income $ 11,347,174 $ 11,266,107
================ ================
Net income per share of common stock $ 226.94 $ 225.32
================ ================
See accompanying independent auditors' report and notes to financial statements.
-3-
FARMERS AND MERCHANTS BANK
Statements of Changes in Stockholders' Equity
Years Ended December 31, 2003 and 2002
Accumulated
Common Other
Stock Undivided Comprehensive
Par Value Surplus Profits Income Total
------------------ ------------------ --------------- -------------- -------------
Balance, December 31, 2001 $ 1,000,000 $ 9,000,000 $ 48,506,025 $ 1,044,403 $ 59,550,428
Net income for 2002 -- -- 11,266,107 -- 11,266,107
Cash distribution paid, $132.00
per share -- -- (6,575,000) -- (6,575,000)
Change in accumulated other
comprehensive income -- -- -- 2,647,568 2,647,568
------------------ ------------------ --------------- -------------- -------------
Balance, December 31, 2002 1,000,000 9,000,000 53,197,132 3,691,971 66,889,103
Net income for 2003 -- -- 11,347,174 -- 11,347,174
Cash distribution paid, $154.00
per share -- -- (7,675,000) -- (7,675,000)
Change in accumulated other
comprehensive income -- -- -- (1,205,603) (1,205,603)
------------------ ------------------ --------------- -------------- -------------
Balance, December 31, 2003 $ 1,000,000 $ 9,000,000 $ 56,869,306 $ 2,486,368 $ 69,355,674
================== ================== =============== ============== =============
See accompanying independent auditors' report and notes to financial statements.
-4-
FARMERS AND MERCHANTS BANK
Statements of Cash Flows
Years Ended December 31, 2003 and 2002
2003 2002
------------- -------------
Cash flow from operating activities:
Net income $ 11,347,174 $ 11,266,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 383,467 388,718
Provision for loan losses 450,000 900,000
Decrease in accrued interest receivable 23,876 279,201
(Increase) decrease in other assets (21,325) 26,126
Decrease in accrued interest payable (275,004) (478,502)
Increase in other liabilities 23,736 289,616
------------- -------------
Net cash flow provided by operating activities 11,931,924 12,671,266
------------- -------------
Cash flow from investing activities:
Decrease in interest-bearing deposits in banks -- 2,000,000
Increase in loans (16,037,099) (18,630,613)
Purchases of securities available for sale (38,150,533) (27,147,350)
Proceeds from redemption of securities available for sale 44,346,915 26,284,709
Proceeds from redemption of securities held to maturity 1,204,779 2,690,339
Redemption (purchase) of Federal Home Loan Bank stock 107,900 (278,500)
Purchases of premises and equipment (102,113) (247,640)
------------- -------------
Net cash flow used by investing activities (8,630,151) (15,329,055)
------------- -------------
Cash flow from financing activities:
Federal Home Loan Bank advances -- 5,020,833
Repayments of Federal Home Loan Bank advances (166,667) (96,666)
Federal funds borrowed -- (650,000)
Cash distributions paid (6,565,850) (6,575,000)
(Decrease) increase in securities sold under (2,439,652) 2,106,727
repurchase agreements
Increase (decrease) in non-interest bearing demands 5,102,897 (1,576,065)
Increase in interest bearing demands 3,838,929 12,184,878
------------- -------------
Net cash flow (used) provided by
financing activities (230,343) 10,414,707
------------- -------------
Net increase in cash and cash equivalents 3,071,430 7,756,918
Cash and cash equivalents at beginning of year 16,366,790 8,609,872
------------- -------------
Cash and cash equivalents at end of year $ 19,438,220 $ 16,366,790
============= =============
See accompanying independent auditors' report and notes to financial statements.
-5-
FARMERS AND MERCHANTS BANK
Statements of Cash Flows
Years Ended December 31, 2003 and 2002
2003 2002
--------------- --------------
Supplemental schedule of noncash investing and
financing activities -
Change in accumulated other comprehensive income $ (1,205,603) $ 2,647,568
=============== ==============
Supplemental disclosures of cash flow information -
Cash paid during the year for:
Interest $ 7,011,392 $ 8,941,907
=============== ==============
Income taxes $ -- $ --
=============== ==============
See accompanying independent auditors' report and notes to financial statements.
-6-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The accounting and reporting policies of Farmers and Merchants Bank
(Bank) conform to generally accepted accounting principles and with
general practices within the banking industry. The following is a
description of the more significant of those policies that the Bank
follows in preparing and presenting its financial statements.
Reporting Entity and Nature of Operations
-----------------------------------------
The Bank is a state bank chartered under the laws of Georgia. The Bank
operates three branches in Dublin, Georgia. The Bank's primary source of
revenue is providing loans to customers within its geographical area.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The presentation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans
and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
Management believes that the allowance for losses on loans and foreclosed
real estate is adequate. While management uses available information to
recognize losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for
losses on loans and foreclosed real estate. Such agencies may require
the Bank to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowance
for losses on loans and foreclosed real estate may change materially in
the near term.
-7-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Securities
----------
Debt securities that management has the positive intent and the Bank has
the ability to hold to maturity are classified as securities held to
maturity and are recorded at amortized cost. Securities not classified as
securities held to maturity, including equity securities with readily,
determinable fair values, are securities available for sale and recorded
at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using
methods approximating the interest method over the terms of the
securities. A decline in the market value of any available for sale or
held to maturity security below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis
for the security. Realized gains and losses for securities classified as
available for sale and held to maturity are included in earnings and are
derived using the specific identification method for determining the
amortized cost of securities sold.
Loans Receivable
----------------
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Interest on commercial and real estate loans is credited to income on a
daily basis based upon the principal amount outstanding. The interest on
installment loans is credited to income monthly on a simple interest
basis.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received. Loans are returned to accrual
status when all the principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable time frame.
-8-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). The allowance for loan
losses is maintained at a level believed adequate by management to absorb
estimated probable inherent loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that are susceptible to
significant change including the amounts and timing of future cash flows
expected to be received on impaired loans. However, the amount of the
change that is reasonably possible cannot be estimated.
The allowance for loan losses related to impaired loans that are
identified for evaluation is based on discounted cash flows using the
loan's initial effective interest rate or the fair value, less selling
costs, of the collateral for collateral dependent loans. By the time a
loan becomes probable of foreclosure it has been charged down to fair
value, less estimated cost to sell.
Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried
at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are
included in loss on foreclosed real estate.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation,
computed principally by declining balance methods.
Maintenance and repairs that do not extend the useful life of the
premises and equipment, are charged to expense. The useful lives of
premises and equipment are as follows:
Asset Type Useful Life
---------- -----------
Buildings 15-40 years
Equipment 3-10 years
-9-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Federal Home Loan Bank Stock
----------------------------
Federal Home Loan Bank (FHLB) stock represents an equity interest in a
FHLB. It does not have a readily determinable fair value because its
ownership is restricted and it lacks a market.
Employee Benefits
-----------------
The Bank has a non-contributory defined benefit pension plan covering all
employees who meet the eligibility requirements. To be eligible, an
employee must be 21 years of age and have completed one year of
continuous service. The plan provides benefits based on the career
earnings of each participant which are subject to certain reductions if
the employee retires before reaching age 65 after completion of 10 years
of service. The Bank funds the plan by making an annual contribution
that is required by applicable regulations, plus, from time to time, such
amounts that the Bank determines to be appropriate.
The Bank also has a non-contributory profit sharing plan covering
substantially all of its employees. Annual employer contributions to the
plan are based upon three percent of net income after taxes and before
distributions as set by the Board of Directors.
Income Taxes
------------
The Bank is taxed as an S Corporation under the Internal Revenue Code and
applicable state statutes. Under an S Corporation election, the income
of the Bank flows through to the stockholders to be taxed at the
individual level rather than the Bank level.
Net Income Per Share of Common Stock
------------------------------------
Net income per share of common stock is calculated on the basis of the
weighted average number of shares outstanding.
Comprehensive Income
--------------------
The Bank has adopted Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income. Accounting principles generally
require that recognized revenue, expenses, gains and losses be included
in net income. Although certain changes in assets and liabilities, such
as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance
sheet, such items, along with net income, are components of comprehensive
income.
-10-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Cash Equivalents
----------------
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the balance-
sheet caption "cash and due from banks" and "federal fund sold." Cash
flows from demand deposits, savings deposits, federal funds purchased and
sold, renewals and extensions of loans and time deposits are reported
net.
Financial Instruments
---------------------
In the ordinary course of business the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit
and standby letters of credit. Such financial instruments are recorded
in the financial statements when they are funded or related fees are
incurred or received.
Fair Values of Financial Instruments
------------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires the disclosure of the estimated fair value of financial
instruments. The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Quoted
market prices, if available, are utilized as estimates of the fair values
of financial instruments. Since no quoted market prices exist for a
significant part of the Bank's financial instruments, the fair values of
such instruments have been derived based on management's assumptions, the
estimated amount and timing of future cash flows and estimated discount
rates. The estimation methods for individual classifications of
financial instruments are described more fully below. Different
assumptions could significantly affect these estimates. Accordingly, net
realizable values could be materially different from the estimates
presented below. In addition, the estimates are only indicative of the
value of individual financial instruments and should no be considered an
indication of the fair value of the combined Bank.
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
-11-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Fair Values of Financial Instruments
------------------------------------
Available-for-sale and held-to-maturity securities. Fair values
for securities, excluding restricted equity securities, are based
on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
Loans receivable. For variable-rate loans that reprice frequently
and have no significant change in credit risk, fair values are
based on carrying values. Fair values for certain mortgage loans
(for example, one-to-four family residential), credit card loans,
and other consumer loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values,
where applicable.
Deposit liabilities. The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying
amounts of variable-rate, fixed-term money-market accounts and
certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time
deposits.
Other borrowings. The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term
borrowings maturing within 90 days approximate their fair values.
Fair values of other borrowings are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing
rates for similar types of borrowing arrangements.
Accrued interest. The carrying amounts of accrued interest
approximate their fair values.
Off-balance-sheet instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of
the agreements and the counter parties' credit standings.
-12-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Advertising
-----------
The Bank expenses advertising costs as incurred. For the years ended
December 31, 2003 and 2002 advertising expense was $157,997 and $156,736,
respectively.
2. SECURITIES:
----------
The amortized cost, gross unrealized gains and losses, and estimated fair
values of securities available for sale at December 31, 2003 and 2002,
are summarized as follows:
December 31, 2003
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------- ------------
U.S. Treasury securities and
obligations of U.S. Government corporations
and agencies $ 59,220,337 $ 511,408 $ 185,765 $ 59,545,980
Corporate Bonds 21,514,025 1,419,651 -- 22,933,676
Obligations of states and
political subdivisions 22,416,982 798,638 57,564 23,158,056
------------ ----------- --------- ------------
$103,151,344 $ 2,729,697 $ 243,329 $105,637,712
============ =========== ========= ============
December 31, 2002
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------- ------------
U.S. Treasury securities and
obligations of U.S. Government corporations
and agencies $ 66,611,164 $ 1,529,203 $ 3,778 $ 68,136,599
Corporate Bonds 22,062,189 1,548,645 56,284 23,554,550
Obligations of states and
political subdivisions 20,674,373 685,788 11,603 21,348,558
------------ ----------- --------- ------------
$109,347,726 $ 3,763,636 $ 71,665 $113,039,697
============ =========== ========= ============
-13-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
2. SECURITIES:
----------
The amortized cost, gross unrealized gains and losses, and estimated fair
values of securities held to maturity at December 31, 2003 and 2002 are
summarized as follows:
December 31, 2003
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------- ------------
U.S. Treasury securities and
obligations of U.S. Government corporations
and agencies $ 1,009,337 $ 9,354 $ -- $ 1,018,691
Obligations of states and
political subdivisions 1,539,754 117,161 -- 1,656,915
------------ ----------- --------- ------------
$ 2,549,091 $ 126,515 $ -- $ 2,675,606
============ =========== ========= ============
December 31, 2002
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- --------- ------------
U.S. Treasury securities and
obligations of U.S. Government corporations
and agencies $ 1,014,350 $ 52,539 $ -- $ 1,066,889
Obligations of states and
political subdivisions 2,739,520 145,180 -- 2,884,700
------------ ----------- --------- ------------
$ 3,753,870 $ 197,719 $ -- $ 3,951,589
============ =========== ========= ============
The amortized costs and estimated fair values of investment securities
available for sale and held to maturity at December 31, 2003, by
contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
-14-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
2. SECURITIES:
----------
Securities Available Securities Held
for Sale to Maturity
----------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------ ------------
Due in one year or less $ 19,711,472 $ 19,886,892 $ 1,150,000 $ 1,163,555
Due after one year through five years 66,918,218 68,766,936 719,091 754,124
Due after five years through ten years 10,028,136 10,490,094 680,000 757,927
Due after ten years 6,493,518 6,493,790 -- --
------------- ------------- ------------ ------------
$ 103,151,344 $ 105,637,712 $ 2,549,091 $ 2,675,606
============= ============= ============ ============
Proceeds from maturities of securities available for sale during 2003 and
2002 were $44,346,915 and $26,284,709, respectively.
Proceeds from maturities of securities held to maturity during 2003 and
2002 were $1,204,779 and $2,690,339, respectively.
Investment securities with an amortized cost of $47,578,189 and
$53,054,835 at December 31, 2003 and 2002, respectively, were pledged as
collateral on public deposits and for other purposes as required by law.
The fair values of the pledged securities were $48,338,791 and
$55,135,007 at December 31, 2003 and 2002, respectively.
Taxable interest income on securities was $3,851,835 and $4,907,068 for
the years ended December 31, 2003 and 2002, respectively. Interest
income exempt from Federal income taxes was $908,878 and $891,453 for the
years ended December 31, 2003 and 2002, respectively.
-15-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
3. LOANS AND ALLOWANCE FOR LOAN LOSSES:
-----------------------------------
The composition of loans is summarized as follows:
December 31, 2003 December 31, 2002
----------------- -----------------
Commercial, financial and agricultural $123,361,629 $107,514,196
Consumer installment loans 134,320,218 136,583,949
Credit card loans 1,014,808 979,978
Other 5,377,374 4,150,328
----------------- -----------------
264,074,029 249,228,451
Unearned interest (2,275,796) (3,256,724)
Allowance for loan losses (4,136,731) (3,897,324)
----------------- -----------------
Loans, net $257,661,502 $242,074,403
================= =================
Loans on which the accrual of interest has been discontinued or reduced
amounted to $5,283,238 and $3,975,545 at December 31, 2003 and 2002,
respectively.
Changes in the allowance for loan losses are as follows:
December 31, 2003 December 31, 2002
----------------- -----------------
Balance, beginning of year $ 3,897,324 $ 3,539,052
Provision charged to operations 450,000 900,000
Loans charged off (259,022) (574,264)
Recoveries 48,429 32,536
----------------- -----------------
Balance, end of year $ 4,136,731 $ 3,897,324
================= =================
At December 31, 2003 and 2002 the Bank had loans to one individual
totaling $3,610,418 which were specifically classified as impaired.
The Bank has no commitments to loan additional funds to borrowers of
impaired loans.
Loans having carrying values of $115,081 and $244,211 were transferred to
foreclosed real estate in 2003 and 2002, respectively.
-16-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
4. PREMISES AND EQUIPMENT:
----------------------
Major classifications of these assets are summarized as follows:
December 31, December 31,
2003 2002
------------ ------------
Land $ 339,936 $ 339,936
Buildings 4,862,807 4,862,807
Equipment 4,339,752 4,237,639
9,542,495 9,440,382
Accumulated depreciation (5,491,912) (5,108,445)
------------ ------------
Premises and equipment, net $ 4,050,583 $ 4,331,937
============ ============
Depreciation expense was $383,467 and $388,718 for the years ended
December 31, 2003 and 2002, respectively.
5. DEPOSITS:
--------
Deposit account balances at December 31, 2003 and 2002 are summarized as
follows:
December 31, December 31,
2003 2002
------------- -------------
Non interest-bearing demand $ 32,193,528 $ 27,090,631
NOW 43,416,948 39,927,508
Money Market 34,747,578 34,537,835
Savings 14,261,155 12,647,804
Time, $100,000 and over 52,752,354 45,954,408
Other time 115,655,141 123,926,692
------------- -------------
Total deposits $ 293,026,704 $ 284,084,878
============= =============
-17-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
5. DEPOSITS:
--------
At December 31, 2003, the scheduled maturities of time deposits are as
follows:
2004 $ 142,437,072
2005 9,594,477
2006 1,295,361
2007 5,385,338
2008 9,691,327
Thereafter 3,920
--------------
$ 168,407,495
==============
6. EMPLOYEE BENEFITS:
The total pension expense for the year ended December 31, 2003 and 2002
was $75,000 and $-0-, respectively, which includes amortization of past
service cost over 19.79 years. The Bank accrues annual contributions to
the plan. Cost components of the plan are as follows:
December 31, December 31,
2003 2002
------------ ------------
Service cost $ 143,893 $ 116,506
Interest cost 215,700 196,977
Actual return on assets (311,974) (215,873)
Net amortization and deferral 27,381 (97,610)
Net cost $ 75,000 $ --
The weighted average assumed rate of return used in determining the
actuarial present value of accumulated plan benefits was 6.75% and 7.25%
for 2003 and 2002, respectively.
-18-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
6. EMPLOYEE BENEFITS:
-----------------
A reconciliation of the funded status of the plan with amounts reported
on the balance sheets follow:
December 31, December 31,
2003 2002
-------------- --------------
Projected benefit obligation including vested
benefit obligations of $2,937,172 and
$2,943,381, respectively $ (3,085,468) $ (3,219,830)
Plan assets at fair value 2,039,363 2,532,854
-------------- --------------
Funded status (1,046,105) (686,976)
Unamortized net assets from transition 15,256 32,204
Unrecognized prior service cost (35,229) (41,315)
Unrecognized net (gain) or loss 917,782 419,638
-------------- --------------
Accrued pension expense included in other
liabilities $ $ (148,296) $ (276,499)
============== ==============
The annual contributions set by the Board of Directors to the non-
contributory profit sharing plan were $228,452 and $226,133 for the years
ended December 31, 2003 and 2002, respectively.
7. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS:
----------------------------------------------------
Advances from the Federal Home Loan Bank (FHLB) are summarized as follows:
December 31,
-------------------------------
Interest Rate Maturity Date 2003 2002
------------- ------------------ ------------- -------------
5.53% June 27, 2017 $ 950,833 $ 1,020,833
1.69% July 12, 2004 2,000,000 2,000,000
1.54% August 5, 2004 2,000,000 2,000,000
4.00% April 4, 2011 5,000,000 5,000,000
5.41% October 3, 2016 385,000 415,000
5.16% October 30, 2016 861,111 927,778
3.54% November 16, 2011 6,000,000 6,000,000
3.49% November 10, 2011 4,000,000 4,000,000
----------- -----------
$21,196,944 $21,363,611
The FHLB has a blanket floating lien on the Bank's loan portfolio as
collateral for these advances. The Bank had additional FHLB advances
available of approximately $18,000,000 and $17,000,000 at December 31,
2003 and 2002, respectively.
-19-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
7. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS:
----------------------------------------------------
At December 31, 2003 and 2002 the Bank had Federal funds lines available
with correspondent banks of approximately $12,500,000. These unsecured
lines have various terms, rates, and maturities. The Bank had borrowings
of $-0- and $-0- at December 31, 2003 and 2002, respectively.
8. SHORT-TERM BORROWINGS:
---------------------
Short-term borrowings are presented in the accompanying balance sheets as
securities sold under repurchase agreements. At December 31, 2003 and
2002, short-term borrowings consisted of securities sold under repurchase
agreements of $5,058,524 and $7,498,176, respectively. The related
accrued interest payable on the repurchase agreements at December 31,
2003 and 2002 was $53,487 and $135,872, respectively.
Information concerning securities sold under repurchase agreements is
summarized as follows:
December 31, December 31,
2003 2002
----------- ------------
Average balance during the year $6,107,096 $6,497,660
Average interest rate during the year 2.79% 3.38%
Maximum month-end balance during the year $7,498,176 $7,498,176
Agency mortgage-backed securities under the Bank's control and underlying
the agreements had the following carrying and estimated fair values at
year-end:
December 31, December 31,
2003 2002
------------ ------------
Carrying value $5,487,600 $11,029,050
Estimated fair value 5,646,878 11,512,426
9. OPERATING LEASE COMMITMENTS:
---------------------------
Total rental expense on operating leases for the years ended December 31,
2003 and 2002 was $36,242 and $34,190, respectively. Certain leases
contain renewal options and escalation clauses. The expected minimum
future rental payments for noncancelable operating leases with terms in
excess of one year are approximately as follows:
-20-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
9. OPERATING LEASE COMMITMENTS:
---------------------------
Year Ended
December 31, Amount
------------------------------- ------
2004 $ 4
2005 4
2006 4
2007 4
2008 3
------
Total minimum payments required $ 22
======
10. RELATED PARTY TRANSACTIONS:
--------------------------
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
principal officers, stockholders, their immediate families, and
affiliated companies in which they are principal stockholders (commonly
referred to as related parties), on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 2003 and 2002, these persons
and firms were indebted to the Bank in the aggregate amount of
$12,121,011 and $4,814,274, respectively.
The Bank leases one of its premises from two of the
officers/stockholders. The current lease term is for fifteen years and
terminates in November 2018. Total rent expense for the years ended
December 31, 2003 and 2002 was $36,242 and $34,190, respectively.
L. P. Keen Insurance Agency, Inc., a company which is owned by the
majority stockholder's family, receives the commissions on the sale of
credit life and disability insurance on the Bank's loans to customers.
The amount of commissions received by the insurance agency on credit life
and disability insurance during the years ended December 31, 2003 and
2002 on such loans was $66,046 and $155,977, respectively. The insurance
agency reimbursed the Bank $1,200 and $750 for rental of office space for
the years ended December 31, 2003 and 2002, respectively. Several of the
Bank's employees (who are not family of the majority stockholder) perform
services for the insurance agency for which they receive compensation in
addition to their compensation from the Bank. The aggregate compensation
received by these employees from the insurance agency for the years ended
December 31, 2003 and 2002, was $7,110 and $16,353, respectively
The Bank held related party deposits of approximately $10,388,708 and
$7,621,000 at December 31, 2003 and 2002, respectively.
-21-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
11. COMMITMENTS AND CONTINGENCIES:
-----------------------------
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities that are not reflected in the
accompanying financial statements. These commitments and contingent
liabilities include commitments to extend credit, standby letters of
credit, and credit card commitments.
The Bank's nature of business is such that it ordinarily results in a
certain amount of litigation. In the opinion of management and counsel
for the Bank, there is no litigation in which the outcome will have a
material effect on the financial statements.
The Bank does not anticipate any material losses as a result of the
commitments and contingent liabilities.
12. RISK FACTORS:
------------
The Bank's operations are affected by various risk factors, including
interest-rate risk, credit risk and risk from geographic concentration of
lending activities. Management attempts to manage interest rate risk
through various asset/liability management techniques designed to match
maturities of assets and liabilities. Loan policies and administration
are designed to provide assurance that loans will only be granted to
credit-worthy borrowers, although credit losses are expected to occur
because of subjective factors and factors beyond the control of the Bank.
In addition, the Bank is a community bank and as such, is mandated by the
Community Reinvestment Act and other regulations to conduct most of its
lending activities within the geographic area where it is located. As a
result, the Bank and its borrowers may be especially vulnerable to the
consequences of changes in the local economy.
13. FINANCIAL INSTRUMENTS:
---------------------
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and credit card commitments. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets. The
contract amounts of those 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,
standby letters of credit written and credit card commitments is
represented by the contractual notional 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.
-22-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
13. FINANCIAL INSTRUMENTS:
---------------------
Contract Amount
---------------------------
December 31, December 31,
2003 2002
----------- -----------
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $28,318,546 $16,889,150
Standby letters of credit 730,886 325,705
Unused credit card commitments 3,659,563 3,190,550
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
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 of
the counterparty.
Standby letters of credit written are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan commitments to customers.
The Bank has cash deposits with financial institutions in excess of the
insured limitation of the Federal Deposit Insurance Corporation. If any
of these financial institutions were not to honor its contractual
liability, the company could incur losses. Management is of the opinion
that there is no material risk because of the financial strength of the
institutions.
The estimated fair values of the Bank's financial instruments (in
thousands) were as follows at:
In Thousands
------------------------------------------------------------
December 31, 2003 December 31, 2002
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- --------
Financial assets:
Cash and due from banks, interest-
bearing deposits with banks, and
federal funds sold $19,438 $19,438 $16,367 $16,367
Securities available for sale 105,638 105,638 113,040 113,040
Securities held to maturity 2,549 2,676 3,754 3,952
-23-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
13. FINANCIAL INSTRUMENTS:
---------------------
In Thousands
------------------------------------------------------------
December 31, 2003 December 31, 2002
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- --------
Financial assets:
Loans receivable $ 257,662 $ 265,017 $ 242,074 $ 246,456
Federal Home Loan Bank Stock 1,064 1,064 1,172 1,172
Accrued interest receivable 3,576 3,576 3,600 3,600
Financial liabilities:
Deposit liabilities (293,027) (291,112) (284,085) (281,899)
Other borrowings (26,255) (26,983) (28,862) (29,367)
Accrued interest payable (757) (757) (1,032) (1,032)
Unrecognized financial instruments:
Commitments to extend credit 28,319 28,319 16,889 16,889
Stand by letters of credit 731 731 326 326
Unused credit card commitments 3,660 3,660 3,191 3,191
The estimated fair values of the Bank's off-balance sheet assets
(liabilities) are considered to be minimal.
14. REGULATORY MATTERS:
------------------
The Bank is subject to various 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital adequacy guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting principles.
The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weighting, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 2003, that the Bank meets all capital adequacy requirements
to which it is subject.
-24-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
14. REGULATORY MATTERS
------------------
As of December 31, 2003, the most recent notification from the State of
Georgia Department of Banking and Finance, dated December 1, 2003,
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 I risk-based, Tier I
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the following table:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual: Adequacy Purposes: Action Provisions:
-------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2003:
Total Capital (to Risk Weighted Assets) $70,629 23.5% $24,035 8.0% $30,044 10.0%
Tier I Capital (to Risk Weighted Assets) $66,869 22.3% $12,018 4.0% $18,026 6.0%
Tier I Capital (to Average Assets) $66,869 17.2% $15,538 4.0% $19,423 5.0%
As of December 31, 2002:
Total Capital (to Risk Weighted Assets) $66,701 23.8% $22,402 8.0% $28,002 10.0%
Tier I Capital (to Risk Weighted Assets) $63,196 22.6% $11,201 4.0% $16,801 6.0%
Tier I Capital (to Average Assets) $63,196 16.7% $15,122 4.0% $18,902 5.0%
The Bank has appropriated $12,000,000 of undivided profits. This
appropriation allows the Bank to meet regulatory requirements in certain
lending activities.
15. LIMITATION ON DIVIDENDS:
-----------------------
The Board of Directors of any state-chartered bank in Georgia may
declare and pay cash dividends on its outstanding capital stock without
any request for approval of the Bank's regulatory agency if the following
conditions are met:
-25-
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002
15. LIMITATIONS ON DIVIDENDS
------------------------
1) Total classified assets at the most recent examination of the bank,
do not exceed eighty (80) percent of Tier 1 capital plus the
allowance for loan losses as reflected at such examination; and
2) The aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed fifty (50) percent of
the net profits, after taxes but before dividends, for the previous
calendar year provided, however, a bank that files federal income
taxes as a Subchapter S-Corporation may pay an additional amount of
dividends without Department approval equivalent to fifty (50)
percent of the income taxes which the bank would have had to pay as
a Subchapter C-Corporation; and
3) The ratio of Tier 1 capital to adjusted total assets shall not be
less than six (6) percent.
The amount available for dividends in 2004 without regulatory consent is
approximately $7,500,000.
-26-
Appendix D
FARMERS AND MERCHANTS
UNAUDITED FINANCIAL STATEMENTS
FARMERS AND MERCHANTS BANK
Balance Sheets
(unaudited)
June 30, 2004 and December 31, 2003
($ in thousands)
June 30, December 31,
2004 2003
-------------- --------------
<>
ASSETS
------
Cash and due from banks $ 9,508 $ 10,588
Federal funds sold 7,000 8,850
Securities available for sale (at fair value) 105,291 105,604
Securities held to maturity (approximate fair value of
$1,626 and $2,676 respectively) 1,547 2,549
Loans, less allowance for loan losses of $4,121 and
$4,137, respectively 271,477 257,662
Federal Home Loan Bank stock 1,057 1,064
Accrued interest receivable 3,420 3,576
Premises and equipment, et 3,859 4,051
Other assets 211 196
-------------- --------------
Total assets $ 403,370 $ 394,140
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest-bearing demand $ 32,397 $ 32,317
Interest-bearing 272,827 260,710
-------------- --------------
Total deposits 305,224 293,027
Distributions payable -- 3,109
Federal Home Loan Bank advances 21,114 21,197
Securities sold under repurchase agreements 5,124 5,058
Accrued interest payable 699 757
Other liabilities 1,949 1,670
-------------- --------------
Total liabilities 334,110 324,818
-------------- --------------
Stockholders' equity:
Common stock, par value $20, 50,000 share
authorized; 50,000 shares issued and outstanding 1,000 1,000
Surplus 9,000 9,000
Undivided profits 59,287 56,869
Accumulated other comprehensive income (27) 2,453
-------------- --------------
Total stockholder's equity 69,260 69,322
-------------- --------------
Total liabilities and stockholders' equity $ 403,370 $ 394,140
============== ==============
FARMERS AND MERCHANTS BANK
Statements of Income
(unaudited)
For the Year Ended December 31, 2003 and the
Three Months and the Six Months Ended June 30, 2004
($ in thousands, except per share)
Three Months Six Months Year Ending
Ending Ending December
June 30, 2004 June 30, 2004 31, 2003
------------- ------------- ------------
Interest income:
Loans, including fees $ 4,487 $ 8,922 $ 18,173
Securities available for sale 1,050 2,156 4,606
Securities held to maturity 21 50 154
Interest-bearing deposits in banks -- -- 1
Federal funds sold 10 27 51
Other interest income 10 19 48
------------- ------------- ------------
5,578 11,174 23,033
------------- ------------- ------------
Interest expense:
Deposits 1,298 2,590 5,811
Federal funds purchased and securities sold
under repurchase agreements 28 62 170
Federal Home Loan Bank advances 328 374 755
------------- ------------- ------------
1,654 3,026 6,736
------------- ------------- ------------
Net interest income 3,924 8,148 16,297
Provision for loan losses 150 150 450
------------- ------------- ------------
Net interest income after
provision for loan losses 3,774 7,998 15,847
Noninterest income:
Service charges on deposit accounts 341 657 1,359
Other service charges, commissions and fees 132 240 509
Other 112 116 418
------------- ------------- ------------
4,359 9,011 18,133
Noninterest expense:
Salaries and employee benefits 836 1,668 3,666
Occupancy 226 435 840
------------- ------------- ------------
Other operating 427 1,140 2,280
Net Income $ 2,870 $ 5,768 $ 11,347
============= ============= ============
Net income per share of common stock $ 57.40 $ 115.36 $ 226.94
FARMERS AND MERCHANTS BANK
Statements of Changes in Stockholders' Equity
(unaudited)
Year Ended December 31, 2003 and Six Months Ended June 30, 2004
($ in thousands, except per share)
Accumulated
Common Other
Stock Undivided Comprehensive
Par Value Surplus Profits Income Total
-------------- -------------- ----------- ---------- -----------
Balance, December 31, 2002 $ 1,000 $ 9,000 $ 53,197 $ 3,692 $ 66,889
Net income for 2003 -- -- 11,347 -- 11,347
Cash distribution paid, $153.50
per share -- -- (7,675) -- (7,675)
Change in accumulated other
comprehensive income -- -- -- (1,239) (1,239)
-------------- -------------- ----------- ---------- -------------
Balance, December 31, 2003 1,000 9,000 56,869 2,453 69,322
Net income for 2004 -- -- 5,768 -- 5,768
Cash distribution paid, $67.00
per share -- -- (3,350) -- (3,350)
Change in accumulated other
comprehensive income -- -- -- (2,480) (2,480)
-------------- -------------- ----------- ---------- ---------
Balance, June 30, 2004 $ 1,000 $ 9,000 $ 59,287 $ (27) $ 69,260
============== ============== =========== ========== =========
FARMERS AND MERCHANTS BANK
Statements of Cash Flows
(unaudited)
For the Six Months Ended June 30, 2004 and
the Year Ended December 31, 2003
($ in thousands)
Six Months Year Ended
Ended December
June 30, 2004 31, 2003
------------- -------------
Cash flow from operating activities:
Net income $ 5,768 $ 11,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 214 383
Provision for loan losses 150 450
Decrease in accrued interest receivable 156 24
(Increase) decrease in other assets (15) (21)
Decrease in accrued interest payable (58) (275)
Increase in other liabilities 279 24
------------- -------------
Net cash flow provided by operating activities 6,494 11,932
------------- -------------
Cash flow from investing activities:
Increase in loans (13,965) (16,037)
Purchases of securities available for sale $ (22,990) $ (38,151)
Proceeds from redemption of securities available for sale 20,825 44,347
Proceeds from redemption of securities held to maturity 1,000 1,205
Redemption (purchase) of Federal Home Loan Bank stock 7 108
Purchases of premises and equipment (22) (102)
------------- -------------
Net cash flow used by investing activities (15,145) (8,630)
------------- -------------
Cash flow from financing activities:
Federal Home Loan Bank advances (83) --
Repayments of Federal Home Loan Bank advances -- (167)
Federal funds borrowed -- --
Cash distributions paid (6,459) (6,566)
(Decrease) increase in securities sold under 66 (2,440)
repurchase agreements
Increase (decrease) in non-interest bearing demands 80 5,103
Increase in interest bearing demands 12,117 3,839
------------- -------------
Net cash flow (used) provided by
financing activities 5,721 (231)
------------- -------------
Net increase in cash and cash equivalents (2,930) 3,071
Cash and cash equivalents at beginning of year 19,438 16,367
------------- -------------
Cash and cash equivalents at end of year $ 16,508 $ 19,438
============= =============
FARMERS AND MERCHANTS BANK
Statements of Cash Flows
(unaudited)
For the Six Months Ended June 30, 2004 and
the Year Ended December 31, 2003
($ in thousands)
Six Months Year Ended
Ended December
June 30, 2004 31, 2003
--------------- --------------
Supplemental schedule of noncash investing and
financing activities -
Change in accumulated other comprehensive income $ (2,480) $ 2,648
=============== ==============
Supplemental disclosures of cash flow information -
Cash paid during the year for:
Interest $ 2,689 $ 8,942
=============== ==============
Income taxes $ -- $ --
=============== ==============
Appendix E
DISSENTERS' RIGHTS
EXCERPTS FROM THE GEORGIA BUSINESS CORPORATION CODE
RELATING TO DISSENTING SHAREHOLDERS
TITLE 14, CHAPTER 2, ARTICLE 13
DISSENTERS' RIGHTS
14-2-1301.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by
the corporation that creates dissenters' rights under Code
Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Code Section 14-2-1302 and who
exercises that right when and in the manner required by
Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation
of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation
of the corporate action.
(6) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that
is fair and equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the
beneficial shareholder.
14-2-1302.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his or her shares in the event
of any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party:
(A) If approval of the 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,
unless:
(i) The corporation is merging into a
subsidiary corporation pursuant to Code
Section 14-2-1104;
(ii) Each shareholder of the corporation whose
shares were outstanding immediately prior
to the effective time of the merger shall
receive a like number of shares of the
surviving corporation, with designations,
preferences, limitations, and relative
rights identical to those previously held
by each shareholder; and
(iii) The number and kind of shares of the
surviving corporation outstanding
immediately following the effective time of
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, shall not exceed
the total number and kind of shares of the
corporation authorized by its articles of
incorporation immediately prior to the
effective time of 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 with respect
to a class or series of shares that reduces the number of
shares of a class or series 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
(5) Any corporate action taken pursuant to a shareholder vote
to the extent that Article 9 of this chapter, the articles
of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his or
her shares under this article may not challenge the corporate action creating
his or her entitlement unless the corporate action fails to comply with
procedural requirements of this chapter or the articles of incorporation or
bylaws of the corporation or the vote required to obtain approval of the
corporate action was obtained by fraudulent and deceptive means, regardless
of whether the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall
be no right of dissent in favor of the holder of shares of any class or
series which, at the record date fixed to determine the shareholders entitled
to receive notice of and to vote at a meeting at which a plan of merger or
share exchange or a sale or exchange of property or an amendment of the
articles of incorporation is to be acted on, were either listed on a national
securities exchange or held of record by more than 2,000 shareholders,
unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under
the plan of merger or share exchange to accept for their
shares anything except shares of the surviving corporation
or another publicly held corporation which at the effective
date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than
2,000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
14-2-1303.
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.
14-2-1320.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters, rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code
Section 14-2-1302 is taken without a vote of shareholders, the corporation
shall notify in writing all shareholders entitled to assert dissenters'
rights that the action was taken and send them the dissenters' notice
described in Code Section 14-2-1322 no later than ten days after the
corporate action was taken.
14-2-1321.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a
record shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be
deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor
more than 60 days after the date the notice required in
subsection (a) of this Code section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323.
(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.
14-2-1324.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under Code
Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
14-2-1325.
(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;g
(2) A statement of the corporation's estimate of the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making
of the offer or the taking of the proposed corporate action, whichever is
later.
14-2-1326.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it must
send a new dissenters' notice under Code Section 14-2-1322 and repeat the
payment demand procedure.
14-2-1327.
(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.
14-2-1330.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60 day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving
corporation is a foreign corporation without a registered office in this
state, it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding, which shall have the effect of an action quasi in rem against
their shares. The corporation shall serve a copy of the petition in the
proceeding upon each dissenting shareholder who is a resident of this state
in the manner provided by law for the service of a summons and complaint, and
upon each nonresident dissenting shareholder either by registered or
certified mail or statutory overnight delivery or by publication, or in any
other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) of this Code section is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them or in any amendment to it.
Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as
the "Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment.
14-2-1331.
(a) The court in an appraisal proceeding commenced under Code
Section 14-2-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court,
but not including fees and expenses of attorneys and experts for the
respective parties. The court shall assess the costs against the
corporation, except that the court may assess the costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Code Sections
14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the
rights provided by this article.
(c) If the court finds that the services of attorneys for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these attorneys reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
14-2-1332.
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.
Appendix F
FAIRNESS OPINION OF
TRIDENT SECURITIES
May 12, 2004
Board of Directors
Farmers and Merchants Bank
600 Bellevue Avenue
Dublin, Georgia 31021
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the issued and outstanding shares of common
stock (the "F&M Common Stock") of Farmers and Merchants Bank ("F&M"), of the
consideration to be paid by Capital City Banc Group, Inc. ("Capital City")
pursuant to the Agreement and Plan of Merger, dated as of May 12, 2004 (the
"Agreement") by and among F&M and Capital City. Unless otherwise noted, all
terms used herein will have the same meaning as defined in the Agreement.
The Agreement provides for the merger (the "Merger") of F&M with and
into Capital City, pursuant to which, among other things, at the Effective
Time (as defined in the Agreement), each outstanding share of F&M Common
Stock, other than dissenting shares or shares held by F&M or Capital City, of
F&M, will be exchanged for $666.50 in cash and $666.50 in Capital City Common
Stock (the "Consideration"), subject to a collar arrangement whereby if
Capital City's trading price is equal to or greater than $45, the exchange
ratio will be 14.8111 shares and if Capital City's stock is equal to or less
than $38, the exchange ratio will be 17.539 shares, and in between $45 and
$38, the exchange ratio will equal $666.50 divided by Capital City's share
price. The terms and conditions of the Merger are more fully set forth in the
Agreement.
Trident Securities ("Trident"), a division of McDonald Investments Inc.,
as part of its investment banking business, is customarily engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
We have acted as F&M's financial advisor in connection with, and have
participated in certain negotiations leading to, the Agreement. In
connection with rendering our opinion set forth herein, we have among other
things:
* reviewed F&M's audited financial statements for each of the years ended
December 31, 2002, 2001, and 2000; F&M' internal financial statements
and general ledger balances for the years ended December 31, 2002 and
interim periods ending June 30, 2003 and September 30, 2003;
* reviewed Capital City's Annual Report to Shareholders and Annual Report
on Form 10-K for each of the years ended December 31, 2003, 2002, and
2001, including the audited financial statements contained therein; and
Capital City's Quarterly Report on Form 10-Q for each of the quarter
ended March 31, 2004;
* reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of F&M and Capital City provided to Trident or
publicly available;
* participated in meetings and telephone conferences with members of
senior management of F&M and Capital City concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters Trident believed relevant
to its inquiry;
* reviewed certain stock market information for Capital City common stock
and compared it with similar information for certain companies, the
securities of which are publicly traded;
* compared the results of operations and financial condition of F&M and
Capital City with that of certain companies which Trident deemed to be
relevant for purposes of this opinion;
* reviewed the financial terms , to the extent publicly available, of
certain acquisition transactions which Trident deemed to be relevant for
purposes of this opinion;
* reviewed the Agreement dated May 12, 2004 and certain related documents;
and
* performed such other reviews and analyses as we have deemed appropriate.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of F&M and
Capital City contained in the Agreement. We have not been engaged to
undertake, and have not assumed any responsibility for, nor have we
conducted, an independent investigation or verification of such matters. We
have not been engaged to and we have not conducted a physical inspection of
any of the assets, properties or facilities of either F&M or Capital City,
nor have we made or obtained or been furnished with any independent valuation
or appraisal of any of such assets, properties or facilities or any of the
liabilities of either F&M or Capital City. With regard to the financial
forecasts established and developed for F&M and Capital City with the input
of the respective management, as well as projections of cost savings, revenue
enhancements and operating synergies, Trident assumed that these forecasts
reflected the most reasonable estimates and judgments of F&M and Capital City
as to the future performance of the separate and combined entities and that
the projections provided a reasonable basis upon which Trident could
formulate its opinion. We have not been engaged to and we have not assumed
any responsibility for, nor have we conducted any independent investigation
or verification of such matters, and we express no view as to such financial
forecasts or the assumptions on which they are based. We have also assumed
that all of the conditions to the consummation of the Merger, as set forth in
the Agreement, would be satisfied and that the Merger would be consummated on
a timely basis in the manner contemplated by the Agreement.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness,
as of the date hereof, from a financial point of view, of the Consideration,
to the holders of F&M Common Stock, and does not address the underlying
business decision by F&M's Board of Directors to effect the Merger, does not
compare or discuss the relative merits of any competing proposal or any other
terms of the Merger, and does not constitute a recommendation to any F&M
shareholder as to how such shareholder should vote with respect to the
Merger. This opinion does not represent an opinion as to what the value of
F&M Common Stock may be at the Effective Time of the Merger or as to the
prospects of F&M's business or Capital City's business.
We have acted as financial advisor to F&M in connection with the Merger
and will receive from F&M a fee for our services, a significant portion of
which is contingent upon the consummation of the Merger, as well as F&M's
agreement to indemnify us under certain circumstances. We will also receive
a milestone fee in connection with the delivery of this opinion.
In the ordinary course of business, we may actively trade securities of
Capital City for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such
securities.
It is understood that this opinion was prepared solely for the
confidential use of the Board of Directors and senior management of F&M and
may not be disclosed, summarized, excerpted from or otherwise publicly
referred to without our prior written consent. Our opinion does not
constitute a recommendation to any stockholder of F&M as to how such
stockholder should vote at the stockholders' meeting held in connection with
the Merger. This opinion does not represent an opinion as to what the value
of F&M Common Stock may be at the Effective Time of the Merger or as to the
prospects of F&M's business or Capital City's business. Notwithstanding the
foregoing, this opinion may be included in the proxy statement to be mailed
to the holders of F&M Common Stock in connection with the Merger, provided
that this opinion will be reproduced in such proxy statement in full, and any
description of or reference to us or our actions, or any summary of the
opinion in such proxy statement, will be in a form reasonably acceptable to
us and our counsel.
Based upon and subject to the foregoing and such other matters, as we
consider relevant, it is our opinion that as of the date hereof, the
Consideration is fair, from a financial point of view, to the stockholders of
F&M.
Very truly yours,
TRIDENT SECURITIES,
a division of McDonald Investments Inc.
TABLE OF CONTENTS
Page
FARMERS AND MERCHANTS BANK
Notes to Financial Statements
Years Ended December 31, 2003 and 2002